Earnings Call: Q2 2020

Jul 29, 2020

Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the conference call. Mr. Leonard Lee, please be a call and I'll be standing by. Thank you. Good morning and good evening, ladies and gentlemen. Welcome to the ASM Pacific Technology twenty twenty Second Quarter Results Announcement Investor Conference Call. Before we proceed, I would like to note that during this conference call, there may be certain forward looking statements with respect to ASM Pacific Technology's business and financial conditions. Such forward looking statements may involve known and unknown uncertainties and risks, which could cause actual results, performance and events to differ materially from those expressed or implied during this conference call. For your reference, the IR presentation related to our twenty twenty second quarter results can be downloaded from our website, www.asmpacific.com. With us this morning are Mr. Robin Ng, CEO of ASM Paxivi Technology and Ms. Patricia Sao Chao, CFO of ASM Paxillary Technology. Robin will start with a brief discussion about our twenty twenty second quarter results followed by a Q and A session. Without further ado, let me hand this over to Robin, please. Thank you, Leonard. It was a challenging 2020 with a global economy's strict economic downturn triggered by the COVID-nineteen pandemic and lockdowns in multiple countries. The net effect dampened shipments to our customers serving the automotive and industrial sectors especially in The U. S. And The Eurozone and also for the CMOS Image Center or CIS market. Nevertheless, I'm pleased to report that we have stayed resilient and able to achieve year on year growth in revenue and profits. Multiple factors such as five gs infrastructure build up, the localization of China semiconductor supply chains and a strong position in advanced packaging were contributing factors driving our first half revenue performance. Overall group bookings for the 2020 were US1.14 billion dollars This is an increase of 7.4% compared to the 2019. Notably, net profit HKD390.8 million grew by 119.2 over the same period last year. Quarterly performance. Second quarter performance was relatively good. For example, all three business segments delivered both Q on Q and year on year revenue growth. Our second quarter billings of US557.4 million dollars came in slightly above the midpoint of our revenue guidance issued at our first quarter twenty twenty results announcement. We also delivered close to the midpoint of our second quarter gross margin guidance given our first given during our first quarter twenty twenty results announcement. Notably our net profit HKD365.4 million in second quarter was a healthy 421.8% increase over the same period last year. Revenue for both semiconductor solutions and material segments recorded double digit year on year growth and while second quarter group bookings decreased 29.4% Q on Q and twenty one point six percent year on year respectively. This was in line with the previous guidance and a reflection of the overall dampened business sentiment due to the COVID-nineteen pandemic. Let me now provide some highlights about our segment performance. First, the Semiconductor Solutions segment. Our second quarterly billing for Semiconductor Solutions was dollars an increase of 43% Q on Q and 33.8% year on year. Strong year on year billings growth was underpinned by advanced packaging, optoelectronics and IC discrete segments. Notably advanced packaging deposition tools for RDL or redistribution layer and copper buildup application from NEXT delivered strong billings growth compared to Q2 twenty nineteen. The ongoing market rent for high performance computing application continues to drive strong performance from our next pieces, while the traditional wire bonders and the die bonders still delivered relatively strong year on year Q2 revenue growth despite a challenging business environment. Six month billings US473.3 million dollars increased by 16.6% while new order bookings of US536.5 million dollars increased by 14.2% versus the 2019. While Q2 segment bookings decreased slightly by 8.1% on a year on year basis, this was due to a confluence of the pandemic and The U. S.-China trade tensions dampening overall business sentiment. Gross margin of 42.9% in this quarter and 42.2% for the 2020 were mainly driven by higher volume effects, positive results from our productivity initiative, a good product mix and continuous cost reduction efforts in our manufacturing operations. On to highlights for our S and Solutions segment. While new order bookings for S and P Solutions of US166.6 million dollars this quarter fell by 38.4 Q o Q and 43.7% year on year respectively, new order bookings for the first half twenty 20 of dollars represented an increase of 13.7% as compared to the last six months of 2019 although still less than the 2019. As expected bookings for SMT Solutions have decreased in the high levels we achieved in the preceding quarter. A 6.9% decrease in six month billings of our SMT Solutions business of US392.6 million dollars year on year and gross margins of 31.3 for the second quarter and 31.8% for the 2020 were impacted by an overall market weakness in automotive and industrial application market and the relatively larger customer base that the group served this year compared to last year. Nevertheless, FMC solutions benefited from the five gs related investment in China in the 2020. Another bright spot in this segment is system in package for SiP which is expected to deliver sustained and long term returns to the group. On to highlights for the Materials segment. This quarter materials segment booking remained at a high level although Q on Q bookings declined by 11.8%. After five consecutive quarters of Q on Q booking growth, an indicator that the demand for semiconductor devices remain healthy. On a year on year basis, our Q2 Materials segment booking rose by 32.7% and the first half booking achieved a record for the Materials segment of US167.3 million dollars registering an improvement of 25.2% versus second half of 2019 and fifty nine point three percent versus 2019. In the second quarter billings of our Materials segment of US74.2 million dollars remained healthy representing increases of 43.2% Q on Q and 28.2% year on year. Materials segment contributed 13.3% to our group billings for the second quarter. Billings of the Materials segment for the six month period amounted to million representing a decrease of 3.2% against the preceding six months, but an increase of 15.6% comparing to the 2019. Gross margins were 16.9 for second quarter and 13.5% for the first half of this year. This segment achieved a healthy profit of PHP58.1 million in the second quarter. This represented a 193.7% year on year increase while the segment profit of Hong Kong dollar US73.9 million dollars for the 2020 represented an increase of 144.4% year on year. Gross margin improvement this year compared to last year for the Materials segment was underpinned by a higher volume effect and the discontinuation of the loss making Moded Interconnect substrate business in the 2020. Taking the Materials business forward, Our material business is healthy and our material segment is consistently among the top global lead frame manufacturers consistently. This is a strong business in tandem with the growth of the global semiconductor market. However, the lead frame business is extremely competitive and requires economies of scale in order to be sustainably successful. We have been closely monitoring lead frame market trends for some years and also industry consolidation announcing market participants. This is why we have reached an agreement to form a strategic joint venture involving our material business segment with key partners. We have undertaken a rigorous process to identify suitable strategic partners to help accelerate the business growth of its material segment. Our partners are Wise Root Capital Limited and Asia IO Capital Management Limited and together with them we will collectively guide the management and development of this strategic joint venture. We expect the strategic joint venture to begin operating by the 2020. In the meantime, our Materials segment will continue its business with the management team, operation, expansion plans and product developments unchanged. When the strategy joint venture begins operation, it will operate as an independent business headquartered in Hong Kong under the auspices of the SGV partners, tracking the deep and complementary network and market experience of Wise Road and Asia IO to help expand and solidify its leadership position in the mid frame market. ASMPT will hold a minority equity interest in strategic joint venture, while our partners will collectively hold a controlling interest to the designated investment thesis. The financial of the SGV will be equity accounted for by the group once the SGV begins operating. I'm confident that the excellent track record, financial strength and the collective attribute to the partners in this strategic joint venture form a very strong and capable foundation to fully actualize the immense potential inherent in the lead frame business. This will in turn benefit all stakeholder in ASMTD's material segment and give our customers the assurance that the needs and the future requirements are well in the process. Let me now give my comments on our business outlook. While we seem to have navigated global economic headwinds relatively well, with the COVID-nineteen pandemic and the ongoing geopolitical tensions, uncertainty remain. The IMF or International Monetary Fund revised their global full year 2020 growth projection downwards during the June 2020 review from minus 3% to minus 4.9%. For the 2020, the track of another wave of COVID-nineteen infections and the continued fallout from the worsening U. S.-China tension will remain major concerns globally. For revenue, we anticipate this to be in the range of US480 dollars to US560 million dollars for Q3 twenty twenty and that takes into account the subdued demand for automotive solutions and weakness in the Eurozone demand. Despite these uncertainties, one thing is clear, the rapid transformation of global workforce and industry norms have added to all trends that point to a future increasingly in need of more digital capabilities and features. This includes increased telecommuting use, a huge test of high performance computing and data centers, five gs infrastructure build up, localization of China's semiconductor supply chain and an increasingly wider and more complex range of requirements for digitally driven capabilities across multiple industries. ASM is well placed to help meet this growing and evolving requirements. Our diverse customer base remains one of the key competitive advantages as we make good progress in capturing new market opportunities in advanced packaging, silicon photonics, industrial Internet of Things, mini and micro LED solutions, power semiconductors and Industry four point zero solutions. We are also preparing our business for the future such as formation of a strategic joint venture to take our business our material business forward. I am confident that we were much stronger even stronger relative to the competition. With that, we are ready to take some Q and A questions. Thank you, sir. We will now move to Q and A session. You. Our first question comes from Donnie Tan from Nomura. Thank you. Thank you, Robin and management for taking my question. I have two questions. First is regarding to your outlook. So despite of you are not providing any booking outlook for third quarter, Just wondering whether if you can guide us the direction of your different businesses. And this is the first question. Thank you. Thank you. Yes, because of the really the uncertainty still remaining in the market. So it's kind of difficult to really give some kind of opportunities, kind of outlook for booking especially. Now if you look back in our trend for many years, typically the trend is that the second half booking will be lower than the first half booking. And that seems to estimate especially for the Semicon Solutions segment. Book for materials kind of being consistent, sometimes higher, sometimes lower, you know. But for SMT, the second half tends also to be lower than the first half in terms of booking. Thank you. And a quick follow-up is on the regarding your first question is your announcement on selling some stakes of your material business because I think Wise Roll Capital was one of important China fund. It used to invest in Nexperia before. So just wondering if you can elaborate more on whether SM Pacific in the future will continue searching for the strategic investor particularly from China. Yeah. I think so far this is the first time in our history whereby, you know, we formed a strategic joint venture with a partner. So at this point in time, we have no plan for any future joint venture with any other party. Thank you. Our next question comes from Kaina Wang from Credit Suisse. Thanks for taking my questions. So I want to have a follow-up question on the divestiture of light material business. So as right now, one of the key benefits is actually to accelerate the growth. I think from my understanding, it's like it actually could like capture like more different customer, diversified customer in the future and especially when we can also pursue the growth in the Chinese the China semiconductor industry, then this divestiture of material business could be one of the advantage. I think and may I know like if there's any future plan for this subsidiary that is working with I mean, any other like business structure that could be changed in the future? And if this is also something that is a direction you are working with the strategic PE investors? This is the first question. Okay. Can I answer your first question? As I mentioned in my opening remarks, we have gone through this very rigorous process to identify suitable joint venture partners for our material business. Now we are very pleased to have found very strong partners in Vicero and in Asia IO. As let me rapidly say just now, Vicero is known in the market, they have acquired an experience And both these companies in our opinion have very deep connections and experience in the semiconductor market in particular in the Chinese semiconductor market. Now as we have mentioned earlier, China is definitely a high growth region also for the lithium semiconductor market. So I think it's a combination of their experience and expertise and their expertise and also financial expertise and also coupled with our experience in managing the lithium operation, I think it's a marriage of strength and I think we are very confident that this marriage of this JV will further enhance the growth of the midstream business in the years to come. Thank you. Our next question comes from Afa Lai from Citigroup. Thank you. Hi. Thank you. Good morning, Robin, and later name, New Benjamin. My I have two questions. One is how long I can, you know, ask for Tommy. Sorry, Arthur. Arthur, we can't really hear you. Sorry, Arthur. Can you speak a little bit closer to the mic? Yes, yes. Sorry, is it better? Yes, yes, yes. So the first question is a follow-up question on the quarter three revenues. How we think of the composition of the semi solution and SMT? We want to know that given this guidance breakdown. Thank you. Yes, I think the main drivers are still there. So we mentioned about five gs. I think five gs related investments are driving demand across both the IC discrete, next as well as SMT segment. So it is a common broad team popping up the demand for the semiconductor market. So that applies as I say across to both segments. Now for the China localization effect definitely is taking hold. So we have been saying that. So the drivers remain the same, actually the same from Q1 going into Q2 and we see these drivers also continue to be there for a period of time. Now for S and T, I think as I said the outlook for Q3 in my statement, right. So we see a weakness in automotive and also in terms of region we see that Europe and America are slowing down. So as a result that tempered our guidance a little bit in terms of revenue guidance for Q3. Understand. And given the Europe and U. S, they have a higher tax rate. And then so how we think of the tax rate going forward? Yes. I think you can see our tax rate this quarter has come down to the much lower level compared to Q1, primarily because of you have been saying if you guys have been following our results, right, so the profit mix between the semi side and the SME side does play a big part. So in terms of determining the overall good tax rate. So for Q2 because of the higher profit generated by the semi segment, we see the tax rate coming down to around 14% and on the first half basis to around 18%. So if this profit mix remains the same going forward, we can expect to see the account of ETR or estimated tax rates for the rest of the quarter. Thank you. Our next question comes from Wu Liu Yang from Everbright. Thank you. Hi, management. I'm Liu Yang, overseas GMP Enterprise from Everbright. I have two questions. The first is, I'm really curious about opportunity for SMT business for next year. Which area of demand will rebound to drive the whole business go up? I think we still believe five gs infrastructure will be a multiyear program and we believe and we are confident that our S and T segment will continue to benefit from this particular segment. Because our superior capability in handling more advanced devices, placing more advanced devices, so in terms of accuracy, in terms of flexibility, in terms of speed as well. So I think five gs will continue to drive it. Now I also mentioned in our announcement that SiP or System in Packages, this demand has been around for a couple of quarters already. We see customers using our SMT tools to assemble devices onto SFP packages. They use they like our tools because of the speed and the accuracy. And most of these devices on modules actually go into consumables like for example the earphones, wireless earphones, they are kind of very popular now among all of us and also smartwatches and so forth. So we see these two demand will continue for a period of time. And of course we are I mean looking at the smartphone market, if the smartphone market starts to pick up in later part of this year hopefully, our SMT segment we believe will also stand to benefit from this demand in smartphone. Yeah. I understand. The second question is more detail. We can see the demand from the base station and the light module have released this year. Will this kind of demand decrease in next year? I hope I got your question correct. I as I said, base five gs infrastructure base station build is, in our opinion, a multiyear driver. So you also continue into 2021. I'm wondering about the equipment in demand. Well, the customer released in end of this year but not next year. This this happened this year? Sorry. Can can you repeat your your question one more time? Sorry. I'm wondering about the customers will build up their capacity in this year of at the end of this year, but not next year. And the the demand from for us is released the most in this year, but not next year when this second time happen. Yes, I think for as I said for five gs, we still believe that is a multiyear driver for the industry. So as long as countries over the world continue to build up their five gs infrastructure, I think the demand will continue for a period of time. Thank you. Our next question comes from Li Ping Hua from CICC. Thank you. Thank you for taking my question. Have three questions. So the first question is, what's your exit strategy for the material business? And how this will you think will benefit the ASMPT shareholder, you know? Because you consider the good track record of the wise road or the the the carve out the ASP and the to the sell I mean, finally, go to the Asia market, which has a very large valuation gap. So how you look because you still keep above 40% stake in this material base. What's your plan for this material basis exit plan? Thank you for the question. Now the reason that we hold a significant presentation, 44.44% of shareholding in the joint venture. It's an indicator with a strong signal that ASMPT is fully committed to this strategic investment and fully committed together with our partners to further grow this investment and bring this SUV to a new heart. So we believe as I mentioned earlier, the lithium market is prime for growth and looking at the past trend, the consolidation trend among the market participants, we believe that it's an opportunity for us get a JV to capitalize in this current macro environment to bring this joint venture to a much higher growth rate if we were to remain as a 100% owned business under the S and P people. So as I've explained earlier, I think the complementary strength of the partner will able to deliver in a superior growth return for both shareholders in this particular joint venture. We just mentioned this joint venture today. Absolutely we have no plan. There's no divestment plan at this point in time. But of course looking at profile of the investors that we have partnered with, they are very strong in terms of financial expertise. So of course we can't rule out that going IPO is one of the routes that we will take eventually. Okay. The second question is about your SMT business' margin. So I mean your SMT business margin keep going down in last few quarters and now roughly it's around, I think, 31%. So what we should model your SMT's business margin in long term? I think you explained in previous quarter, you have the larger exposure in Chinese customer and you are gaining market share, but how we should look this business in terms of margin in long term? No. If you look at the FMC margin, we have been saying that on one hand, we are happy that we have been able to penetrate into the Chinese market in a very sustainable manner. On the other hand, typically this market has a lower margin compared to if it's held to the European and American market. Now this year in particular we see the China mix are much higher than the European and American mix because of the slowdown in Europe and in America. Now if things if the economy in or the demand in Europe and America start to pick up again, the gross margin of the FMC segment also start to improve. So I think primarily it's driven by the geographical mix of this SMT segment. However, of course having said that, we are of course looking into measures and initiatives to continually bring down the cost of the SMT tools. As I mentioned, we have mentioned some quarter facts our Malaysia factory should be fully operational probably in the early part of mid of next year. And if that comes into force, I think we can expect our S and P margin to continue to improve from there. Thank you. We have another following question come from Johnny Pan from Nomura. Thank you, Robin and management for taking my question again. I would like to discuss maybe long term or mid term trend. As you know, advanced packaging has been an important driver for Asia Pacific in the past one to two years. But I'm seeing there is a new trend called chiplet chiplet. And I I also read some of your presentation showing that you have some equipment. It's under on the stage for this kind of chiplet assembly. Just wondering if you could give us some more color on progress and the future market opportunity from this kind of new triplet design ICs in the future. And maybe if it will be better if you could comment on the competition landscape within this new triplet design. Thank you. Yes. You're absolutely right. You know, so you I mean, we we all know about the, you know, the limitations of Moore's law. Right? So I think with the limitation of Moore's law, I think the shift is now towards the advanced packaging. So that's the area that the back end guys like ourselves and the competitors play in this field. Now yes, I think that tremendous growth opportunity for everyone who are participating in this particular arena. Now we're talking about chipset, that is exactly the trend that we are seeing as well. So basically in terms of technical terminology, we call it heterogeneous integration. So basically placing different chips, whether it's memory chips, logic chips, other kind of chips into a package trying to mimic the SoC, the system on chip fabricated at the front end. So instead of fabricating this chip in modem, the GPU and the CPU in one chip in the front end, you know when the trend is moving towards using advanced packaging tools, you know to package individual of these chiplets into a package and try to mimic the function of our SoC. So for that to really materialize, I think the unique advanced packaging tools that for example, we have been advocating that for ASMPT, we believe we are a premier interconnect technology player. So we have a whole range of advanced packaging tools to facilitate this HHI process. For example, we have been advocating, we have very accurate and accurate and very precise pick and case tool called the nucleus. You guys are also now very familiar with our TCB, thermal compression bonding as well. In our announcement we have also mentioned that we believe we have the largest installed base of TCB for CPU applications. And since the acquisition of NEX back in 2018, now we extended another area where we can play in advanced packaging areas and that is for the deposition deposition tools for RBL and for copper beta. We have been also very successful in this particular area, especially for panel deposition tools. So which we have been saying next has been performing very well this year compared to last year. So the landscape is that this we see advanced packaging will continue to grow, but let's be also be a friend advanced packaging as a whole in terms of market size is still smaller than traditional wire bonders, the traditional wire bonders. It's still a small market although growing at a faster rate compared to this particular segment. So in terms of competition landscape, now of course because these tools are highly advanced and highly precise, so there are not many competitors in this particular area. So not many competitors have the technology to enter this space. So the entry barrel is very high for this particular space that we play in. Now typically also from the customer perspective such tools are new tools, so we call it technology buy. So when it comes to technology buy, customers tend to be also very selective. They want to look at the company profile. Does the company have the breadth and the depth in terms of technology and the resources to deliver these advanced packaging tools alongside with the customer. So they tend also to choose a customer with a lot of financial strength and lot of technological resources in order to carry this program through multi year, sometimes it can be a multi year kind of program together with our customers. So in terms of and as a result in terms of competition landscape, there are not many players who can play in this particular area. Got it. And a quick follow-up is on you mentioned about the high precision boundary. So can we assume that besides the new bonders that you are currently under R and D stage, maybe Amiqua can be part of this high precision bonder supplier for the potential new chiplet design ICs in the future? And another small question is that you have talked about SiP gross momentum has been pretty strong this year. So maybe next year also pretty strong driven by premium smartphone company. So could you give us a little bit idea about how much sales contribution is from SiP right now under your SMT business? Thank you. Certainly. Answer your first question first. EMEQRA is also advanced packaging to very precise down to sub micron precision. So we are EMEQRA is is well placed and positioned to benefit from the silicon photonics area. As we all know, right, as we demand more and more faster data, so the bandwidth will keep on increasing. So silicon photonic is not exactly a new technology, but it's a technology that's coming up very strongly because as you know in all this space cost consideration is one factor. So the industry believes that silicon photonics is a much lower cost alternative compared to the conventional photonics. But however it requires very high precision tools in order to do the packaging. So Emica is a premium tool supplier for this particular space. So we are very confident that in the years to come with the growth in terms of data center, growth in terms of telecommunication, bandwidth all this bodes well for the Ambitra business. Now in terms of SiP, yes, I think this growth started four quarters back and it's actually driven by the consumables that the wireless headphones and so forth. So we believe with the five gs phones come from port, I think this also will underpin this particular business for the SMT business. As to your question, don't really review how much is the contribution from the SIT segment for the SMT business. But I can say I can only say that this is one of the fast growing segment within the SMT business. Thank you. Our next question comes from Chris Yang from BoCom. Thank you. Good morning. A few quick questions from my end. The first one is, I was wondering if can give us the update on the LED, maybe revenue contribution and adoption from your customers. And my second question is regarding the mix with them. I saw in your presentation that you're feeling in 2Q grew 100% year on year. I was wondering if you can give us the Q on Q trend this business. My third question is on SMT front. I was wondering if you can tell us what is the geographical mix now for your SMT business, say, for China versus Europe? And also, how big the automobile and industrial business is now to SMP business? Thank you. Let me answer your first question first. Now in terms of mini LED revenue contribution, I think it will continue to increase because we see that the adoption of this mini LED for outdoor and indoor display panel is a multiyear growth driver. However, I must say that for this year because of the COVID-nineteen pandemic situation, the demand for this particular area is kind of subdued, but we strongly believe that once the people overcome this pandemic which one day we will, this the demand for the mini LED will start to increase again. In that case we are starting to see more interest from our customers for mini LED solution in Q2 and hopefully in Q3 this momentum can continue. Now in terms of NEX business, yes indeed, I must say that since we acquired NEX in 2018, last year full year NEX itself based on the historical revenue, we've already achieved a hit record last year. So for this year, if barring any adverse impact that we cannot predict, We strongly believe that this year and next will again surpass the record billing that we set last year. So we can't the trend on the Q on Q trend is not too meaningful at this point in time. Reason why because next business are largely contributed by the panel deposition tools. And for the cloud tool, it's a new tool, very new tool that is introduced in the market only last year. So you can imagine for new tools, the customer base are pretty small. So Q on Q trend for customer business is really not meaningful. So we cannot we don't comment on this Q on Q trend. But on a year on year basis, as I mentioned earlier, we are very confident that on a year on year basis NEX will continue to show improvement over last year. As for the geographical mix for SMT, we don't really disclose the geographical mix in the very granular detail, but I can give you some color. This year China mix larger than years before. So that's the reason why that also impact on gross margin. And one more question is about the automotive and the industrial proportion, I believe overall proportion for the SMT business segment. Although we have been saying that the demand for automotive and industrial has come down, we are speaking in relative terms compared to prior period compared to prior year. I must say that these two segments especially for the automotive segment is still a major segment. So if you look at our the application mix, we have a chart in our IR site. Automotive is still the number the three segment after the mobility, telecommunications and IT segments. So it's not a small segment. It's not a small segment by itself. Thank you, sir. And our next question comes from Tanya Wong from Credit Suisse. Please go ahead. Thanks for taking my question again. I have two questions. So the first one is about the Intel that they are going to also set an analysis for this to TSMC. What do you think about the impact to TSMC, especially in the advanced packaging? Because I think the CPU or HPC is one of the key driver for the GTP as well. So I think I'm not sure if that will be a positive or negative impact in near term and mid to long term. This is the first question. The second question is, Robin, you mentioned about the smartphone side that later this year will also benefit for the five gs smartphone product. So I would like to know about the momentum for DZ smartphone. Despite the overall smartphone market is kind of like weak this year, but these are particular five gs smartphone model that we still try to benefit SMT in 2020. And this momentum, will it continue in the first half next year? To answer your first question first now, the question about Intel outsourcing to TSMC, the outsourcing part is the vehicle side part. So it's an area you probably know we don't really we don't play in the area, we play in advanced packaging area. Now whether it all depends on Intel. We can't really speak for Intel. Also we are not saying Intel is a customer anyway, right? So I'm just commenting in general, okay? So so it all depends on Intel whether, you know, they will, you know, focus more on advanced packaging. So it's something that we connect we really cannot comment on on behalf of Intel. Now in terms of smartphone five gs, yes, I think if smartphone five gs pickup in the later part of this year, I think you will benefit not just SMT but also the IT segment in terms of because think of five gs phone need more devices. They pack more devices into a five phone for better feature, better feature. So as you can imagine, this needs more devices, so the customer will tend to buy more equipment, what we call capacity buy, right? So for example, there'll be more antennas, more filters in the five gs phone. So this bodes well for the entire packaging industry as a whole. So we also believe that we also stand to benefit from the affection side. Now for five gs smartphone, it all depends how the five gs high end smartphones will the demand for the five gs high end smartphones will materialize in the future. It's too early to tell at this point in time. Thank you. And our next question comes from Li Bin Huang from CIC. Please go ahead. Okay. Just one follow-up question. So we see that the foundry customer, if you look at the second quarter result and the third quarter guidance, seems to be most of the foundry are fully utilized now. So can you share some color? So why the foundry customer is so fully utilized, but your second quarter booking guidance is still a double digit decline. So of course, I understand the CIS, you have some weakness on the smartphone customer. How how how is your traditional the the back end or front end customer? Thank you. Yeah. So as I mentioned earlier, I think we look at ASM ASM PT. Right? So in the in the semiconductor solution segment, you know, we basically have a few subunit in there. You know, one is what we call the IC and the discrete. The other one is the optoelectronics. Third is the CIS segment. And fourth, we can broadly classify them as advanced packaging whereby next will be inside there, a new cloud will be inside there as well. Now yes, as I mentioned earlier also our traditional dye and wire bonder also see a pickup terms of the demand in this particular period. So we believe of course we cannot directly associate the loading in the foundry customers, but we believe naturally very intuitively right. So with the foundry customers their utilization is high, optimally all these chips that we manufacture will have to be packaged down the road. So in that sense, I think we will as I said our traditional client also benefited from this trend. However as I mentioned earlier in view of the very uncertain macro economy environment we tend to be a little bit more cautious in terms of how we look at the demand going forward. Thank you. Thank you. And our next questions come from Simon Liu from Bank of America. Please go ahead. Yes. Thank you very much. So, you know, a couple of questions very quickly to double check, you know, management's previous comment. So number one, sorry to ask this, but the second quarter bookings are showing quite significant year on year declines. So could you recap the, this second quarter booking can represent mostly the Q3 revenue trend, or you will be split into the Q3 Q4 so we don't have to worry too much on the Q3 revenue significant decline? And then I will ask the follow-up question. Thank Let me try because we can't really hear you, Simon, very clearly, but let me try to answer and try to answer my question to your I mean, my answer to your question to see whether it's accurate. Now second quarter decline in booking, yes, we guided in Q1 and because we knew because of the pandemic situation, demand from customers will be dampened. And at a point in time we also had some information that customers are getting a bit cautious that's why we started to push up some of the orders Q3 and Q4. And we were right. So we guided double digit decline Q on Q in terms of booking. So our bookings declined by I think close to 29% in Q on Q. Now I think as for your second part of the question, Simon, can you repeat the second part please? We can't really hear you. Yes. My question is second quarter bookings, which declined significantly quarter on quarter and year on year, that really means Q3 billing revenue declined significantly or it will be spread over through the fourth quarter or even early next year? Yes. Now for Q3, we are getting a range of million to US560 million dollars So as compared to Q2 guidance of $500,000,000 to $580,000,000 So in essence, we are just guiding slightly less than Q2 revenue. So Q4 honestly we have been always saying we can't really see beyond one quarter especially in this environment there's really not much visibility at all for Q4. Now I mentioned earlier, the reason why we are guiding that range for Q3 is really due to the uncertain environment and also looking at past trends, typically SMT will tend to be a little bit higher pass trends compared to Q3 compared to Q2. But this time around because of the subdued demand for automotive and also the weakness in the Eurozone, we don't expect to see that for SMT. Yes, yes. So lastly, if the bookings trend remains volatile and uncertain, but this also means maybe quite strong quarter on quarter year on year increase maybe towards the late this year once the auto industry becomes normalized, you know, people buy more LFP people and also all the industrial data points becomes better. There's a chance to see unexpected strong, you know, the booking or order increase trend? Thank you. I think it all depends on a few factors. Think the macroeconomic situation is hopefully can improve. I think then the consumer sentiment should improve. So that will give a boost to the electronics and the semiconductor industry as a whole. Now we're also watching the demand signal for smartphones very carefully. So we are watching whether the end consumer demand for smartphones will it be will it increase when new models are launched probably towards the later part of of Q3 and Q4, typically they will launch all these new phones during that period to catch the season, the effective season buying stream, right? So we're also watching this demand signal very carefully. Now if that happens, I'm sure I'm confident that we will also stand to benefit from a few angles. One is of course our CIS market segment. As I said, this is a weak market relatively weak market segment for SMTP in this first half. So if that picks up if the end consumer sentiment towards smartphone give market pick up, I think that we are cautiously optimistic in the CS market will also continue to move higher from where we are today now. And of course, not forgetting SMT itself. So SMT will also benefit from this pickup in the end consumer demand for smartphones become strong in the later part of this year. Thank you very much. Thank you. And our next follow-up questions come from Tanya Wong from Credit Suisse. Please go ahead. Thanks. I think there's another question about the gross margin. So given we have the revenue guidance for the third quarter, what could we see in terms of quarter gross margin despite you mentioned about a geographic impact and also some uncertainty. But what do you think about because you also have some expectation in terms of the mix? And can we like maintain or like at least yes, I mean at least maintain this kind of gross margin or like in terms of year over year, what do you see the changes in terms of their next impact? I think because of the weakness in automotive as you are aware, automotive tends to be a higher margin business across the board, especially for SMT. And because of this weakness and also the weakness in The Eurozone in America affecting our SMT, we believe the margin for SMT will continue to be won't continue to increase. We believe overall because of the lower guidance in terms of revenue range, if the revenue come in lower than Q2, we believe our margin will also have to be moderated from Q2 downwards because margins are also very much dependent on top line as well. Thanks. Thank you. And our next question comes from Marco Lin from Citi. Please go ahead. Hi. I'm trying to ask just to clarify what are the percentage of our investment in the new JV partner? Percentage at the start of the JV would be 44.44%. That's our shareholding percentage and the other percentage of course belong to the two other JV partners. However, as we have read in our prepared in our announcement, right, we have this earn out mechanism. So depending on how we perform in terms of I mean how the JD perform in terms of EBIT values. If you perform beyond a certain threshold, can if our percentage can either your percentage can increase from 44.4% to around 49% just below 50%. Likewise if the JV does not meet those EBIT targets it can also come down to around 37.5. So however I think we are very confident based on the performance of the material business in the last few years. And if you look at our this year performance for the material segment I think of all the three segments, material segment is performed in terms of metrics very well. So we are very confident that this JV performance will continue to grow and surpass this year performance in the future. So just to clarify, so currently it is not consolidated, but if in the future you would like to like increase your shareholding in the JV, it might be consolidated to the EBIT perspective? No, no, no. That's why the maximum shareholding that we can go up to based on the earn out mechanism is 49%. So at 49% we still be not subsidiary, we will still be consolidated and still be account the financial of the JV will still be accounted equity accounted for. So it's just one line. When we talk about equity accounting, it's just one line accounting for the our share of the PAT of the JV in our group financials. Got it. Same question, just a reminder of what's the percentage of the AT and CIS in the semi business? Sorry, can you repeat the question? Like in the last quarter, you mentioned Advantage package and CIS are account for half of your semi business. And is that still in the first half or in the second quarter? Yes. I think we tend to want to look at it more meaningfully from the first half basis. So together with CES, are to 50% of our semi solution business. Thank you. Thank you. And our next question comes from Mr. Simon Lu from Bank of America. Please go ahead. Yes. Sorry again. We have very quick question again. Regarding the automotive area, the order weakness, could you recap which machine is now suffering? And then when this can maybe show some recovery because auto industry has been showing quite long period, you know, the the struggling. But it is a time to see some recovery with electric vehicle and the auto OEM promotion. So could you recap which SMT machine that's offering regarding the automotive and the European zone area? Thank you. Yeah. I think for automotive not just the SMT machine we are supplying to the automotive segment, but also the semiconductor ICT segment we are also supplying tools for the automotive segment, especially for those power packages as you can imagine, right, cars need a lot of power to drive the powertrain. So a lot of these power packages require different tools to package them. So we are also in for the semi solution side we also provide tools for the automotive segment. Of course, SMT automotive to the SMT the automotive market is of course a very dominant market for SMT. So we have been saying that we believe in terms of the automotive segment SMT placement tools, the placement tool for the component onto the TCP board, we are the premier company supplying this placement tools for the automotive segment because most of these automotive demand actually originate or come from the European and the American region. And that's where we are very strong in those areas. Yes. However, let's look at the world of European auto OEMs strategy. They are significantly shifting from the traditional ICE car platform to the more hybrid and electric vehicles. In that case, these auto OEM customers, they need new, you know, the chip launcher and also the new the older the packaging solution because of the, you know, their platform chips to more and more electric vehicle then the maybe why not the ASMCC can benefit from this or it's not much relevant? Thank you. I think certainly, I think talking about EV market now, EV market is still relatively small segment compared to the diesel power, I mean the engine powered automotive market. So the conventional power engine market for automotive. So although the electronic content for EV or hybrid vehicles are higher compared to the conventional automotive, but it cannot make up for the drop in demand for the overall car market. That's why automotive market this year is down compared to prior year. Now in terms of the type of tools, certainly, if the package requirement for asset placement tools for all markets including automotive. SMT or SMT will stand to benefit because we are known for our technological capabilities in terms of placement, in terms of accuracy and also in terms of flexibility of flexibility in the production line. So we will find the benefit if that happens. But let me also say something for the automotive market. The once you are supplying to automotive market, they don't change the requirement very often. You know, so once you are in the automotive automotive market, buy off certain specs of your of your tools. They will tend to use these tools for a long period of time, you know, because they want stability, they want quality, they don't too many changes in the design. So once they're in, you're in for a long haul. So that's the advantage. So being a number one supplier to the automotive market, we tend to be in a very entrenched position supplying to the industry for a long period of time. Okay. Thank you very much. Very clear. Thank you. Once again, it's star one to register for question. Thank you. I know that it seems to be no further question at this point in time. Thank you. Leonard, there seems to be no further question at this point. Sure. Yes. Well, in that case, I think we have a very good discussion this morning. We have covered a lot of ground, different areas. In the interest of time, I'm afraid we would have to conclude the call. So thank you all for joining us today, and we'll talk to you again next time. Goodbye. Thank you. Thank you everyone. This concludes your conference. Thank you. You. Goodbye. Bye bye.