Earnings Call: Q2 2019

Jul 24, 2019

Good morning and good evening, ladies and gentlemen. Welcome to the ASM Pacific Technology twenty nineteen 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 Technologies 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 reference, the IR presentation related to our Q2 results can be downloaded from our website, www.asmpixivic.com. With us this morning are Mr. W. K. Lee, CEO of ASM Pixivic Technology and Mr. Robin Ng, CFO of ASM Pixivi Technology. We will start with a brief discussion about our twenty nineteen Q2 results followed by a Q and A session. Without further ado, let me hand this over to Mr. W. K. Lee. Mr. Lee, please. Thank you, Leonard. Good morning and good evening, ladies and gentlemen. We appreciate you are joining us for our twenty nineteen second quarter investor conference call today. I will first provide you with the summary of the company's performance followed by the Q and A section. During the period, group bookings increased by 13.8% quarter on quarter to US602 million dollars Group revenue experienced a small Q on Q decline of 1.2% to US461 million dollars The group ended the period with strong backlog of US795 million dollars slightly lower than the record backlog of US809 million dollars as of end Q2 twenty eighteen. All three of our business segments achieved Q on Q booking growth during Q2. Bookings of our SMT Solutions segment surged 54.4 to a year record of US296 million dollars SMT Solutions segment's bookings were driven by automotive, industrial, consumer electronics and five gs infrastructure demand. The group benefited from the five gs infrastructure investments and a strong SMD equipment market in China during the first half of this year. In the second quarter, new order bookings of the Materials segment grew 28.5% Q on Q. Bookings of the Materials segment increased consecutively over the past two quarters. Signalling, the semiconductor market may have reached the bottom and start to recover. However, we anticipate that the semiconductor industry is still facing strong headwinds due to the trade tensions and economic uncertainties. During the period, bookings of our back end equipment segment rebounded by 10.9% Q on Q, driven mainly by the strong bookings from the CIS market. Demand for traditional flat and wide bonders for the IC discrete and LED markets remained great. Billings of our back end equipment segment increased to 5.2% during Q2. Besides of the strong momentum from CIS, advanced packaging contributed close to 30% to the revenue of the back end equipment segment during the first six months of this year. Strong demand for ASM mix, advanced packaging deposition tools for RDL with distribution media and couple of build up applications continued from Q4 twenty eighteen into the 2019. A significant portion of this order backlog is expected to be realized as revenue in the 2019. Billings of our automatic inspection equipment AOI for the 2019 more than doubled the billings in 2018. The equipment is deployed for the detection of particles and bonding quality in camera modules and automotive devices. The materials segment continuing on its path of recovery. During the second quarter, billings of the Materials segment increased 13.2% Q on Q to US57 million dollars affected by a 10.3% Q on Q drop of the revenue of the SMT Solutions segment, group billings suffered a small reduction of 1.2% compared to Q1 this year. The drop of the SMT Solutions revenue was due to lower bookings received in Q1 this year. During the six months period, billings of the SMT Solutions segment were US418 million dollars a small reduction of 3% comparing to the same period last year. Our strategies of serving a diversified acquisition market and investing in advanced packaging has enabled us to possibly mitigate the likely impact brought by the single U. S. Trade war. In the second quarter of this year, gross margin for the group improved by 185 basis points Q on Q to 35.7%. All the three business segments achieved the Q on Q improvement in gross margin. Headcount of the group was reduced by around 2,400 people over the past twelve months, mainly from manufacturing. Group OpEx was reduced by 5.6% year on year. Excluding the acquisition made during the second half of last year, group OpEx would have been reduced by 14.5% year on year on an apple to apple comparison. Group net profit was HKD70 million, which would have increased by 10.3% Q on Q if the under provision of tax of HKD49 million booked in Q2 twenty nineteen was excluded. While we remain cautious of the short term strategy of the semiconductor industry, we are optimistic of its long term future. Accordingly, we remain steadfast in our R and D incumbent and are focused on new developments that are geared towards meeting the needs of our customers in areas like advanced packaging, CMOS imaging sensors, five gs, IoT, automotive, silicon photonics and mini micro LED displays to name a few. Against the above backdrop, we are anticipating the group revenue in Q3 twenty nineteen to be in the region of US550 million to US600 million dollars subject to actual timing of revenue recognition. All the three business segments are anticipated to deliver Q on Q revenue growth. With the uncertainties in the global economy and the semiconductor industry, we do not expect the year record bookings achieved by our SMT Solutions segment in Q2 this year can be repeated in Q3. Therefore, we anticipate good bookings in Q3 to come down on the level of Q2 due to seasonality. Bookings for back end equipment and materials segment are likely to continue to show Q on Q improvement. Due to the geographical mix of SMT solutions revenue in the next few months, we only expect Q3 gross margin to improve slightly despite higher Q3 revenue. With this, we thank you for your attention and we are ready to take your questions. Thank you, sir. We will now poll for questions. Our first question comes from Donnie Tan from Nomura in Hong Kong. My first question is regarding to the bookings. So could you elaborate more on the third quarter booking momentum within the back end segment, for example, IC Discrete, FP and CIS? And also, I'm curious about the strong SMT booking in the second quarter because there was some Huawei issue in the second quarter. So could you elaborate more on how far would this related business to have impact on S and P business? And why we can still maintain very high bookings in second quarter? And my second question is regarding to backlog. So our backlog has been pretty high as you mentioned in the presentation. Is there any customer postpone their payment during the down cycle? Thank you. Thank you. Regarding the booking momentum for BQ, I would say the industry overall still have a lot of uncertainty. Judging from the momentum, we believe for the our material segment, the lead frames, our booking will continue to go up. We see this probably the trend is much more obvious. First, coming to the semiconductor back end equipment, we still see the trade war has certain impact on our customers, affecting our customers' confidence of investment. So as I mentioned earlier before earlier, bookings or demand for the traditional DIY bonders for the IC discrete or LED remain weak at this point in time. So however, when you at the CIS, typically in the past, most of the booking for our CIS business will come in, in the first two quarters of the year. This year, we see there has been a delay by approximately a quarter. So Q1 CIS booking was not as strong as the last few years, but Q2 booking for CIS was pretty strong. And we noticed that this momentum seems to be continuing in Q3. So we believe Q3 will still see quite strong booking momentum for CIS. But however, we do not foresee a very significant pickup for the booking of traditional diamond light bonder. Whereas for the demand for this advanced packaging, we see the momentum continue. However, because this is still in the early stage of industry development, so it would depend on the timing of the projects for particular specific customers. So it may affect the actual booking coming in timing of actual booking coming in. Whereas for the S and P, very interestingly, the strong booking also took us by surprise. When we carefully examined the market momentum, we noticed that actually China market was pretty strong. When we say China market is not only for S and P T, but probably for our peers also. From the market statistic data available to ASMPT, we see the European market is pretty flat, stable, I would say, Same as for the American market, whereas the Asian market, especially the China market, really shows a very strong momentum of market pickup for the past few months. Five gs infrastructure investment is definitely one of the factor. But besides of that, we also see demand from a very diversified industry application, ranging from automotive, industrial electronics, consumer applications are all good. So however, typically, Q3 is a quarter the European market will be quiet because of this holiday season, this vacation season. So that's why we do not expect we are able to repeat that momentum. Yes, the market has a lot talking about the Huawei, all this. However, from the our actual business activities, I will say the direct impact on S and P is fairly limited so far. Probably on the other way, Wang, we're seeing some urgent rush swap orders in Q2 for the semiconductor and equipment. And we believe it could be from these suppliers to Huawei because they are localizing their supply chain. The backlog, it has been a very high backlog for us. And so far, no customer really postponed payment to us due to this industry climate, we do face a little bit customers pushing back or holding back their delivery. But that actually has been, I would say, happening since the trade war started a year ago, but this is not serious today. The high backlog partly due to the timing of the delivery and the timing of the revenue recognition, We expect that lot to come down by end of Q3. Our next question comes from Kenneth Wong from Credit Suisse in Hong Kong. So I have a question about the gross margin because we see that the Advanced Packaging actually account for like 20% of back end sales in first half. But so far, the first half back end gross margin seems like it hasn't really benefit from this kind of a mix increase somewhat maybe due to the other segment that face more challenge. Can we read it from this? This is the first question. Okay. Well, thank you. Well, the gross margin for the back end equipment in the first half or in Q2 mainly affected by the very low volume of shipment and also the low production activity. So these are the major factor for that. Yes, you are right. Gross margin for advanced packaging actually are, I would say, not bad. And overall, actually, the gross margin of we call this the materials margin for all those back end equipment sold in the first half of this year, pretty okay. But however, because of this plant utilization, absorption of overhead, production overhead, so this dragged down the gross margin. So we believe when the sales activity recovered to a high level, our gross margin for the brand equipment will show a much better performance. Okay. But actually, you have like increasing more flexibility strategy in these manufacturing, like taking balance between the in house and also outsourcing. But it seems like the deleveraging is still pretty high in these cases. And how do you how would you improve this kind of situation? And what can we expect the productions utilizations in the coming few quarters? I mean this year, you face a lot of challenge in terms of manufacturing allocation, right? Yes. I will say, if you're looking at billing for this for the first half of the year or particularly for Q2, actually, the back end equipment really naturally suffered 30.3% year on year on a year on year basis, the contraction on a year on year basis. And if we exclude the acquisition we made in the second half of last year, actually, can see that the contraction will be even higher. So actually, this is the major factor affecting us. However, when you compare the gross margin, last year Q2 last year, we achieved a very good gross margin of slightly above 50% for the Branded Equipment business. And this year, we Q2 this year is slightly about 40%. So I would say, considering comparing with all the bad debt acquisition, there's a 140% drop of this bad debt equipment business. However, our gross margin only deteriorated by around 10%. So comparing to the years before, actually, the strategy has worked for us. So it significantly reduced the volatility of this gross margin due to this fluctuation in this sales volume. But of course, we continue to work on it. So that's why we also continue to work on reducing our manufacturing headcount and also continue driving cost reduction effort. So we hope to achieve an even smaller gross margin fluctuation in the next cycle business fluctuation. And then I have a question back to the backlog that Donnie asked about. So this high backlog, personally, you mentioned advanced packaging, that backlog will be right, fulfilling the second half. So we could expect the backlog level should like that to a more normalized in the second half or like not only the advanced packaging, but the other back end or like FMS key that's stuck in there and then properly because of customer pushing out the delivery. So what should we expect from this backlog because it may not really convert to your sales? It won't divert immediately 100% to our sales in Q3. However, for the second part of it will convert to billing in Q3. For the advanced packaging, majority will be converted into billing or realized as a billing for in the second half. A certain portion based on today's expectation, we will only be able to deliver towards end Q3, beginning of Q4. So from a revenue recognition point of view, it could be in the first quarter of next year. So there's a smaller portion of it. Next, for the SMT, because last quarter was a very strong book. So we still have to deliver those machines in Q3 and then recognize those revenue. So the revenue recognition for those big orders not big orders, strong orders in Q2 will be recognized partially in Q3 and partially in Q4. So I would say by end of the year, I think the overall backlog level will come back to a more normal level. Okay. Thank you. Sorry. Our next question comes from Afong Lai from Citigroup in Hong Kong. Thank you. Hi. Thank you for taking my question. I have three questions. Number one is on the advanced packaging. I think TSMC, they have an in call last week and they raised the CapEx to billion dollars to $11,000,000,000 especially on the increasing seven nanometer and five nanometer. So WK, can you elaborate more about this your amnica and nexus, how they benefit from this rate CapEx? This is my first question. Second one, I noticed that this quarter, tax rate was extremely high at 62% and last quarter four gs. And I think recent three years, average tax rate is about 20%. So I suspect that because SMT business mainly made in Europe? And can you elaborate more about your production of the SMT between Europe and also Asia? And how we expect this migration to Asia? And third one is more about the gross margin. If we look back the recent semi cycle, for example, 02/2009, last quarter first quarter gross margin up from 21% to 36%. And then the second cycle in 2012 is up to also 5% to 6% increase. So my question is, why this time when we reach the trough and your gross margin forecast is flat or slightly down? This is my third question. Thank you. Well, for the first question on this advanced packaging, in particular relating to the customer demand. As you know, we can't comment on specific customers' activities. But in general, when the industry are moving to final look geometries, advanced packaging assembly will, in general, benefit because you need more a new method in way of assembling the chips. Light bond definitely the light bond is definitely out of the question. Even for traditional feature bonding, we will have a certain limitation over there. So that's why typically for those applications, customers are looking for either TCP solution or a fan out solution. So in general, that will benefit supplier. We will be able to supply those advanced packaging to PIMAN, okay? Now for the other questions on the tax and also the gross margin, I'll let Bobby to elaborate on that. Now Arthur, on the tax rate, you're right. The pretax is for Q2 is around 62 percent, but you mentioned that there is this under provision onetime tax that we had to make of HKD49.3 million. So if you exclude that onetime, the headline tax rate will come down to around 36%. Yes, that's still high. That's because of the relatively higher profit mix from the SMT. As you know, our SMT tax rate now are taxed higher than the PACK, so mainly due to the profit mix for the tax. The gross margin? So I think for gross margin, talking about why Q3 still relatively low in terms of projection, think Mr. Lee has already mentioned, of we can see that the geographical mix of SMT in the coming quarter, so that will also affect the SMT gross margin. So as a result, in a blended fashion, we expect Q3 gross margin to improve slightly despite the higher forecasted revenue in Q3. Yes. I think that's a second one. If the revenue that comes from earlier, particularly for advanced packaging, then the overall gross margin should improve further, okay? But at this point in time, we take a more conservative approach looking at the revenue recognition. So then this geographic mix of the SME business will have an effect on the good gross margin. Yes. Thank you. I will bear in queue. Yes. Thank you. Thank you. Okay. We have another following question come from offline. Thank you. Sorry, so quick. So, WK, can I also ask you more question on advanced packaging? I think this is quite important. Can you compare the lead time between the traditional again, business with the advanced packaging? Is the lead time significantly higher? That's my first question. And then secondly, yes, I understand we cannot mention the client name. But I think last time we visited the Semicon Shanghai and we saw a new car machine and we think that's quite leading in like the, you say, the final geometry to get price. So can you share with us the competitiveness you have in this area and how you will be bear fruit in 2020? Yes, that's my two questions. Thank you. Thank you. Well, for the lead time the lead time for this advanced packaging equipment, it really depends. It will be not too long for the PCB bonders. But when it comes to those acquisition equipment from the AtomLeaks business we acquired during the fourth quarter of last year, it will take a longer time and also will take a longer time for the delivery and installation. So that's why it will take us also a little bit longer time to have the revenue recognition. So for the Amica, Amica, we have a very strong leading position in those products Amica is offering to our customer. However, they mainly share the silicon photonics market For the high precision placement market relating to the advanced packaging, we most serve the products from our Hong Kong operations. We do some very high precision pick and paste machine and also the thermal compression bond. On the silicon photonics, actually, the booking for the last quarter was pretty strong. And actually, we are expecting this strong momentum to be continued into the second half of this year. So we see probably customers are really gearing up for the five gs. So the investment in data center are really increasing to prepare for a much, I would say, larger amount of data to be transferred, to be handled, to be stored in those data centers. So we are seeing the good momentum there, and we have a good market position in those areas. Our next question comes from Lin Lu from Goldman Sachs. Yes. I have two quick questions. The first one is on the five gs infrastructure that you mentioned driving strong bookings for S and P segment in second quarter. Could you share with us how do you expect the trend to play out in next few quarters? Will it still be continue to be strong or so? And second question is regarding the five gs smartphone. When do you expect that five gs smartphone related SMT demand will start to be more significant? So on your first question, on the five gs infrastructure, well, we see the momentum continue. We are expecting some orders in Q3. However, how many quarter it will last, I think we probably won't be able to answer this question directly. It really depends on customers' their own plan and also the pace of rolling out the five gs infrastructure also beyond China. So we are closely watching that. However, we believe five gs will the trend. And finally, I would say, very large part of the world will be covered by five gs. So we are very optimistic about this opportunity going forward. Now for the five gs smartphone, we can't be 100% sure at this point in time, but we touching from the five gs infrastructure build up, we believe it's coming. We do have orders for our SMT equipment in the second quarter relating to smartphones, but we are not able to be sure 100% is five gs smartphone related. Our next question comes from Kenneth Wong from Credit Suisse. I have a question on the cash flow. So maybe this question to Robin actually. So we have, I see, two legged quarter in terms of the weakening profit, etcetera. So what kind of like cash flow position by end of the first half? I mean do you see any need for other like facility and also or other means of like the capital raising, etcetera? Ken, now cash flow, ironically, the downturn, typically, our free cash flow turned out to be better. That's also happened in the first half of this year, principally because we buy less materials. So that helps in terms of generating more free cash flow. Now at this point, we are sufficient. As you are aware, in March year, we redeemed our convertible bond. We've now we've syndicated loans and we've got bank with a consortium of banks to finance the CV. So we are sufficient at this point in time. We don't see the need to raise further capital in the near future. Our next question comes from Chris Yan from of BoCom. Thank you. Chris, please go ahead. Sorry. Morning. Thanks for taking my question. I have a few follow-up. The first one is regarding five gs again. For five gs infrastructure driving SMT business, is it because SM five gs require higher SMT precision so that you're seeing a five gs driven upgrade? Or is it just because of capacity expansion? That's the first question. Second question is related to your again, your advanced packaging business. You highlighted that your advanced packaging are now account for more than 20% of your back end business. But your back end business in the first half is down by around 30%. So can you talk about how the overall growth is looking? And also, you mentioned there are some new projects that you're waiting for your customer to ramp. Without talking specifically about your customers, can you give us more color on what type of projects, what type of solutions perhaps and what type of tools you'll ship into these customers when they do ramp up? Well, on your first question on the five gs infrastructure, well, we believe actually to our customer probably is for upgrade as well as capacity expansion. Typically, in the SMP business, customer will buy the latest generation of SMD equipment for their new projects and then took that opportunity to retire some old equipment. So this is happening in our opinion. Certainly, the five gs infrastructure also need a better accuracy equipment. And also, we expect the five gs smartphone will need a better accuracy equipment. So from that perspective, we are pretty, I would say, optimistic about the near- to long term future of the SMT business. Whereas for the regarding the tools for the advanced packaging, at this point in time, mainly focusing on a few areas, the TCP. TCP is one of it. We have delivered a significant quantity of TCP bond during the first half of this year. Then the other area is that relating to this fan out. So both this wafer level fan out and this panel level fan out applications. So these fan out applications typically we supply customers with the acquisition equipment from this our ASMX business in USA as well as the pick and fix, very high accuracy pick and fix equipment mainly from our Hong Kong operations. So these are the two areas. So we for the acquisition tools, there are significant backlog on hand. So this as we mentioned earlier, a large portion of this backlog will be realized as revenue in the second half of this year and a smaller portion of it will take place in the first quarter of next year. So and besides of these two equipment and the acquisition tools and also the pick and place, the other tool for this advanced packaging, it will be the laser, singulation, separation tools from our operation in The Netherlands. So these are typically the major tools we deliver to customer for advanced packaging. And also, year, this wafer level PIC test and PAT equipment, this sunblock is also another important business for us relating to the RF filter applications. Our next question comes from Flora Lai from Hengsheng Bank. I was thinking about the strategy of the group. I was known to that your group is taking an organic growth, at the same time, doing a lot of measure in acquisitions, just like the one of last year. So may I know if your group is looking for any merger and acquisitions deals in the coming months or like next year? If you are really thinking for merger and acquisition deals on hand, would it be related to back end equipment or like or the SMT solutions? Yes. Thank you for your questions. We actually, we continuously, I would say, looking for new opportunities. But as of this point of time, there's nothing, I would say, concrete that we can share with you. We actually, if you refer to our presentations, we also mentioned about our investment in this inspection business. Actually, besides our acquisition, M and A, last year, we also made an investment in a start up in Silicon Valley. They are developing and also producing a very high speed X-ray inspection machine for advanced packaging. In the past, typically, customer used X-ray as a tool, offline tool to sampling check the quality of their production because the speed of those X-ray are not fast enough. But this is a start up in Silicon Valley. They have a technology. They believe it will be 100 at least 100x faster than the traditional X-ray machine and make online inspection possible. So we are very interested in the technology, and we invested in this company. So this company also started to deliver first machine to the end customer. So I would say going forward, our strategy is not only limited to M and A. We also want to make this kind of strategic investment in technology companies that we think will be relevant to our business in the future. So we are pretty open at this point of time. But as I mentioned, at this point of time, nothing concrete that we should be sharing with the public. Our next question comes from Simon Wu from Bank of America. First question is regarding your top line growth year on year basis. So which quarter should be the first time we can see again the year on year growth? Because so far, every quarter revenue is showing year on year decline. So maybe should we assume that maybe fourth quarter should be the first time to see the year on year increase? If so, which application can be the catalyst more SMT related or more the bag and the area related? Yes. Thank you for your question. Yes, unfortunately, for the last few quarters, there's always a year on year job. It's partly also because twenty seventeen and also the 2018 has been a very strong contrast for us in terms of billings. However, if you're looking at our guidance in the billing for Q3, I will say probably Q3 twenty nineteen billing will be not that far away from the level of a year ago. Touching on today's momentum, we hope to achieve a year on year growth in billing by Q4, as you said. However, in our opinion, it's still subject to a lot of factors, external factors that are probably beyond our control. And I think today, biggest uncertainty is still the trade war. If there's any new development that affect our customers' confidence, I think that will still devalue the path of recovery of the semiconductor industry we are seeing today. So that's the main the biggest concern. Assuming that is not going to happen, that's not going to suddenly have a big negative impact on the semiconductor industry, I would say it would be a fair assumption to say to see, to assume that by Q4 this year, we will see we should be able to deliver a year on year growth in our group revenue. You mean the this coming December? Yes, yes, yes. I see. And then lastly, sir, regarding your shareholder return policy, because the first six months of twenty nineteen, EPS number already below the $1 versus a year ago, 3.6 range. So any idea what to expect regarding the interim cash dividend for 2019 and then maybe second half? Thank you. Yes. The Board has resolved to give interim dividend of $1.3 So despite our earnings per share EPS is so low, but we are confident about our business, our profitability capability. So that's why we stick to our dividend policy of a sustainable and gradually increasing dividend policy. So we are matching the same dividend payout last year, 1.3 for the first half. The second half of last year, it was $1.4 So if we are continuing to be able to hold on to this dividend policy, you should be able to assume or expect final dividend will be at a similar level for the second half of this year. Our next question comes from Allen Deng from Quira. I think that my question has been asked already. You. Thank you, Alan. We have another following question comes from Afong Lai from Citigroup. Thank you. Hi, WK. So my question is on advanced packaging. So I recall two quarters ago, you mentioned that advanced packaging already made up 10% of the back end revenue. And then you also mentioned this time you see a backlog in the end of this year or probably into the first quarter of next year. Can you share with us right now the advanced packaging in the second half already can achieve the 10% or even higher of the total FGN revenue? Thank you. Yes. Thank you. Well, I think we are pretty confident on full year level, it was definitely higher than 10%. And for the first half of this year, it was close to 20%. It was below 20%, but close to. We based on today's momentum, unless there is a sudden, a very strong ramp up for the demand for a time line wonder. Otherwise, based on the current momentum, I think the overall picture will be the same, probably about the 10% level, but maybe not too far away from the 20% level of brand equipment business for the whole year. Next question comes from Keana Wang from Credit Suisse. Hi, Stephanie. Just a follow-up question on the overall OpEx trend because we see the OpEx of the sales increase in the second quarter with some of the other reasons. But in the second half, should we look at the level of OpEx? And as you also increase the R and D to like 12.9% of equipment sales, so should we maintain this level? Or like going forward, you still expect around 10 of the equipment sales? Well, actually, the I would say, a longer term perspective, we should continue to expect 10%. So it's gone up to 12 something percent during the second quarter or the first half. It's mainly because of the sales revenue has come down, okay? The group actually has done a lot of things to control our OpEx. As I mentioned earlier, if we are comparing on an apple to apple basis, actually, it was more than it was around 14% year on year reduction. So we are doing our best to control it, and we expect to do even more. However, the OpEx will go up slightly in the second half due to also, in general, there will be salary review across the board in the middle of the year. So this will slightly increase our OpEx. But however, we try to offset this effect as much as possible by having more prudent cost control efforts across the board. The quarter on quarter increase of OpEx are mainly relating to the expenses relating to the share incentive because we typically will grant the shares to the our employees by the Board at the March. So the expenses related to this will be started to book in by then. So that's why compared, I think, the two quarters, you will see a small increase, a single digit percentage increase in this OpEx. Our next question comes from Winnie Tao from Gera. I got two questions. The first one is, if you take out the threshold from the big client For the rest of our clients, compared with two to three months ago, do we see the momentum of the booking improving? That's my first question. Well, I maybe I should clarify. In the Q2, we don't really have a single order coming from one big client. Actually, this total base is pretty diversified. So you can see on a billing basis, actually, the top five customer only account for 150% of our group billing. So we do not have one big customer giving us a big order, so unlike those time in 2014, 2017. Okay. Then the second question is, given that we mentioned some of the five gs related project in SMT, that helps in the second quarter. So if you take out the five gs related SMT, do you feel for the rest of the year, you could actually see the first quarter to be better than third quarter in terms of the booking and just as what we mentioned three months ago? Well, regarding the booking trend in both of us, I would say it's really a bit too early for B2B date at this point in time. So there are two factors affecting it. One is typically when it comes to year end, the market will be shorter. On the other hand, the trade war continue to be affected. I don't think the trade war has been resolved. Hopefully, after the U. S. Administration's meeting in order of major tech CEOs in USA, there will be a change in this policy regarding the ban on Huawei. If that is the case, I think it will help to boost up the demand for semiconductors and semiconductor equipment in general. Otherwise, I will say, if it turns the other way around, so it will continue to affect the confidence or investment of our customers. So if looking at Q2, what we can see is that the customers in China are comparatively more optimistic than customer outside China. I think probably we can understand the rationale behind for our customers in China. They believe more semiconductors will be produced or will be in sourced within China. Whereas for our customers outside China, they really want to watch what is the development of the trade war, how this will affect their business. China is still a large market for all the semiconductor companies in the world. So I think this uncertainty will continue to pass a bow on the future of the business. And it makes us difficult to make any, I would say, sensible forecast of our Q4 booking at this point in time. Got it. Thank you. Thank you, Winnie. Our next question comes from Jess Hui from Morgan Stanley, Taiwan. This is Charlie Chan. So yes, I just want to follow-up that five gs infrastructure SMT question. Can you elaborate a little bit what kind of infrastructure demand you are seeing? Is that more like base station or those core networking, optical networking products? Can you elaborate what are those kind of product need more SMP machine? And also my question is really about that five gs infrastructure development has been in discussion for maybe two years. And you also see that China Mobile, China Unicom, China Telecom all gave their CapEx already maybe half a year ago. Why there is a sudden acceleration of the demand of SMT? Can you give us some thoughts on that development? Thanks. For the five gs infrastructure, well, to be honest, we are not that familiar with the details of those applications. However, we can tell you that base station definitely is one of it. Certain server applications are the other area. Now for the five gs, actually, for the last two years, we do have some orders five gs related, but it was a small quantity. Our observation is that customers are building some, I would say, testing the rollout of five gs in certain areas. So if we read back on the news, we know in China, so they have built up a certain number of five gs coverage in selected cities, selected area. However, this year, we start to see customers are ordering more equipment from the lumber SMT lines they order. So we can see, we can believe there will be a massive rollout on a much, much wider coverage. So basically, what we see, and as I mentioned earlier, see the discussions not only for those orders we have already received in Q2, but we are still discussing some of the orders to be closed in Q3 this year. So I think probably because China has tested the five to a certain extent and start to feel they are comfortable with their technology. Our customer comfortable with their technology and start to prepare for this massive rollout. So well, we hope that is the case and also depends on the five gs smartphone. So if the five gs smartphone also generate a new consumer experience, that probably will be a positive reinforcement of the further increase of the five gs infrastructure demand. So yes, thanks for your explanation. So my question is more about yes, because I perceive that from four gs to five gs is kind of a migration, right? It sounds like you all can upgrade to triple can you can you need more those active alignments or SMT machine. I mean from four gs migration to five gs, you can still use original four gs base station SMT lines to produce the five gs base station, why there is a kind of increase of SMT demand? You see kind of incremental SMT demand meaning comparing doing a four gs base station assembly versus five gs? Do you see that difference? Yes. Well, according to our customer, they explained to us is that because of the differences in the wavelength between five gs and four gs, the coverage of a base station, a five gs base station is roughly only onethree of the coverage of the four gs base station. So in order to cover the same area, the customer told us they use a room from lumber 10 times because of square feet the square feet is nice, so they use a rough number telling us that roughly, in order to have the same coverage, you need 10 times the base station compared to four gs. So the demand for these semiconductors, the demand for this SMT actually will increase. Okay. Thanks. Yes, interesting because typically we see we should see a broad revision of operators' CapEx before we see more demand for hardware, but I guess we'll see. But my next question is about your CIS demand is also improving, right? And I think we all know that Huawei's overseas smartphone demand is impacted by restriction in using Google mobile service and this should impact always the high end smartphone demand and that is a major source of triple cam demand, right? So how do we reconcile this discrepancy? I mean the triple cam demand should be impacted, but you still see a very strong CIS business recovery. Well, it seems to be Huawei is not the only company introducing the triple cam. I think there are also other Chinese brand phone makers. They have the similar structure. And also, there's rumors about other first tier smartphone companies also introducing a smartphone with multiple cameras in the later part of this year. So actually, in our opinion, high resolution, more cameras, definitely the trend and high magnification. And today, the high magnification, we are talking about optical magnification. So actually, it really generate a lot of excitement from a user perspective. So we believe this will be the trend, and that will be what the consumer will demand. The political situation could affect the business of individual phone maker. However, in our opinion, the loss of business by from one phone maker will be ticking up by other phone makers. So since our equipment allow time to a particular phone maker, so I think the impact on our equipment will be very limited. Okay. Thanks, Mr. Lee. Just one more, if I may. So substrate PCB sorry, PCB a software like PCB, I remember a couple of quarters ago you mentioned that when five gs smartphone comes that a software like PCB demand should increase and that would also boost the demand of your SMT. So do you think that is happening? And at what in which quarter do you see the business will start to materialize? Well, we still believe that will be the case because the rationale for the industry believes so is that you need a bigger battery, a high capacity battery to support the five gs smartphone. So we don't see any technology development in the battery. It's secondary enough to change this picture yet. So that's still the assumption by the whole industry, only ASMPT but also our customers. So even on the semiconductor packaging side, we see customers keep telling us they have a lead to continue to shrink down the size of the chips in order to give more space to the battery. So we believe this will be the trend. So substrate and PCB, smaller form factor ICs, smaller form factor passive components, discrete components will all be the case. Then there will be a higher precision, higher accuracy assembly demand. So we as I mentioned earlier, we also received some order for smartphone, although we are not sure it's one hundred percent five gs related. But judging from this customer ordering these orders, I mean, dispatcher orders from ASMPT for their smartphone applications, we believe customers are really looking for certain performance like the higher accuracy from the higher price equipment we are offering to the market. Thank you. There seems to be no further questions at this point in time. Okay. Well, I think we have a very had a good discussion this morning. And there being no other further questions, I think we'll conclude the conference call now. And thank you very much for participating in this conference call, and we'll talk to you again next time. Thank you very much. Bye bye. Thank you. Bye bye. Thank you for your participation in Shangkuria conference. Thank you.