Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the conference call. Leonard, please begin call, and I'll be standing by. Thank you.
Thank you. Good morning and good evening, ladies and gentlemen. Welcome to the ASM Pacific Technology 2019 first quarter results 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 would 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 Q1 results can be downloaded from our website, www.asmpacific.com. With us this morning are Mr. W.K. Lee, CEO of ASM Pacific Technology, and Mr. Robin Ng , CFO of ASM Pacific Technology. We will start with a brief discussion about our 2019 first quarter results, followed by a Q&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 quarterly results for the three months ended March 31st, 2019, investor conference call today. I will first provide you with a summary of the company's performance, followed by the Q&A section. As the group expected, the semiconductor market was in a period of assessment during the past quarter. However, there were signs of recovery as mid-term booking, which has served as a leading indicator of the market, started to rebound. ASMPT achieved a billing of $466.6 million in Q1 this year. The group's consolidated profit after taxation for the period was HKD 108.2 million. Gross margin of the group was 33.9% in Q1 this year, representing improvement of 93 basis points over the preceding quarter and reduction of 369 basis points against the same period last year, respectively.
The year-on-year reduction of gross margin was mainly related to product mix, lower sales volume, and lower production capacity utilization during the quarter. It's expected to bounce back to a high level in the coming quarters. Group bookings amounted to $460.3 million. Book-to-bill ratio was 0.99. Backlog as of end Q1 2019 was $652.1 million. Booking of the materials segment rebound 15.2% quarter-on-quarter, while booking of the back-end equipment segment and the SMT solutions segment experienced small Q-on-Q contractions of 4.2% and 5.1%, respectively. Our back-end equipment segment's billing contracted 15.9% quarter-on-quarter and 13.4% year-on-year, respectively, to $195.9 million. Gross margin reduced 508 basis points year-on-year and 383 basis points quarter-on-quarter to 39.2%, mainly due to lower sales volume and under-utilization of installed production capacity.
As a result, the segment's profit reduced by 89.5% year-on-year and 16% quarter-on-quarter, respectively. Materials revenue was $50.5 million, representing decreases of 15.5% and 32.3% over the preceding three months and the same period of last year, respectively. Gross margin reduced 271 basis points year-on-year but improved 275 basis points quarter-on-quarter to 10.4%. Profit of the segment reduced 73.3% year-on-year but improved 214.2% quarter-on-quarter. During the first quarter, billing of the SMT segment amounted to $220.2 million, representing growth of 11.4% year-on-year, but a contraction of 30.1% compared to the preceding quarter. Gross margin reduced 269 basis points year-on-year, but improved 433 basis points quarter-on-quarter to 34.5%. Segment profit improved by 6.4% year-on-year but reduced 28.5% when compared against the last quarter.
Due to the low level of bookings received in Q1 this year, we anticipate that group billing in Q2 will be in the range of $490 million-$540 million, with group gross margin in the range of 34%-36%. The end business is expected to lead the Q-on-Q improvement. In terms of booking, we expect the market to continue to improve. Group booking is expected to show a double-digit improvement over Q1 this year. We expect it would still be significantly lower than the booking of the same period last year. While it's still too early to predict with certainty that the market will recover at the later part of the year, many of our customers believe that at the moment, the chance of a market improvement is significantly higher than the chance of further market deterioration.
With this, we thank you for your attention, and we are ready to take your questions.
Thank you, sir. Are you ready to take questions?
Yes, ma'am.
Thank you. We will now pose for questions. If you would like to register for a question, please press star one on your telephone. Our first question comes from Kyna Wong from Credit Suisse in Hong Kong. Thank you.
Good morning, W.K., Robin. My first question is about the booking trend by segment in the second quarter, because you expect about double-digit growth quarter-over-quarter and that's still down year-over-year. The second question is about the back end result in the first quarter. Because there are previous expectations about flat or slightly deep quarter-over-quarter, but at the end, it drops like double-digit quarter-over-quarter decline. What's the miss here? What's the gap between your prior expectation and the results? The third question is about the inventory adjustment you mentioned in the fourth quarter earnings. Will you continue this inventory adjustment in the second quarter, or you think that it's ready to prepare for second half rebound? Thanks.
Okay. Thank you. Talking about the booking trend by segment for Q2. We expect this back-end equipment and materials segment. They both should show a strong double-digit kind of booking improvement. That's what we are anticipating at this point in time. I would say up to now, this recovery of the lead frame market seems to be quite obvious. The movement is really pointing to a healthy direction. Whereas the back-end equipment market compared to a year ago, still shows at a relatively shorter stage. I would say probably, hopefully, during Q2, we will see a much more clear sign. The back-end equipment market also going to recover. Typically, in the past, we noticed that the lead frame booking will be meeting the back-end equipment booking by one quarter. We are hoping to see this continue.
Based on this past experience, we do not expect a significant order pickup for SMT solutions in Q2 yet. It will typically be another quarter delay. That's what we see at this point in time. When we go down into more of the products we see, CIS actually is generating a lot more momentum. As we shared with you during our [summer] announcement, during the first quarter, CIS booking actually experienced more than double Q on Q improvement. Although it is still 20% below the Q1 level last year. However, the Q1 level last year was pretty high level. I would say, we are happy to see the CIS advance back. Recently, they signed that due to some probably successful launch of certain headphones in the market, we are seeing an increased booking for CIS. We expect this trend will continue.
As for the back end results, originally, we are expecting a flat to a small dip, but at the end it's slightly larger than what we expect, mainly due to the development in China is slower than what we have expected. Partly also due to change of the VAT in China, then we suddenly see customers are quite reluctant to receive a shipment before the new VAT rules come in. Other than this, I will say we don't see any significant deviation from what we have projected. In terms of the market, as we have reported, what continue to concern us will be, we don't see a significant order pickup momentum after Chinese New Year that used to be there. Although kind of we expect it to be the case, but when it really happened, we are disappointed also.
In terms of inventory adjustment, we expect the effort will continue but at reduced rate in Q2, because we are also, at this point in time, as we share, our customers seeing a chance of market pick up is higher than a further deterioration. Today, we are internal planning processes. We are also seeing the risk of not being able to satisfy market demand when there's a market pickup is higher than a continued inventory build-up. We are also adjusting ourselves at this point in time. I would say probably we'll still control our production run rate to keep the inventory level at the level we like to see. At the same time, we are also prepared to turn on more conversion capacity, like I said, anytime that we see a much clearer market cycle.
I would say, expect some confusion, some inventory adjustment exercise in Q2, but it also can be reversed anytime soon.
Thank you. Our next question comes from Donnie Teng from Nomura. Thank you.
Good morning, management. My first question is regarding to your first quarter bookings. Your first quarter bookings slightly declined quarter-on-quarter in terms of the back-end segment. If I look into your announcement, it is like your booking for IC discrete increased 30% QOQ, excluding NEXX, and your CIS booking increased more than double QOQ. I am just wondering, what is the reason behind the overall back-end booking to slightly decline if you have very strong IC discrete and CIS bookings in first quarter? Secondly is that, I did not hear very clear on Kyna's questions. In terms of second quarter booking, you are expecting a double-digit QOQ increase. If we separate into a different business unit, IC discrete, CIS, LED, SMT, which segment will increase and which will be still sluggish? The third question is regarding to the gross margin in the second quarter.
How should we expect the gross margin and OpEx in the second quarter? Thank you.
In Q1, the booking is relating to the back-end equipment compared to Q4. That is one of the reasons. In Q4 last year, we see very good booking for advanced packaging equipment. As you can expect, this level of booking cannot be consistently from here. In Q1 this year, while we ship more of the back-end equipment to our customers, but compared to Q4 last year, we see less new order bookings for the back-end equipment. I would say, as I mentioned, the leading it was the CIS, followed by the IC discrete. However, it was OSAT by this LED booking and also advanced packaging. This is for the Q1, okay? For the trend in Q2, which segment we continue to see as sluggish. We believe the LED will continue to be low.
Probably LED will start to pick up the momentum in the second half of the year, but probably not at Q2 yet. This will be the major area. Similarly, we also, although I mentioned about Q1, the advanced packaging booking has come down compared to Q4 last year, but it was still at a pretty good level. We have two quarters of very strong booking for advanced packaging, in Q4 and Q1. We do not expect this momentum necessarily to continue in Q2, okay? Q2, probably, we are focusing more on delivering those backlog orders of back-end equipment to our customer, rather than taking in more new orders and increasing our backlog. That will be the booking trend in Q2 by business.
Gross margin-wise, we expect a better and a slightly higher capacity utilization in Q4, and we also expect a higher billing in Q2. Sorry, capacity in Q2 and also billing in Q2. That probably will lead to improvement for us in terms of gross margin. In terms of this head count control, we expect there will be slightly, a little bit more flexible workforce reduction in Q2, but the magnitude will be probably very small compared to the past two quarters. Past two quarters combined together, we have trimmed down our manufacturing workforce in China by 1,000 people already. We expect this magnitude to be even smaller in Q2. Overall, we do expect our manufacturing expense, our manufacturing cost will come up.
On the other hand, as I mentioned, the sales level should go up, the factory utilization rate should go up, it should help our gross margin. The only factor we will hold back our gross margin improvement will be, we expect some advanced packaging equipment to be delivered to customer. The cost will be incurred in this quarter and even in Q1. Billing is only expected to be in Q3. This slight, tiny gap may affect the number a little bit, but we don't really expect it to be big. Other than that, we expect cost margin improvement for back-end equipment in Q3.
Thank you. Our next question comes from Emily Chung from Citigroup. Thank you.
Hi, management. Thanks for taking my question. Just following up with last gentleman's question. For the gross margin in the second quarter, can we expect a steady recovery, or it is still in line with the Q1 margin?
Well, I think it's still probably in line with the Q1 margin, with some small upside potential. We are giving out the range of 34%-36%, okay, while Q1 is 33.9%. Q1 was on the low side of this guidance range. We are expecting potentially 1%-2% improvement in Q2. Yeah.
Okay. Thank you. Also, based on the company business nature, I think the gross margin is more driven by the product mix rather than the revenue scale. Is this the right way to think about? Also that's all my question. Thank you.
Okay. Revenue mix definitely has a contribution to our cost margin. If you look at our Q1, actually, we shipped less to China in Q1 and shipped more to the rest of the region. Actually, strictly speaking, if you go by individual business segment, there was a favorable contribution to the cost margin. Unfortunately, when you compare Q1 this year to Q1 last year, a slightly higher portion of SMT's billing compared to a slightly lower portion of the back-end equipment bill. This segment mix dragged down the gross margin. That's one of it. However, in Q1, I think that the other two factors, relatively low sales volume, dragged down the cost margin and also the intention to control the low utilization of the production capacity also dragged down the cost margin.
I think in Q1, the capacity utilization and the sales volume are the key factors pulling down the cost margin. Thank you.
Okay. Thank you, management. Thank you.
Thank you. Our next question come from Leping Huang from CICC. Thank you.
Thank you to take my question. The first question is about your full-year guidance. In the previous quarter, you mentioned that you expect 2019 to be a challenging year, and you expect the revenue year-over-year decline and the advanced packaging revenue to be improved. What's your latest view on this 2019 full-year guidance, and do you expect some revision on either the total revenue or because you see the advanced packaging start to show some weakness in Q1? Do you also change your view on advanced packaging? Yeah.
Well, we do not expect, or do not see any reason to change the guidance. Maybe let me clarify on the advanced packaging booking trend.
The Q1, we received less booking compared to Q4 last year. It has been expected because Q4 last year was exceptionally strong. Okay?
While advanced packaging business at this point in time, the customer base is still relatively lower than the other products. Because of that, actually, we do not expect a very consistent pattern of booking quarter on quarter. I would say, there was no unexpected weakness of the advanced packaging equipment market in Q1. On a full-year basis, we still hold on to our earlier forecast, and we still expect it to come down. On the other hand, we still expect the advanced packaging equipment to contribute more in 2019. As you probably can recall, advanced packaging, even without counting in the one-quarter contribution from ASM Pacific, already contribute to more than 10% of our back-end equipment revenue in 2018. We are expecting this contribution will grow significantly in 2019.
As of this point in time, I will say, we don't see any reason we change this forecast yet. Okay.
Okay. The second question is about geographical change. I remember last few quarters you mentioned that because of the trade tension between China and the U.S., you see the customer are slowing down the CapEx in China, need to look and see where to put their new capacity. Today, last few months, when you discuss with your customers, have they fixed their mind where to increase capacity, or they are still watching, look on the futures? Yeah. Thank you.
Okay. Well, as you can see, when we report the numbers, actually, by geographical distribution, I would say the biggest drop is from China. China actually its contribution to our revenue has come down significantly. It's really reflecting the major OSATs in China are really holding back, okay, in the Q1, while the smaller players in China market continue to expand. Our order in China is still the biggest market for us in Q1 this year. However, it has come down significantly compared to the past. People are talking about many talks in the market, talking about they have to make some adjustment, and outside China. As of this moment or up to Q1, we don't really see a lot of new action being taken.
One of the American IDMs even told us while they expect their CapEx in 2019 will be at a pretty low level. On the other hand, they are telling us they plan to expand, one of their factory in China will continue and expect there to be a major CapEx installation in 2020. I will say today, these are the picture, while we, in our announcement, we mentioned how Vietnam has become the number 4 market for us in Q1 this year. When we carefully look at the order pattern, I would say it has probably nothing to do with trade war. Mainly because on customer, in CIS, they adopt the active alignment solution. The other major reason is relating advanced packaging.
Advanced packaging and CIS solution, the reason why Vietnam has gone up to the number 4 position by geographical distribution for SMT in Q1, not so much related to trade war. What I think up to this point in time, we don't see a very obvious trade war effect leading to a significant investment by our customers in the Southeast Asian countries yet.
Okay. Yeah. Thank you very much. Very clear. Thank you.
Thank you.
Thank you. Our next question come from Christopher Yim from Bocom International in Hong Kong. Thank you.
Hi, good morning. Just a couple of quick follow-ups for me. You just mentioned that China was the biggest drop in 1Q. I was wondering if you're seeing improvement in bookings from China recently because perhaps the economy is improving and perhaps the trade tension is easing. My second question is on the SMT. I was wondering if you can give us a full outlook on SMT demand this year. If you can talk to us about the demand you're seeing both from the automobile side as well as the smartphone side. Because last year was a high base, was a very strong year. I was wondering if you can give us an update on that. Thank you.
Okay. For the booking in China, as I mentioned earlier, we see some increased booking activities coming from the CIS business. While in Q1 this year, quite an event part of the CIS business was delivered to Vietnam. This is not relating to Chinese supply chain. On the booking side, we start to see increased booking order momentum from Chinese supply chain for the smartphone, for the CIS application. We believe it's partly also driven by one of the successful introduction of one of the latest phone. We notice that customers are excited about it. Start to talk about they see an increased loading and planning for this increased capacity to cope with this demand. In terms of SMT demand, I would say the booking level in Q1 actually was not bad. It's a small single-digit kind of Q on Q reduction.
A typical characteristic of Q1 is a slow quarter for SMT in terms of booking. I will consider the booking that we have received in Q1 this year for SMT at a pretty healthy level. This continue to, I would say, caused by a little bit surprise. We still continue to see a very strong momentum in the SMT market. Compared to the semiconductor market. Talking to customers, some automotive customers are slightly, I would say, conservative on one hand, and also optimistic on the other. They are concerned because they are concerned about the slowdown of the automotive shipment they're seeing today, happening in China and also in the western part of the world. They do not expect the automotive shipment volume will see a significant pickup anytime soon.
They are optimistic on the other side because they are seeing a lot of the new design has been designed into the new models. The semiconductor content of the car actually will sure continually increase. While they are concerned, supported by the quantity, but they are kind of relieved and even excited about it will be compensated by the dollar value by semiconductor content. Overall, this is the situation. With that, you can expect more SMT equipment continually needed for the automotive industry to place the component into all those electronic modules. Today, we are seeing the market in terms of SMT's healthy at this point in time. We are also seeing more activities related to 5G infrastructure build-up rather than the handset.
We don't expect a significant investment for smartphones for this Indian market at this point in time, because India, last year, has put out significant capacity. We expect there could be a drive for the additional capacity for China supply chain-related handset business. At this point in time, it was not obvious yet. Thank you.
Thank you. Our next question comes from Mr. Eric Troy from Morgan Stanley. Thank you.
Hi. Good morning, guys. Thank you for taking my question. First of all, can you comment a little bit about the demand in your categorized end application segments like automotive, mobility, and others? Have you seen any demand improvements comparing to one quarter ago? Throughout the announcement, you guys talked about the second half recovery. With all the application segments, do you see any particular segment that you have more visibility or you are more confident that the second half recovery will actually take place beyond regular seasonal fluctuation?
Today, I will say, the most obvious area is the CIS. I will put it this way. At this point in time, the CIS momentum is a bit better than we had forecast a quarter ago. Originally, we expect 2019 will be quite slow. However, in Q1, we already start to see customers want to continue to order equipment, and also including the Chinese supply chain, excited about it. Today, while it's still too early to see the actual development of this CIS market, but it's obvious momentum are picking up. Among all the FA equipment application area, this is the first area showing a very clear sign of picking up of activities at this point in time. Yeah.
Sorry. I would like to follow up a little bit. When you're answering the CIS, you were talking about there's this particular China smartphone model that has received a lot of excitement from customers. How do you actually track the excitement, or would you be able to know if the customer is just basically building out additional semi-inventory instead of having actual demand? Is this something you have a concern with?
Well, we really cannot track this one. Probably you guys will be much better to track this one. For the CIS business, as I mentioned, the shipment in Q1, a larger portion is not related to Chinese supply chain. As I mentioned, Vietnam is the key country of destination for this CIS equipment, while China also taking some of them. The Vietnam one is a Korean supply chain rather than a Chinese supply chain. However, by booking activity, in Q1, we start to see the Chinese supply chain start to place orders. Coming to this March and April, we are seeing increased booking momentum from this Chinese supply chain for the smartphone. When we talk to the customers, they are citing about the reason of that. Of course, we can't tell. We totally have no idea how much has been sold.
Our customers are prepared and are willing to put in additional capacity to prepare for their anticipated demand. That's what we see today.
Right. Thank you.
Thank you. We have our following question come from Donnie Teng from Nomura. Thank you.
Thank you management for taking my question again. My first question is regarding to my earlier question, is that your OpEx ratio? How should we expect the OpEx into second quarter? Because looking at the first quarter result is like SG&A was pretty high. I'm not sure about how should we expect the OpEx into the second quarter, the rest of the year. Secondly is, maybe we look beyond the first half. What businesses are you seeing more growth momentum into second half and next year? In my opinion, it's like you have pretty high base on SMT. Probably IC discrete as well, because you acquired NEXX last year. You have pretty low base on LED, probably as well as CIS this year. How should we look at the momentum into second half and next year?
What kind of growth driver should we expect in overall?
Okay. Regarding the first question on OpEx. Our OpEx is relatively fixed, I would say, less variable. As a result, when this sales volume has come down, the OpEx as a ratio to sales revenue will go up. Okay. At this point of time, I will put less focus on the percentage. On the absolute level, we actually are comparing to the last year. If we take out the acquisition effect, actually, there was a small reduction compared to a year ago. Including the acquisition, everything in, so OpEx increased by 6.6% year-on-year. As I mentioned, you take out the acquisition effect, you can see actually the actual OpEx for the original business has come down. Okay. Comparing the Q2 to Q1 this year, so typically, OpEx in Q2 will go up compared to Q1. We do expect this to go up.
However, we continue to exercise our cost control effort. We do not expect a significant change in the OpEx ratio because on one hand, the absolute will go up, on the other hand, these sales revenue also will go up. Probably in a ratio point of view, there's not too much changes come Q on Q. For the driver, for the rest of this year. SMT will probably continue to play a key role. However, we expect this contribution to the group's revenue will start to come down in Q2 because we expect the other business will start to pick up the momentum. On a full year basis, probably, it will be similar to 2018. We don't expect it to change significantly from the 2018 level on a full year basis.
By application area, advanced packaging definitely will be a significant contributor to the group's revenue as well as to the management revenue this year. Then, it will be followed by the IC discrete. Other than the advanced packaging, I think the IC discrete will continue, and also within IC discrete, also driver for automotive electronics as well as these power management. These are the key area. We also expect these smartphone 5G related, will start to show some momentum. For example, in the RF filters, this will start to show momentum in the coming quarters. Okay. As I mentioned earlier, CIS really picking up nicely, better than what we had expected. Although we still don't expect it will be able to surpass 2018.
We still expect on a full year basis, CIS will be lower than 2018, but I think we will pick up this momentum from now on. LED will be the area where we are seeing some softness at this point of time, partly due to the market and also partly our key customer has installed so much capacity for the last two years. They are taking the time to digest the capacity. However, we carefully monitor this customer's capacity utilization. We expect the customer will be once again on an expansion trend in the second half of this year. I would say LED probably will start to pick up in the second half. Overall, automotive power management, followed by 5G and smartphone CIS, these will be the drivers for this year.
Thank you. Regarding to 5G smartphone form factor, how should we expect it will change or improve our equipment exposure to the back-end companies or EMS companies? I'm just thinking whether it will benefit more on your back-end equipment or SMT equipment, because we are seeing more and more space constraints in the smartphone. Probably it will trigger more SiP usage there. However, SiP is the area in between back-end industry and EMS industry. How should we evaluate this kind of industry dynamic change, and how it will benefit our back-end or SMT equipment?
Actually, you are seeing the trend in the market very accurately. A little bit difficult for us to quantify whether the benefit will benefit more the SMT or benefit more the back-end. Actually, it will benefit both. As you point out, space constraint is the biggest challenge for 5G handsets. We expect there will be increased adoption, maybe for 5G, actually, that's almost a must to adopt the SLP, the substrate-like PCB. That will be in favor of our SMT equipment because our SMT placement machines are capable, are proven to be able to handle very small components, placing them closer to one each other, but still maintaining a very high productivity, a very stable performance. This probably will be in our favor. We expect that. On the other hand, as you mentioned also, the market is really moving towards the trend of SiP.
We see increased demand, increased capacity installation relating to this SiP. For these SiP applications, it will benefit both our SMT as well as our back-end equipment. On the back-end equipment side, probably will be a little more demanding of those advanced packaging kind of equipment rather than the traditional die and wire bonders. On the other hand, there's also a lot of passive component need to be placed in the SiP. That will demand these SMT placement machines for that. We are seeing both, and probably in a slightly medium term, we expect the market will move into more embedded applications. These embedded applications, because of space constraint, people, for example, the 5G, they even try to design the antenna into the package. These are the trend in the market.
This will require all the advanced packaging equipment and even advanced packaging material, fabricating the antennas into the substrate. This will be the trend. We expect both the back-end equipment and the SMT will benefit. As I mentioned, at this point in time, a little bit difficult to quantify which segment will benefit more at this point in time.
You mentioned about you are seeing more activities on RF filter, so could you elaborate more there? Is that for sub-6 or mmWave modules?
SAW filters at this point of time. In the 5G phone, they need a lot more SAW filters than in the past, just simply because they divide these bandwidth into different segments. They use the filters to cater for these different frequency range applications. Today, we are seeing the demand for more SAW filters, and last year, we shipped a lot, a high number of machines to customer for this application, because our machines are capable to offer a very interesting inspection capability, able to detect some very small, we call them microcrack. That will affect the performance of those filters. Because the outstanding performance of this machine, we are gaining a lot of traction. The market will continue from SAW filter to BAW filter.
This RF application will be one of the key driver, in our opinion, for this 5G and beyond. We look at that today, customers in the RF business, the radio frequency business, every one of them are preparing for growth. In our opinion, this will be one of the market driver with this new generation of communication standards.
Sorry, a small follow-up. Is the customers are classified as OSAT or IDM companies, and also, is that equipment is classified as IC discrete segment?
For those RF customers, more in the IDM. Some also are engaged in doing all those. I will say at this point in time, we are seeing more IDMs directly handling their business. Yes, they are classified in our IC discrete business at this point in time.
Great. Thank you very much.
Thank you. Our next question comes from Kevin Jiang from J.P. Morgan. Thank you.
Hi. Good morning, Benjamin. Thanks for taking my question. My question is that recently one of your key advanced packaging customers announced to exit 5G smartphone modem business. Will this impact your TCB business in 2019 and the future? Thank you.
Well, I'm not able to comment on any customer activities at this point in time. As of this point in time, what I can share with the investors is that, we don't see any of our TCB business being affected.
Okay, thank you.
Thank you. Our next question comes from Mr. Chris Yim from Bocom. Thank you.
Thanks again. Thanks for taking my follow-up. My follow-up is on advanced packaging. I was wondering if you can disclose the advanced packaging contribution to your back-end business in 1Q19, and also, after a brief slowdown in 2Q, do you expect this advanced packaging business to pick up in the second half? I was wondering if you can tell us again what type of equipment or technology is driving your advanced packaging business right now, or whether we should just think of it as highly dependent on a couple of customers, including the one you mentioned, which is the Korean supply chain customer. Thank you.
Well, advanced packaging contribution in Q1 are tracking very well. You can imagine that because overall Q1 was relatively slow for the other capacity-related equipment. I can share, actually, the advanced packaging really contributed very nicely to our billing in Q1 this year. However, I think I should not disclose the number at this point in time because I don't want to mislead the market. I don't think on a full year basis it necessarily will stay at that level, like Q1, okay? Because we are expecting other demands for other equipment will go up in the subsequent quarters. On a full year basis, we still expect this advanced packaging will track nicely because, as I mentioned earlier, last year we received good orders. Even since the first quarter of this year, we continue to receive orders for advanced packaging equipment.
Many of them will be shipped out actually in Q2 and Q3 this year. However, when it comes to revenue recognition, it will be in Q3 and Q4. When we complete all these shipments and also realize all the billing, it will contribute significantly. Advanced packaging, actually in our presentation, we have a wide product portfolio ranging from this laser dicing, laser grooving. This is one of them. We also have a placement machine, including TCB bonder, also placement machine for wafer level fan-out as well as panel level fan-out. We also have this wafer level pick, inspect, and pack machine. Last year, we also delivered significantly for the RF filter applications. Of course, with the newly acquired business from this ASMPT NEXX. We also add into our product portfolio the ECD and the PVD machines.
In Q1, I would say TCB made a good contribution to the advanced packaging equipment delivery. We expect in Q2 and Q3, the ECD equipment will increase their contribution to our shipment at least this year.
Thank you.
Thank you. We have another following question come from Kyna Wong from Credit Suisse. Thank you.
Hello, Benjamin. I just want to check on a housekeeping purpose. Because the convertible bond is actually fully redeemed, and there is a syndicated loan of that [audio distortion] Hong Kong dollar . What's the interest rate, and what the interest expenses should we assume or expect to impact in coming quarters, years? About the tax rate, we also see a pretty high level in first quarter. Is this due to the regional and product mix again? Yeah.
Hi, Kyna. This is Robin. On the CB, you're right. We have successfully redeemed the CB with a syndicated loan. Now, the interest for the syndicated loan, compared to the CB, is lower.
Probably at this point in time, of course, depending how the interest rate will trend, less than half. We can expect going forward, the effective interest rate in the books for this part of the loan will be lower than the CB. Now, you also may notice the finance cost in this quarter is much higher than, say, compared to the previous quarter. As a result of the significant loan, we had to book a one-time arrangement fee. So that is the major contributor to the difference in terms of the interest of the finance cost QoQ. As for the tax rate, as always mentioned, don't look at one quarter. We believe that as we progress through the year, Q2, Q3, cumulatively, the tax rate will trend towards the 20%-25% region.
Thank you.
Thank you. Ladies and gentlemen, should you have any more questions, please press star one on your telephone. There seem to be no further questions at this point in time, sir.
Okay. Yeah, thank you very much. I think we've had a very good discussion this morning. Very good questions and also comments. I'm afraid we have to conclude this conference call now. Thank you very much for joining us today. We will talk to you again next time. Thank you very much. Bye-bye.
Thank you for your participation. This concludes our conference. Thank you.
Bye-bye.