Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the conference call. Leonard, please be in call, and I'll be standing by. Thank you.
Thank you. Good morning, ladies and gentlemen. Welcome to the ASM Pacific 2018 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'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 Q2 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 2018 second 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 joining us for our 2018 second quarter investor conference call. I will first provide you with a summary of our second quarter results, followed by the Q&A section. We are very pleased to report that the group continued to set new records during the second quarter and for the first half of 2018. At the group level, both billings and bookings for the first half of this year hit new six-month records. While first quarter bookings and second quarter billings set new quarterly records. The group also set a new quarter record in operating profits during the second quarter of this year. Group revenue for the first six months of this year amounted to $1.23 billion, while group bookings for the first half of the year amounted to $1.48 billion .
Group revenue and bookings for the last 12 months reached record levels amounting to $2.42 billion and $2.55 billion respectively. Profitability of the group continued to improve in the second quarter of this year. The group achieved a gross margin of 43.2%, a new high since 2010. Group operating profits were at a new peak of HKD 1.18 billion, representing QoQ growth of 70.1% and year-on-year growth of 25.5%. Back-end equipment segment achieved a gross margin of 50.8% and segment profit margin of 30.3%. During Q2 this year, the group received new order bookings of $727.7 million, representing year-on-year growth of 10.1% and a reduction of only 3.5% from the peak level achieved in Q1 this year. Group bookings consecutively exceeded $700 million per quarter during the past two quarters. In particular, bookings of our SMT Solutions segment booked another new record in Q2.
Bookings of SMT Solutions segment amounted to $570.1 million for the past six months. During the first six months this year, the back-end equipment segment and the SMT Solutions segment were leading the group. The semiconductor and the electronics market continued to be driven by broad-based growth drivers. Demand from the automotive and industrial electronic markets were particularly strong, leading to a robust growth in bookings for our IC/discrete back-end equipment and SMT Solutions products. The LED market has recovered strongly from the second half of last year. LED general lighting, RGB displays, and mini LED backlighting remained the growth drivers. In the CIS market, demand for our active alignment equipment, particularly from the supply chain for tier 2 smartphones continued to be solid during the first six months of this year. We expect that healthy demand for active alignment equipment will be sustainable for many years.
Front-end rear-side, 3D sensing, triple cameras, and folded cameras are some of the innovations that smartphone suppliers are implementing to differentiate themselves from their peers. Active alignment is one of the key enabling technologies for achieving these innovations. In the advanced packaging market, customers have recognized ASMPT as the leader. With its diversified product portfolio, the group is involved in most of the advanced packaging development programs of its customers. As semiconductors are moving towards wafer-level technology of below 10 nm, we believe that the only viable interconnection technologies today are TCB and wafer or panel-level fan-out. Traditional flip chip technology followed by mass reflow and wire bonding are no longer sufficient for meeting such challenging interconnection requirements. With reference to the SMT Solutions segment, strong demand from the automotive and industrial electronics market lifted our bookings of the segment to a new high.
The SMT Solutions segment achieved new booking records both the second quarter and the first half of this year. Whilst the European market has been strong, the group is also successfully gaining market share in the smartphone supply chain in China. With India's plan to leapfrog to global technology leadership by 2030, we are seeing promising growth opportunities for our SMT Solutions segment in India. The group has further expanded its product portfolio and strengthened its technology leadership in the back-end equipment market. In April this year, the group completed its acquisition of the Germany-based leader in silicon photonics equipment, AMICRA Microtechnologies GmbH. It has been successfully integrated into the group's Optoelectronics business unit in the back-end equipment segment. As the world is entering the data-centric era, it's predicted that more hyperscale data centers will be needed.
Silicon photonics is the key technology enabling high-speed data transfer within and between data centers. Some people believe that data is the new oil. Silicon photonics is the key technology for developing the new pipes. Unless market conditions deteriorate drastically during the second half of this year, we expect 2018 to be a year of growth for the group compared with 2017. Especially, we expect group revenue to set another new record. With a strong backlog on hand at $808.9 million, we anticipate group billings in Q3 to be in the range of $ 650 million-$700 million, being a similar level as Q2. The billings of our SMT Solutions segment are expected to achieve QoQ improvement, whereas the billing of our back-end equipment segment may experience a small decline QoQ from the peak that was achieved in Q2 this year.
The billings of our Materials segment are expected to be flat as compared with Q2. Due to our product and geographical mix, we expect that the gross margin of the group in Q3 may decline by about 1.5%-3% from the level of Q2 this year. In terms of booking, we expect that group bookings in Q3 will be lower QoQ due to typical seasonal effects. However, due to the uncertain global economic and political circumstances, it will be difficult to work out a reliable forecast. Demand for semiconductor devices and electronic systems have in fact remained healthy. The trade frictions unfolding between the U.S. and other countries have resulted in significant uncertainties and concerns for the industry as a whole.
The trade tariffs have not impacted our business so far, tariffs imposed by any countries will unavoidably hurt the spending power of consumers, and ultimately may affect demand for our products. On a longer-term basis, we believe that we are entering an exciting era and a likely high-growth period for ASMPT. Unlike in the past decade, when the industry was primarily driven by smartphones, our industry now is driven by diversified growth drivers such as IoT, automotive, industrial electronics, smartphones, 5G communications, hyperscale data centers, data analytics, artificial intelligence, augmented, virtual, and mixed realities, smart cities, and smart factories, just to name a few. With the acquisitions that we have made and our continuous investment in R&D, we believe that ASMPT is currently in an unparalleled position to capture the upcoming market opportunities. With this, we thank you for your attention in our results announcement.
We are now ready to take your questions.
Thank you, sir. We will now poll for a question. If you would like to register for a question, please press star one on your telephone. Ladies and gentlemen, should you have any question, please press star one. Thank you. First, we have Kyna Wong from Credit Suisse.
Good morning, management.
Okay.
Hello? Can you hear me?
Yes.
Okay. Thanks for taking my question. My first question is about the income taxes, because we see the tax rates increasing second quarter. Would you explain for what reason that would cause the difference between historical or the past quarters? What should we expect for this year? This is the first question. Second is about the growth outlook in the second half. It is actually very positive from the guidance that the third quarter billings will be similar to second quarter. But in terms of going into the full pictures of this year, if what we can expect into the fourth quarter is a seasonal adjustment because the third quarter booking will decline. But what do you see the overall this year will still remain a very good momentum in terms of growth, like advanced packaging or the automotive SMT, et cetera?
The third question is about the progress of this new business, like advanced packaging in the panel- level or wafer- level fan-out, as well as the TCB progress. Thank you.
Good morning, Kyna. This is Robin. Let me address your tax question first. There are two effects in this particular quarter. One is a one-off effect, and the other is a timing effect. The one-off effect is, if you can see in our accounts, we have made under provision of tax in prior years of HKD 88 million. So that actually elevated the tax effect in Q2 and first half, of course. There is a smaller timing effect, which will reverse itself in the coming quarters. If you take off these two effects, you will bring down the tax rate of Q2
From a high of 30% to around 21%. For the first half, we will bring down from 24% to around 17.5%. I think we have been guiding that. Let us look at tax on a more longer term. So do not focus on the QoQ. First half is 17.5% after excluding these two effects. I think it is about right. This is a guidance that we have been dishing out in terms of tax.
Yeah. This is W.K. here. Well, in fact, if you take out those tax effects, net profit for the group during the Q2 this year is a new record for us. As what we mentioned, I think those are a major part of this one-off. We do not expect it to be continued in the second half. The other part, that will be automatically adjusted by itself in the coming quarters. Regarding your question on the growth outlook, actually, looking at the industry itself, we are very positive. As I mentioned earlier, the industry has never been in such a good state that at this time, we see a very broad-based growth drivers. When the industry is driven by very broad-based growth drivers, this kind of growth will be sustainable for some time. Okay? From that perspective, we are very positive about it.
Furthermore, you can see our results are not only good, driven by a particular segment, but all three segments are achieving records. Although the SMT segment did not achieve billing records in the first half of this year, but it's purely a timing issue. With the very strong booking they achieved in the first half of the year, I would say we are almost sure the billing performance for the SMT segment in the second half of the year will be pretty strong. As a result, we are pretty confident to make a comment that unless we suddenly see a very significant deterioration of the market and economic situation, otherwise, we believe 2018 will be another growth year for the group compared to 2017. At a group level, we expect to be setting another new record.
When the group set another new record in billing, likely all the segments will also set a new billing record on a full year basis. That's how we see today, assuming, as I mentioned, the macroeconomic and political situation will not deteriorate significantly. However, when we're looking at the booking momentum for the second half we admit that I think we see a lot of uncertainty. So far, we are not being affected in any material way by the trade war. But on the other hand, we get a feeling that our customer also feel there's a lot of uncertainty going forward. With the uncertainty, will that affect the investment confidence is really a question mark for every one of us. That's why we remain cautious in this area. But I will say other than this, the industry is very healthy.
Regarding your question, how does it look like in Q4? We don't know. A few months later, when we share with you the Q4 booking, then we will be more easy to tell. Q3 billing should be a problem. It's a strong backlog. As of this moment, we do not foresee the booking in Q3 will be falling off a cliff. We don't foresee that. But how strong it will be, how big will be this correction, will this decline be more than the typical seasonal effect? We are not able to answer the question at this point in time. Regarding your question on advanced packaging, we are making very good progress. Okay? For the TCB, we are recognizing or accepted by many more customers. The customers are really recognizing ASMPT as the leader in this TCB.
As I mentioned earlier, as the wafer node become finer and finer, and also this heterogeneous integration are coming. The industry become, I would say, forming a common consensus that TCB and wafer or panel- level fan-out will be the solution for this kind of very demanding interconnection technology. ASMPT, I think, recognized as the leader in this area. In the announcement, I have to provide a bit more color in all those. However, TCB, while we are being accepted by more customer, we expect some of these customer will only reach a volume production sometime next year. Okay? In the panel- level fan-out, we see customers are still at their early ramp-up phase. So, we do not have a very significant revenue contribution from this customer yet in 2018, but the momentum has been very good for us. Thank you.
Thank you, sir. Our next question comes from Mr. Arthur Lai from Citigroup. Thank you.
Hi, good morning, W.K. and Robin. This is Arthur Lai. First of all, congrats on the high gross margin. I want to dig in more on this gross margin, up 200- 300 basis points this quarter. Can you share with us what the driver is? Is it because of the mix or because of the automation? That's my first question. Also, follow up the question, you also guide next quarter gross margin to be down to maybe 1.5%. Also, what's the driver for this margin decline? Thank you.
Okay. For the Q2 gross margin, mainly, I would say volume effect and also for the mix, the main effect. Also, our factories' operations are running at a very high efficiency. So, I would say a combination of this volume effect, product mix effect, and the high efficiency drive this gross margin to a high level. Whereas for the guidance for the gross margin decline in Q3, it's a product and geographical mix. Nothing structural on an individual product basis. We do not see any reason the gross margin will come down. As we shared earlier, we expect revenue from the back-end equipment will come down in Q3 on a QoQ basis, whereas revenue for the SMT Solutions equipment will continue to go up in Q3. So as you see, back-end equipment enjoying a gross margin of 50.8% in Q2, whereas these SMT Solutions are in the low 40s.
There is a segment business mix already. For SMT business, we also expect in Q3 there will be more shipment or more revenue recognition from customers in Asia, including China and India, and also Southeast Asia. These are also compared to billings recognized from in Europe. These are typically a lower margin. This product geographical mix are the reason for we guiding a lower gross margin by 1.5%-3%.
Thank you, Sam. Our next question comes from Donnie from Nomura. Thank you.
CIS sub-sectors. What is the booking momentum in the second quarter and third quarter of this year?
Donnie, this is Leonard. Can you repeat your question, please? I think the first part of your question, somehow we could not hear.
Sure. My first question is regarding to back-end equipment. If we break down into IC/discrete, LED and CIS businesses, what is the booking momentum in second quarter and third quarter, in terms of the direction? Thanks.
Okay. For the booking momentum for the back-end equipment in the second quarter, IC/discrete is very strong, that continues to be very strong, followed by CIS. CIS booking momentum also very strong in Q2. If you compare our CIS booking with the same period last year, we have a very strong start in 2017 at the beginning of the year. This year it is not a little bit slower, but the second quarter catch back significantly. Overall, we see good momentum in the CIS. Then followed by LED. Actually, LED also very strong compared to, especially the second half of last year. Overall, the booking momentum for all of these businesses are very strong, although it did come down QoQ.
We have to bear in mind, we actually did a booking of more than $400 million for back-end equipment in Q1, so we cannot expect to continue to beat this $400 million. Actually, this over $300 million in the second quarter is a very strong booking momentum for back-end equipment itself.
Thank you. How about the rough idea about third quarter in terms of IC/discrete, CIS, and LED businesses?
Okay. CIS, in terms of booking, will start to slow down in the second half. This is more of a seasonal pattern. CIS customers tend to place their orders in the first three quarters of the year, and in particular, in the first two quarters. However, billing-wise, third quarter will continue to be a strong billing quarter for CIS. We do expect the momentum for IC discrete to continue in the third quarter. It may come down from the absolute level, also due to the seasonal effect. Our booking will peak at Q2, and then billing will peak at Q3 for this event. This is a typical seasonal pattern. We do expect IC discrete to maintain a strong momentum, but probably will come down Q on Q. LED will show a similar pattern.
Typical LED customer will buy more strongly in the first half of the year and start to slow down a little bit in the second half of the year. This also, I would say, we monitor for the past few years, the typical pattern of the industry. As I mentioned today, when we are guiding the Q3 booking to come down, et cetera, we are not expecting, or we are not factoring into the global economic situation yet because we are not able to make any meaningful forecasts from that. We are more of looking at the typical seasonal pattern and also judging from the current business momentum of the customer. We see on a seasonal pattern point of view, it will come down. Yeah.
Sorry, I have a follow-up question on booking. According to the previous seasonality, most of the time the booking will start to recover in the fourth quarter and normally bottom at the third quarter. If there is no further impact from the trading war, can we expect that the booking will recover in the fourth quarter this year?
It would be fourth quarter compared to Q3. Typically, it will be very similar, either a small uptick, as you say, bounce back or hold back to a very similar level or small decline. The major decline is from Q2 to Q3. Q3 to Q4 will be very small variation, but difficult to guarantee it will definitely be higher than Q3. And then you will start to see Q1 will be a more obvious pickup for the booking because customers have a new CapEx budget in the beginning of the year. This is a more typical pattern.
Thank you, sir. Our next question comes from Leping Huang from CICC. Thank you.
Thank you for taking my question. I have two questions. Number one is that we see a very quick capacity expansion of the LED in China in the first half this year. Do you see this momentum continue or any slowdown, which is upstream, actually, capacity expand very quickly? Thank you.
Well, I would say, typically customers still have to take a bit to digest the capacity. This has been happening for the past few years. In two quarters, they will be aggressively taking in the equipment to expand their capacity. They take another one or two quarters to stabilize their production. We expect this kind of pattern will continue. Overall, we are very positive about the growth momentum of the LED business. We see the demand continue to be strong.
Yeah. Okay. The second question is about trade war. There are two hypotheses in the investor community about when the uncertainty comes. Number one is that if the trade war increase or the tariff or the tax increase, the vendors or the company need to double the capacity. Now, for example, one is in Mexico and one is in China. The second hypothesis is that the company or the manufacturers just stop the purchasing the equipment or wait for the clarity of the new policies. What do you think when you engage with your customers? What do they prefer currently? Are they double the capacity, or they are just wait for the clarity?
I think difficult to predict. when we talk to customer, I would say the sentiment is like this. Every one of us have some uncertainty, about what will happen, what will develop. this uncertainty could be a problem. It really depends on how the trade war develops. It may suddenly, if the trade war go to such a disaster, affecting business activities, and then the customer have to slow down significantly their investment project. That may affect the industry, but that will be the very worst scenario. However, on a slightly longer term, we do expect equipment vendor like us will benefit, although it may not be something we like to see. Because we start to hear customers actually talking about building their capacity outside China. We do hear customers start to voice out this idea. We don't see any solid action yet, okay?
There seems to be many people talking about this point, and we also believe this will make sense in our opinion, not only for customers in China, but also foreign investors having their factories in China. They may also start to think about where should be their next factory. I would say, after this uncertainty period, it may lead to a very strong demand for capacity equipment. a company like ASMPT may benefit from it.
Thank you. Our next question comes from Mr. Sean Lewis from Haitong. Thank you.
Good morning. Thank you for taking my questions. Firstly, I'd just like to clarify one thing, please, quickly. When you say advanced packaging tools, is that for 10 nm and below, or below 10 nm?
Below 10 nm,
in that case, therefore, let me ask you this question. Because volume for below 10 is really starting from next year, proper volume. let me ask you this question. What would mean significant contribution from advanced packaging from your perspective, relative to your business? when that happens, considering these tools are quite different to our core business in terms of lead time, in terms of price, in terms of even R&D investment, things like this. As this ramps up for us, how might that change our even business model or our capital structure? what kind of tool impact might that have on our capital structure of the business? Thank you.
I would say, it's a little bit difficult for me to answer the question on when we expect this to be having a meaningful contribution to our business, because it really depends on our customers' progress, how ready they are in terms of ramping up the 7 nm, 5 nm, kind of applications. earlier on, when I answered your question, I would say, further clarify it. Different customers, they may refer to different numbers. For example, some customers, they are 10 nm actually equivalent to another customer, 7 nm. we also are careful about that. however, if you use this Taiwanese, TSMC's number as the reference in the market, then I say the 7 nm, this volume production probably will still be sometime. Some people are expecting next year.
when this will start to take off, either in 2019, 2020, I think we will change the packaging, this landscape. it seems to be, as I mentioned earlier, the common consensus that you can't do typical wire bonding or traditional flip chip bonding, then you have to migrate to the new technology. well, hopefully, as I mentioned, 2019, 2020 will be a tipping point for the industry.
Thank you. Our next question comes from Chris Yim from BOCOM. Thank you.
Oh, hi. Good morning, and thanks for taking my question. I have two questions. The first question has to do with the SMT business. I was wondering, can you give me some more color on the near-term momentum for the European auto industrial electronics demand, and also more color on what is driving the share gain in the China smartphone segment? Thank you.
I think, in the European automotive market, of course, there are also uncertainty relating with trade war. As we read from the news, the US threatened to impose a tariff on European cars imported from Europe. Although this has not been materialized yet, but if this really materialize, it may affect customers' investment sentiment in here, in the auto mobile market in Europe. However, overall car demand may not come down, so this kind of capacity may be supplemented by other regions. However, as of this moment, we do not see our automotive demand responding to that yet. That's why we still see strong momentum for the SMT business at this point in time. Of course, typically, Q3 is a vacation season in Europe, so we do not expect a lot of new order intake from European market during this period.
Once again, this is a typical seasonal pattern. Industrial electronics will be very strong, other than the seasonal pattern. We see a lot more new ideas building around this industrial IoT, smart factory, smart city. We see a lot of momentum over there. As I mentioned, we see second half billing for SMT should be strong, due to the shipment we have made in the first half as well as the booking momentum. Typically, SMT will lag behind semiconductor by one quarter, so as we still have a very strong booking for semiconductor in Q2, so I would say the booking for SMT in Q3 shouldn't be too bad. More of timing. In fact, Q4, difficult to predict at this point in time with all this uncertainty.
Hi. My second question is a follow-up question on the advanced packaging. It sounds like, maybe in the mid to long term, it will be a strong growth driver for the industry. But for your company, I was wondering if you can give us more color on whether this new growth will help you drive your product mix improvement, whether this will lead to another gross margin driver for the long term.
It will certainly, if it take off in a big way that we have been expecting, I think it would certainly help us to change the product mix, because typically, advanced packaging equipment are high price equipment. We have strong technology, so in general also, better gross margin. But the delta is not really that big. We're talking about a very significant gross margin difference, because overall we are already achieving the 50.8% gross margin in Q2 this year. So you can see there will be some room for further improvement, but not a very big one. In terms of these advanced packaging, once we take off, I think the other good point will be the number of players are less, and when ASMPT clearly establishes its leadership position in the market. So it helps to really deter or fend off the competition at least for a period of time.
Sometimes it's also the cost of switching supplier for the customer also high. So, this first- mover advantage in this kind of technology-driven application will be very important. So that's why we are quite satisfied with our momentum at this point in time, although from a revenue contribution point of view, it's still small, but we are happy with the engagement level with our customer. So as we mentioned, we are almost in all the program, customer asking for the advanced packaging. So this is encouragement part.
Thank you. Our next question comes from Kevin Chen from JPMorgan. Thank you.
Hi. Good morning, management. Thanks for taking my question. I have a quick question on backlog and billing. $ 800 million backlog is above 800 million, while the guided billing in 3Q is $ 675 million at midpoint. The billing to backlog ratio is below average level. My question is, have you seen any order delay or it's due to the longer lead time?
Well, we don't see any order delay. Partly due to order lead time, we can't deliver $ 800 million in a quarter. Also partly due to the nature of revenue recognition for SMT business. SMT business, there's a time gap between shipment and this revenue recognition. That's why, when you see the backlog, so many of those equipment could be shipped in Q3, but revenue recognition could only take place in Q4.
Got it. Thanks.
Thank you. Our next question come from Kyna Wong from Credit Suisse. Thank you.
Thanks. I have four questions. It's about the SMT. You mentioned you will see a record high for all segment this year in terms of revenue. Should we expect that SMT business is not likely to decline or have some correction that you expect from early this year? And this is the first question. The second is also related to SMT, is about the utilizations of the Malaysia fab for the SMT business. Because right now you see more orders actually is from Asia, and that you can leverage the Malaysia fab. How much of SMT you can ship from Malaysia fab this year, versus your expectation? And the third is about the in-house sourcing and also the outsourcing strategy. What is the progress now, how much you could achieve for the outsourcing space? Thanks.
Okay. Let me answer your first question first, the SMT. On a full year basis, we definitely expect SMT as another record year for us. In fact, for the last 12 months, SMT revenue was at the level of just slightly below $950 million. I would say, on a full year basis, it will be around this level, plus or minus. Any month, second half of last year was a very strong six months period. Actually, it was the record for the segment. We expect our SMT business really approaching the $1 billion mark, very closely. For Malaysia, yes, we are expanding it. Actually, Malaysia plant has been instrumental for the growth of SMT business for the past one and a half years. Certainly, without the Malaysia plant, we won't be able to achieve this kind of revenue growth for the SMT business.
Also, when you compare to the revenue growth we have achieved for this business so far, and actually, there have not been a very significant, I would say, headcount increase in our European factories. Actually, we stay very tight in terms of controlling the headcount over there. We do supplement our production capacity by adding contractors in Europe. The majority of the growth actually is really supported by the Malaysian plant. However, the Malaysia is still taking , I would say, contributing less than 50% of the output as of end of last year. We expect by the end of this year, when the new building is ready, we will start to ramp up the Malaysian factory further for SMT. We almost tripled the space we allocate to the SMT business in Malaysia.
You can expect by 2019, 2020, there will be a significant output increase for SMT business from Malaysia when the space is ready. For the question on this insourcing and outsourcing, we continue to make very good progress. The outsourcing partners were able to support our growth. Actually, if you compare our revenue overall, as we reported earlier, for the last 12 months, we were at the $ 2.4 billion level compared to full year of 2016, we were only at $ 1.84 billion level. The outsourcing vendor really support us very well for this increased almost $600 million revenue growth in one and a half years' time. We see we still have growing. They still have some flexibility to support us further. Furthermore, while we are expanding our capacity in Malaysia, we are also building up a second supply chain outside China, in Southeast Asia.
This will be also very critical for our further expansion of our SMT business in Malaysia, because for the past 18 months, we are still shipping a substantial amount of components from European suppliers to Malaysia. We want to change this. We want to fully build a fully self-support, self-contained supply chain in Malaysia or in Southeast Asia to fully take advantage of the lower cost in this region and lower cost involved in transportation. These are focusing well, and we expect the outsourcing level will continue to go up further.
Thank you.
Thank you. Next, we have a following question come from Laura Chen from BNP Paribas. Thank you.
Yes. Hi, good morning. Thank you for taking my question. My question is about CIS business, firstly. We see that the 3D sensing development seems to be slow in the Android camp, but meanwhile, like Triple-Cam demand seems to be quite strong. Just wondering how would that impact our CIS business? That's my first question.
Well, I would say so far, as we have reported, overall our CIS business remains strong. In the market, everybody knows, different phone makers have different performance. We also are aware that some of our peers, some of our competitors, have made early guidance on their revenue and seems to be they were affected by some cancellation of their customers relating to smartphone. However, in our business, you can see, as we have a very diversified customer base, overall, we feel the market have self-corrected by itself. While certain phone maker, their shipping volume has come down, but it was offset or compensated by another set of phone makers. Overall, at ASMPT level, we are not affected.
We see when these 3D sensing momentum are really, as you mentioned, not picking up as early, as fast as people expected, partly due to a specific customer, partly due to the technology is really challenging. On the other hand, the other technology are gaining momentum. By investing in a diversified technology, I would say, we have been shielded in a certain way. Yeah.
Okay, thank you. My second question is also regarding the advanced packaging. I know at this moment it's difficult to project when that will start to contribute, and also how big the contribution will be. Just wondering that for the different solution like TCB or panel-level packaging, or like wire bonding systems on NAND, which part we may see that faster development and that can contribute first to our revenue? Thanks.
I would say, difficult to really make a bet on that. Both TCB and these panel-level and wafer- level fan-out are developing in parallel. They serve different applications. In a few customers, they have their own stage of development or pilot production or pre-production. Which customer will really take off first, difficult for us to project. The TCB, seems to be today is driven mainly by two particular applications of really driving the TCB. One is the high-performance computing, especially relating to this artificial intelligence. Okay, seems to be many people developing this high-performance CPU. They consider TCB the technology to build these kind of chips. You can see the demand are there. I think it really depends on how fast our customer can ramp up their solutions. On the other hand, for the panel- level right now have a more diversified applications.
Take the power management ICs, memories, application processors for these smartphones. It's another diversified applications. For us, it will really depends on which customer will be able to ramp up their production earlier. I won't be able to answer the question precisely.
Thank you, sir. Another question come from Mr. Arthur Lai. Thank you.
Hi. Thank you to take my second question. I think, W.K., you mentioned a very interesting concept about the made out of China. If we look at this quarter's revenue growth, actually very strong from Europe, and I think it's a 20%-30% and also the Japan and also the Vietnam. There's some module maker there. I have a question. Do you envision this manufacturing cluster moving out to China as a long-term trend? Also as my second question, I think, you just comment on the active alignment machine, and you comment that you expect continued growth in many years or in the next years, because I did not really hear you at that moment. Can you reconfirm your view on the active alignment machine? Thank you.
Well, I would say, I don't think customers are moving out their production capacity from China. We don't think so. China remain to be the largest market for semiconductor devices. Also, as we all read from the media, seems to be it is the national policy of China to really develop a strong and self-supported semiconductor industry. On the other hand, we expect there will be a lot more capacity being installed in China. However, we also believe, no matter if the Chinese customer take themselves or even foreign semiconductor companies, they will also reevaluate their strategy. I also believe, both the China customers, China companies, and the non-China customers will also tend to increase their expansion program outside China. You can imagine, for those chips they supply to China market, I think it make a lot of sense to produce in China.
Whereas, if they take into consideration of all these trade frictions, so for chips they ship to some other regions, increasing the proportion to be produced outside China also makes sense. That's why I comment earlier, after this period of uncertainty, I think it will be leading to a very strong demand for capital equipment for a period of time. That's what we are expecting. For the CIS active alignment, I think it will last for many years. Because we still see this is the technology to make very accurate devices, very accurate cameras. Today, we are still focused so much on this smartphone. I think another application will be automotive. when it comes to automotive, it's not only camera but lidar devices. accurate alignment is still a very important technology, to achieve all these high-resolution sensing of images or objects.
We believe the active alignment technology will remain the key technology for the industry for many years to go.
Yeah. Thank you very much, Karina. Thank you.
Thank you. a phone, next question come from Donnie Teng from Nomura. Thank you.
Thank you, management, for taking my question again. Follow the CIS question. As the sales base is quite high this year, and I think some of your customers are quite aggressive with buying the CIS equipment. For next year, according to my understanding is that if your customers would want to do 3D sensing products, they must need to buy new AA equipment. If they go for TriCam, they probably can reuse some equipment from DuoCam. I just wondering if you could give us some estimate about what would the sales momentum for CIS next year. Is that really sustainable and can really grow for years or it could be still some cyclical pressure? Thank you.
Well, your comment is accurate. If the customer goes to 3D sensing, they have to really buy a new set of equipment. If they go for TriCam, they can use, in fact, some of the capacity they have installed. TriCam means three cameras instead of two. Whether do they need to increase the capacity to build three cameras, that also will be part of the drivers. Looking at the 3D sensing, yes, I think customers today are still facing challenges to produce this 3D sensing camera. The introduction of 3D sensing camera for Android phones actually has been delayed. Looking at, so far, the application of the 3D sensing in the market is for facial recognition only. Purely for facial recognition, you can have alternative technology to replace it. You don't necessarily must use a 3D sensing.
As I have pointed out many times in the past, and also many industry analysts have pointed out, the real big opportunity for 3D sensing is the rear sensing 3D sensing. With the rear -face 3D sensing, then the smartphone will enter into this really augmented reality and the mixed reality applications. That is the real, the big application for the industry. In my opinion, while a 3D sensing for facial recognition, strictly speaking, could be optional for some phone makers, but in order for them to migrate to this rear-side 3D sensing, I think they have to go through the front-side 3D sensing as the intermediate step to master the technology. That's why we remain to be very optimistic about 3D sensing. We think it will be a big driver for our CIS business.
There may be some delay by a few months or a few quarters, but the technology will finally get mature, and people master the technology and go into a big way of implementing it.
Thank you. regarding to SMT business, you also deliver very strong sales momentum, particularly after the major smartphone OEM companies, the big order last year. can you elaborate more on what would be the SMT business looks like next year? Would automotive or some other non-smartphone applications can still support SMT business growth over the next year?
We are optimistic at this point in time, okay? Because SMT, when we measure the SMT market, actually a good early indicator will be the semiconductor market. When more chips have been produced, then these chips have to be placed by SMT equipment onto a motherboard, a substrate. that's why from that perspective, I would say we are pretty optimistic about this industry. also, probably many of you are aware of the shortage of MLCC in the market. when I ask our customers why there's such a shortage of MLCC, and they seem to be quoting two examples to explain to me. One is when it goes to 5G phone, the number of MLCC will increase significantly. actually, in other areas, when it comes to electric car, the number of MLCC is really huge.
Now, every single MLCC, you still need the SMT equipment to put it onto the motherboard. basically, the placement count has increased significantly with all these automotive, industrial electronics. we believe with the when the 5G comes on board, in 2019, 2020, these all will be drivers for additional semiconductors as well as SMT equipment.
Thank you. Our next question comes from Leping Huang from CICC. Thank you.
Thank you to take my follow-up questions. Two questions. One is that a lot of investors are expecting your China sales should be much stronger because of so many foundry are under construction, or so many capacity are supposed to add in China. Some statistics even say that the 40% of the new foundry is under construction now in China. It still seems to be when we should be able to expect these China sales to accelerate? This is the first question. Thank you.
Well, I think it really depends on when the foundries will be ready. Typically, people don't need to buy the end equipments so soon. They will wait for the foundries to be ready, and also wait for the foundries to ramp up. We believe it will take some time for this to happen, probably based on the public information available, the foundries, the constructions should be ready in probably the next two to three years. Most of the foundries, the construction will be completed, and then they will still have to go through the tooling up of the foundries and in particularly ramping up the production. It will take time, but you are absolutely right. With all those foundries compete and fully ramp up, well, we are expecting a lot more this assembly and packaging capacity has to be installed in China.
That's why earlier on I comment, we don't see any reason why customer want to move out the capacity from China to overseas. They will continue to invest in China, further expand, but at the same time, they will also be expanding outside China.
The second question is about the cryptocurrency. Do you think, because we see a lot of negative news these days, do you see your customer have excess capacity on this crypto-related equipment? Whether this is transferable to other applications for the Because we see a very sharp decline on the crypto these days.
basically, actually, it was expected. I think in one of the conference call earlier, I already shared with investors how our customer react to this cryptocurrency ramp. Customer actually were skeptical. For the back-end equipment sector. They basically try to use the existing capacity as much as possible. They only buy very minimal capacity for this application. At this point in time, we don't really see a lot of customer or too much capacity being idle due to this decline of this demand for cryptocurrency chips. I think the industry healthy in that, because people expect this sooner or later will happen. People did not over-invest in this area.
Okay. Thank you very much.
Thank you. Ladies and gentlemen, should you have any question, please press star one on your telephone touchpad. Thank you. Ladies and gentlemen, should you have any question, please press star one. Thank you. Leonard, there seems to be no further question at this point in time.
Okay. Thank you. I think we've had a very good discussion this morning, with very good questions, but I'm afraid we have to conclude the conference call now in the interest of time. Thank you very much for joining our conference call today, and we will talk to you again next time.
Thank you.
Thank you for your participation. This conclude our conference. Thank you