Good morning, ladies and gentlemen. Welcome to the conference call. Leonard , please begin the call, and I will be standing by. Thank you.
Thank you. Good morning, ladies and gentlemen. Welcome to the ASM Pacific Technology 2018 first quarter results announcement investor conference call. Before we proceed, I would like to note that during this conference call, there may be certain forward-looking statements with respect to ASM Pacific Technology's business and financial conditions. Such forward-looking statements may involve known and unknown uncertainties and risks that 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 Q1 results can be downloaded from our website, 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 first-quarter results, followed by a Q&A session. Without further ado, let me hand this over to Mr. W.K. Lee.
Mr. Lee?
Thank you, Leonard. Good morning and good evening, ladies and gentlemen. We appreciate you joining us for our 2018 first-quarter results conference call. I will first provide you with the summary of our first-quarter results and followed by the Q&A sessions. We are very pleased to report that we received a record booking of $754.2 million in Q1 this year. The booking was much stronger than what we had anticipated at the beginning of the year. Booking of the back-end equipment segment was particularly strong. It shows that 82% quarter-on-quarter to a level that exceeded $400 million. It is the highest booking that this segment has ever received in the first quarter of a year. All three pillars of our back-end equipment segment, namely the IC/Discrete, the optoelectronics, and CIS registered a strong booking rebound quarter-on-quarter.
The strong booking for active alignment equipment reaffirms our belief that customers will continue to add new capacities for the active alignment of new cameras and 3D sensing modules for the smartphones. Booking of the SMT Solutions segment, which attended a new record in Q1, was unexpectedly high in spite of the absence of the big order relating to the smartphone upgrade cycle. Booking increased strongly by 32.4% quarter-on-quarter and 40% year-on-year, respectively. Industrial electronics and automotive market continue to drive booking of our SMT Solutions segment to a high level. Booking of our material segment grew 11.4% quarter-on-quarter. However, it contracted 16.7% year-on-year. The year-on-year contraction came no surprise since booking of the material segment in Q1 last year was at an exceptionally high level.
Our strong booking momentum in Q1 this year reaffirm our belief that the semiconductor industry has entered into a different phase. For the past 10 years, the industry was mainly driven by the growth of smartphones. Now, the industry is driven by multiple growth drivers such as IoT, industry automation, robotics, smart factory, power management applications, automotive, smart city, cloud computing, data center, artificial intelligence, big data analysis, and smartphone. Together with 5G mobile network, these diversified applications will swell up demand for semiconductor devices and our products. Group billing in Q1 this year amount to $551 million, assuming if there is no change to the accounting standard. It represents improvement of 14.6% and 1.9% against the same period last quarter, Q4 last year. It is the highest Q1 billing that the group has ever achieved.
In fact, all three business segments of the group achieved the highest Q1 billing in their history. The book-to-bill ratio for the group was 1.36. Gross margin of the group was 37.6% in Q1 this year, representing reductions of 234 basis points and 167 basis points over the same period last year and the preceding quarter, respectively. The reduction was mainly related to product mix. Gross margin is expected to bounce back to a high level in the coming quarters. With the strong booking on hand, we expect group billing in Q2 to be in the range of $650 million-$710 million. For Q2, we expect group bookings to achieve a single-digit percentage year-on-year growth. Supported by this high turnover, we expect gross margin of the group to improve over Q1 this year.
Riding on the back wave, the group is executing strategies to invest in new growth areas. With the recent acquisition of TEL NEXX, we further expand our offerings in the advanced packaging market. We believe that going forward, more value added in semiconductor devices will shift from wafer fabrication to advanced packaging. When the industry moves to wafer nodes of 10 nm and below, TCB or RDL will become the only viable interconnect technologies. Our unique product portfolio will enable ASMPT to capture the growth opportunity. On the other hand, silicon photonics is the key technology to facilitate ultra-high-speed data transfer within data centers. Our acquisitions of AMICRA immediately puts ASMPT in the leading position in the silicon photonics market.
According to forecasts, silicon photonics transceiver market will reach $1 billion in about two years' time and will grow to be a multi-billion dollars market by 2025. The semiconductor industry is experiencing a super cycle driven by broad-based drivers. We believe we have well-prepared ASMPT to capture the opportunities. Our leading market position in the CIS, LED, power management, automotive, and industrial electronics market will fuel ASMPT short to medium-term growth. Our investments in advanced packaging, silicon photonics, memory, and the M ini and Micro LED markets will enable ASMPT to achieve sustainable medium to long-term growth. With this, I 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. Our first question comes from Steven Pelayo from HSBC. Thank you.
Great. Thank you. Congratulations on the very strong bookings in the first quarter. That's actually what I'd like to ask you a little bit more about. It looks like your guidance for the second quarter is actually suggesting that these bookings kind of sustain at a very high level. Can you comment on bookings going into the second quarter here, where it's likely to come from? Do you expect bookings to be up in all the segments, or is there one area of relative strength? Just any thoughts on the sustainability of the bookings guidance going into the second quarter.
Okay. Yeah, thank you, Steven. Well, actually, as you know, booking forecast is really something difficult to make very accurate. However, judging from the projects we have with various customers, our projection is that the momentum for CIS and LED will continue. Likely, booking for these two segments will be even higher in Q2 than Q1. IC/Discrete will sustain at a high level. It may or may not exceed Q1. These materials booking, lead frame booking, probably sustain. These SMT booking probably will continue to be at a high level. It may or may not exceed the very high level in Q1. So overall, based on summing up all those forecasts we have, we are still seeing a good opportunity. The booking in Q2 will achieve a single-digit percentage year-on-year growth, but will be difficult to really have an accurate prediction comparing it to Q1 this year.
Yeah, understand. One more question, just on the competitive landscape, and I would love for you to talk about it from three different areas. You are talking about making some inroads into the memory area. Could you talk a little bit about memory, the contribution to first half versus second half or all of 2018? How you are doing in the memory area, and then also the competitive landscape in areas like LED and advanced packaging. Obviously, the competition is making a lot of noise there as well. I am curious to hear your thoughts in really those three areas, memory, LED, and advanced packaging.
For the memory, we still put it into the category driving our medium to long-term growth. To be honest, I would say the contribution from memory at this point is still small. However, we are having various programs to address it. We are really looking forward to some of this program will result into significant opportunities for us to drive our medium-term growth. For the advanced packaging, we are really making very good progress. I think customers, at least one important customer, actually, immediately welcomed our move to acquire AMICRA. As we share, AMICRA is very strong in this silicon photonics market. AMICRA is also the company being recognized, capable to supply submicron high-accuracy die placement machine.
However, in the past, AMICRA was a very small entity, so large customers were concerned to work with such a small company for some of their big programs. This time, with the acquisition by ASMPT, we totally changed AMICRA's position and also immediately put ASMPT into such a position that this customer want to work with us. I will not try to guide you. It will immediately generate significant upside potential for us in 2018, but it will pave the path for us to work with some major companies in advanced packaging to tackle some of those very high-accuracy area. Besides that, in our Q4 result announcement, we already shared with you actually the advanced packaging business we are working with 20 over different customers or their factories. Some of the cases may be multiple factories with the same customer.
Basically, we have the various program working with 20 over customers or 20 over factories in the world. All this will become very important in our long-term growth. We also seeing some very good momentum of our TCB application. It seems to be our TCB solution is getting more and more momentum. Many more customers want to evaluate our TCB technology for some very solid applications. Although they are still at the qualification stage, but we are really expecting some of them will turn into this commercial success. I think overall, we believe in this advanced packaging, we are in a very good shape. I remember last year, some of you guys have the concern after the very strong result for CIS. Will customer continue to buy active alignment machine?
I can tell you, based on the Q1 booking momentum, it is, and also customers are giving us an even stronger booking indication for Q2. However, I think everybody knows the market dynamics of the smartphone. There are certain supply chain in the smartphone shows weakness. Everybody knows this situation. But despite in this global supply chain situation, we still have a very strong booking momentum in CIS. And actually, today, we are really scrambling to satisfy customers' delivery requirement in Q2. So we feel very comfortable. And actually, we also have been working with various customers in a lot of new camera configurations. This will be introduced to the market, in our opinion, in the next two to four years' time. So we are excited about that. The other area will be LED.
LED, I have shared with many of you, we expect the LED market to rebound. It does. Both the LED general lighting and the LED display panel continue to drive the market. To a lesser extent, will be the Mini LED for these backlight applications, but this is for a smaller extent. So basically, these are the drivers, and we see the LED will continue to be strong for a period of time.
Thank you, Steven. Our next question come from Kyna Wong from Credit Suisse. Thank you.
Thanks for taking my questions. I want to chat with you on the gross margin in the first quarter and the coming quarters. Because the first question, the weakness is due to the product mix, but can you tell us what kind of product that you see the impact, is actually causing the majority impact? Is that the LED product? In the coming quarter, what do you see the recovery in the gross margin? That's the first questions. The second one is actually your view on the trade war that will see ASMPT is in a position to benefit, like the accelerations of Chinese semiconductor equipment industry, et cetera. Thanks.
Well, for the gross margin, as I mentioned earlier, that's really product mix. It's not easy to identify to say LED. Yes, in general, LED has a slightly lower gross margin. But actually, our customers also buying a more high-end LED equipment from us as the size of LED is getting smaller. So customer also looking for fine pitch LEDs. But in general, LED equipment do have a lower gross margin. Partly also, we also see could be related to exchange rate. We are still in the process of really making a detailed analysis on the exchange rate effect. As you can see, if I put it this way, for the SMT gross margin, I would say probably the exchange rate appreciation has a stronger contribution to the deterioration of the gross margin. So that's a combination of this.
However, we looking at the shipment portfolio in Q2, there will be more equipment relating to CIS, advanced packaging will be shipped in Q2, so that will help the gross margin also. Trade war, the effect of trade war is difficult to predict at this point in time. If we looking at our portfolio, our shipment to U.S.A., we don't see a significant potential direct impact on us. Our SMT machines are mainly shipping out from Europe. Some machines are shipping out from Singapore. So from that perspective, we are not really facing a direct threat on the 301 list. However, we also notice that the 301 list also identify a lot of semiconductor devices, and also you see the now, the recent happening between ZTE, NXP , Qualcomm, all this. So we are not able to really evaluate what will be the indirect impact to ASMPT's business.
In the longer term, will the trade war benefit ASMPT because it will accelerate ASMPT's, accelerate China's semiconductor industry development? Yes, I think that's possible. It may also make more companies rethink about their global footprint in their manufacturing bases. So I think in the longer term, I expect, in general, capital equipment company will benefit, but in short- term, in my opinion, everybody will suffer.
Thank you.
Thank you. Our next question comes from Mr. Bill Lu from UBS. Thank you.
Yeah. Hi, good morning. With the big bookings and revenues now at the $650 million-$ 700 million level, can you talk about your capacity, how you are positioned, and whether there is need for additional CapEx and expansion plans?
Okay. We are actually in the process of building extension to our Malaysian factory at this point in time. It was started last year already. The building is due to be complete by end of this year. So, this will help us to expand our capacity in both back-end equipment, SMT, as well as materials. So, that would be one of the areas we are working on. For the past few years, the company has been aggressively going for the direction of outsourcing, external manufacturing. It really helps us in terms of flexibility and even, as I said, in terms of controlling our costs. This will continue. However, today, our biggest challenge in meeting that kind of high expectation from our customers is the component supply. It seems to be there is a worldwide shortage of some of the critical mechanical components such as bearings, linear sliders, linear guides, even stepping motors.
Suppliers are quoting 9- 12 months kind of delivery time. This is a challenge, I would say the whole world is facing. So it could mean both opportunity and threat to companies like ASMPT. The threat is we are really facing this kind of challenge to meet customers' delivery expectation. On the positive side, probably more factories need to be built by many other people that will drive up the demand for semiconductor, the demand for automation, the demand for ASMPT's equipment. So it is a mix of effect at this point in time.
Got it. Related to that is with this new higher revenue level, I understand the business is different now and you're doing more outsourcing than before, and there's also a mix issue, but with this new runway, what should we expect for gross margins kind of structurally? Is there a new guidance given that the drop-through should be pretty good?
Well, excluding the short-term effect, we will expect that kind of one way is to structurally help us to improve our gross margin and improve our profitability due to this economy of scale. However, short-term effect could be, as I mentioned earlier, with the worldwide shortage of critical components, we may have to stock up our inventory. We may have to pay a little bit higher price for certain cases to secure supply. I would not expect short-term we will benefit too much from this higher scale, but on a longer term, it will definitely help us.
No, I totally understand. But let's say in a year's time, revenue is still at, say, $ 650 million-$ 700 million. What should we expect for gross margins?
I don't have a quantitative number to share with you. But certainly, we expect it to improve. I will not be surprised it will help us to drive up the gross margin for 1%- 2% just because of this factory overhead is lower on a per dollar sales basis. Some of those scale of economy will help us, though, but I do not have a quantitative number really to share with you.
No, that's very helpful. Thank you very much.
Thank you, Bill. Our next question comes from Mr. Arthur Lai from Citigroup in Hong Kong. Thank you.
Hi, this is Arthur Lai, and congrats ASMPT to be recognized as a Top 100 Global Tech Leaders . I have three questions. Number one is on the advanced packaging. TSMC yesterday just guided they increased the capacity in EUV in the 7 nm. W.K. just mentioned that going to the 7 nm, then TCB and RDL become a must. Can you elaborate in this future technology, who is your major competitor? Also, in that demand environment, what equipment ASP or the contribution to our company? That's my first question. Thank you.
Okay. Thank you, Arthur. For the TCB, actually, there are not too many competitors. There are two Japanese company over there, but actually one of them is an early participant in the TCB market. The other is a newcomer. Then there is one U.S.-based company, but I don't think they have really opened up their penetration to TCB market yet. Then there is another European company. They do, I would say, a better work in one of the [inaudible]. However, today we see the interest in our TCB bonder by many potential customers. This time, really in the logic. Seems to be artificial intelligence are really driving up the demand for high-performance computing. More and more customers start to recognize that a combination of TCB and maybe also fan-out, using our RDL, may be a solution to really package high-performance computing chips together.
This is very unique, because when the node scale is so small, normal flip chip bonding will no longer be sufficient. You need a very high accuracy bonder. Also for the normal flip chip bonder, after you put the chip over there, you go into an oven for this solder reflow. But during this solder reflow process, the chips actually, once the solder melt, before the solder solidifies again, to be solidified again, actually the whole chip moves. You can imagine with chips, they have maybe tens of thousands of I/O. One of the I/O have a poor connection, already cause a yield loss, and these chips are very expensive. That' s why one of our leading customer came up with the idea of TCB bonding. The TCB bonding, the major difference is two. One is the accuracy of the placement.
The second is that, we do not need to go for a solder reflow. The solder reflow is actually done on the TCB bonder itself. So the bonder will ensure the solder melted and be solidified. So ensure a very good connection over there. That is why, from our customers' experience, our TCB seems to be really the solution for this kind of high-performance computing interconnection. Today, people moving to 7 nm, and we understand certain end customers are pushing very hard for this 5 nm solution. In our opinion, when people move down to this kind of application, TCB is really the solution. Then the RDL will be the one for them to really package, besides the processor itself, memory chips, other passive components together. This combination of TCB and this RDL, in our opinion, is a must.
The normal flip chip bonder will no longer be good enough to serve that market.
Okay. Thank you. Very detailed. Can you also, on the regional breakdown, we noticed that Malaysia this quarter has about $350 million, and also Korea also is $180 million . Quite a significant jump from last quarter. Can you elaborate what's the application inside of this regional increase? Also, we also noticed that the company from this quarter no longer provide the other regions. Is that the common practice will continue in the future? That is for our modeling purpose. Thank you.
Well, I do not have the detailed breakdown here for Malaysia and Korea. I think nothing really special, more reflecting the general market is very strong. The Korea market, a very small part of it is due to some We have followed the accounting standard, but this is not a big part of it. I do not really have anything special to share with you here.
Okay.
Yeah.
So going forward, the company will only disclose the five regions instead of nine or 10, right?
Oh, no. For the half year result and the full year result, we will provide a more detailed breakdown. Yeah.
Okay. Thank you. We appreciate more in detail. Lastly is on the laser grooving and the dicing. I think last quarter, as mentioned, in this product line, you have seen some significant breakthrough. Can you talk about the application and also the competitive dynamics? Last time I visit SEMICON Shanghai , and I also learned from this driver IC for the full screen to use a lot of laser grooving and dicing machine. I am keen to know your view. Thank you.
Well, this business is still developing very positively. As we have shared with you, it was a record booking for us for this business, so we are busy in making a delivery. Booking momentum for the laser business in the first quarter of this year continued to be very positive. Today, we are still very much focused on semiconductor applications. These are various different kinds of applications. I think today, driving our business part of these display driver ICs, those high grooving applications. However, we have a higher number of projects with different customers, especially in the preparation for the memory, thin wafer, thin memory wafers, dicing. These are one of the potential interesting applications going forward.
Thank you. Our next question come from Michael Chou from Deutsche. Thank you.
Hi. Good morning, W.K. Just two questions. You mentioned the TCB potential market. Do you have any color for the potential TAM over the next couple years? Because, as you know, TCB is mainly used by CPU applications. Is there any new application which can have a very big volume of CPU in the future? You mentioned HPC, would that be big enough, same as CPU in the future? What is the potential TAM for your business going forward? Thank you.
Well, Michael, actually, it is still a bit difficult to really come up with a reliable estimation of the potential TAM. As I mentioned earlier, we really see the trend of AI driving the high-performance computing. Now this time, the AI is not really talking about only servers. People are talking about AI capability at the end product, the end terminal. The high-performance computing no longer only talking about the server chips. I can't share with you the customer name. If I can, you will see the excitement over there, but I can't share with you. We see customers are really taking this now very seriously. If this process proven to be applicable in the application, future AI processors will be designed around this TCB technology. That will be the interesting part. It could be a big market.
One follow-up for this question is, would that kind of application also consider TSMC's CoWoS , rather than TCB?
As I mentioned, I can't name the customer name. But if you follow the market and analyze who are the chip makers really advocating, driving for AI processors, you may have a clue.
Sure. Okay, thank you, sir. Second question is regarding your fan-out solution. Do you have any color for your fan-out growth outlook over the next couple years? Given that you continue to make some progress in improving your product profile. What will be the outlook over the next couple years?
For some of those customers, we are working with them on the panel level fan-out. We do expect them to take off soon. Some of these customers are giving us an indication of they are expecting to ramp up their production between this year. Of course, we can't judge beyond what we were being told. We do expect some of them will take off. That will be one of the things. We also see more customers investing in this area. We do see a newer generation of fan-out design coming up, seems to be more cost-effective now. As I mentioned earlier, when the industry really has to go to 10 nm and below, actually, there's no other choice for that.
I think a better way to track this potential will be to track the estimation of, in the next few years, the number of wafers coming out under these new technology nodes. That would be a good indicator of the potential of these markets.
Your fan-out solution, regarding the panel and the wafer level, which one will have a higher revenue chance for you in terms of product profile?
Well, actually, it could be both, because different customer has a different approach. Some customer, they are more, I would say, focused a bit more on wafer-level kind of applications. Although they call wafer, but actually you can call a small panel. But certain other customer, they jump straight to a large panel. So, in our opinion, both will take off.
Can we say the panel level fan-out will be still a niche market over the next 24 months? Or you do see some big volume product coming out over the next 12- 24 months?
If I say an industry well-known application, the TSMC InFO, I do not know whether you want to classify as a niche or a mainstream.
Thank you, Michael. Our next question comes from Kevin Zhang from JP Morgan. Thank you.
Good morning, management. Thanks for taking my question. I have two questions. First one is related to ZTE. What is your exposure to ZTE and your outlook of the business with this client? The second question is about ASMI's holdings. As we are approaching the end of their lock-up period, are there any colors about their future plan on ASMPT shares? Thank you.
Well, for the ZTE, they definitely are an electronic system maker. You can imagine, they are one of our customers, mainly for this SMT equipment. There could be a direct impact if their business being affected. At this point in time, it is really too early to know anything. However, on an indirect basis, if there is any impact, the indirect impact will be far bigger than the direct impact. I am also reading from the news media. I understand, actually, according to news media, 20%-30% of ZTE's components are purchased from U.S. companies. If these U.S. companies are really not able to supply ZTE for these components, then naturally, ZTE may have to look for alternate sources. With that, actually, this 20%, 35% component supplied by this U.S. company could be ASMPT's customer at the moment.
How this U.S. company will react to this, we really do not know. I would say if there is any impact to ASMPT, it is more of this indirect impact. But on the other hand, I am not too concerned about this indirect impact because if this really develops into that picture, this is a much bigger trade war already. I am still confident that people are sensible enough to avoid that kind of large-scale trade war. Hopefully, my positive thinking is correct. That is the situation. But we will continue to monitor it and provide investors up-to-date information if there is any significant impact to ASMPT. On ASMI 's part, I am really not able to provide you any color because ASMI is one of our shareholders. They have no obligation to inform ASMPT in advance what they want to do.
At this point in time, I think what I can share with you is that I really know nothing about their plan, their development in this particular area.
Thank you.
Thank you. Our next question comes from Mr. Simon Woo from BoA Merrill Lynch. Thank you.
Okay. Thank you very much. Good morning. Congratulations on the great results. First question should be CIS, which seems to be growing very strongly in the past couple of years. The question is, as you pointed out, China smartphone demand is not yet strong. Yesterday, TSMC also mentioned that the near-term momentum is not good. How do you feel the overall CIS, the related equipment demand outlook, given the fact in the past couple of years, I think your customers already installed lots of the machines for the CIS module? Thank you. That's the first question.
Well, if I read the announcement from TSMC correctly, yes, they're being affected by the smartphone market. At the same time, they have pointed out the China smartphone actually is picking up. We see the same thing. For the first quarter booking, or even for the first half activity, we feel the China smartphone are catching up, whereas the first-tier smartphone are taking a back seat this time. That's also normal. Typically, the first-tier smartphone makers are the technology leaders, the market leaders. They are setting the technology trend. After that, the rest of the phone makers start to follow. We see more and more people start to work on and plan to introduce new generation smartphones equipped with all these new generation camera modules. That's why I think we still continue to see strong booking for our active alignment machine.
People are working on various solutions for the new generation of camera. This, in our opinion, will continue. On the other hand, we also expect the first-tier smartphone makers probably are making an adjustment only because we are expecting more newer generation smartphone to adopt the latest technology. I think, in our opinion, smartphone market, the CIS market will continue to be strong for a couple of years.
Okay. Thank you very much, W.K. Lastly, the question is, you mentioned that the advanced packaging related business was so strong. May I ask, is it more related to the AP chip related or maybe some different area, maybe memory or some special chips? The question is kind of the chips in the year for the advanced packaging area for your machines?
Okay. Well, I think the development for advanced packaging for us is really encouraging. We are very excited about those programs we have. However, in terms of revenue contribution, it is still small. That is why, in my conference call earlier, I also put it into the category of driving our medium to long-term goal rather than the short- term. We definitely see AP is one of the areas. I mentioned about AI processor, is another area we are seeing customers are presently working on it. We also are aware customers are striving to use the fan-out level packaging for PMICs, the power management ICs. We know, in the roadmap, there are plans to absorb this kind of advanced packaging for memories. Well, there are a combination, and also, we see for the last two years, actually, SiP is really having a very strong momentum.
It benefits not only our back-end equipment business but also our SMT business. At this point in time, certainly, the server CPUs are one of the major applications for it. Another area many customers are really putting in a lot of effort to work on it is the high-bandwidth memory. At this point in time, these are the few end applications being identified by our customers.
Yeah, great. Thank you very much, Mr. Lee. Appreciate it. Thank you.
Thank you, Simon. Our next question comes from Donnie Teng of Nomura. Thank you.
Good morning, management. Congratulations on a very good result and outlook. My first question is regarding the outlook for different business segments. Could you elaborate more on the year-over-year growth momentum by different segments like LED, CIS, IC, and SMT in the first half?
Well, SMT, we already provide those detailed breakdown. There is basically a strong year-on-year booking growth momentum for SMT. Year-on-year is actually a 40% growth. For the back-end equipment, it was also a [35.3%] growth booking year-on-year. Only materials see a 16.7% year-on-year contraction. As I mentioned in the conference call earlier, this year-on-year contraction was expected because the booking for Q1 last year was at an exceptionally high level. We are not concerned about that. In terms of more detailed breakdown, in the SMT, as we mentioned, it's really the industrial electronics and automotive driving the market. In the back-end equipment area, IC/Discrete is very strong. LED is also very strong. For this CIS, a strong Q-on-Q demand. However, on a year-on-year basis, it is a contraction.
However, with the strong booking indication customers giving to us for Q2, we do expect on a six-month basis, there will be not a very significant difference for the CIS booking between this year and last year.
Okay. Can we say that in the back-end business, LED and IC/Discrete should have more meaningful year-over-year growth momentum this year compared with CIS? Is that correct?
Yes.
Okay. Thank you. My second question is regarding your structural growth businesses. Is it possible that you can quantify how many sales percentage from structural growth business, such as advanced packaging, CIS business for 3D sensing, and automotive, et cetera. I would like to have more colors on how big the structural growth business accounts for the total sales right now and your outlook in the future.
I am not able to provide you this kind of quantitative analysis at the moment. We will see how we can provide investors some color in this realm. We will take your request into consideration to see how we can come up with some numbers, maybe in the next quarter.
Okay. Thank you. My last question is regarding China's National IC Fund . I think they will soon have a phase two of the IC fund to invest in some new semiconductor companies, and they probably will focus more on material and equipment companies in the future, as China now is lacking this kind of good company. I am wondering if we have any discussion or if we are viewed as domestic equipment vendors in China, and whether we can have more opportunities to find some new investment from China government.
We understand we are certainly not being considered as a domestic company at this point in time. Probably, we are still a foreign-owned company. China is a big market for us. Actually, it accounts for around probably 50% of our market. So we maintain good relationships with many customers in China. We support many of their development program in terms of including new technology development program. We certainly continue to look for opportunity to further expand our market position in China. So I think that's what we can share with you at this point in time.
Okay, thank you.
Thank you. Our next question comes from Jean-Louis from Haitong in Hong Kong. Thank you.
Thank you. Hi. Good morning. Just a couple of quick ones. First one, considering that it is shaping up to be very nice, what can we expect on the dividend? Have you got an outlook for us there, please?
Okay. As you are probably aware, we have adopted a new dividend policy of this sustainable and gradually increasing dividend policy. We believe we will stick to this one. We will not have a significant deviation from this policy. People also have been asking us about the buyback, the convertible bond. As we have communicated, our whole plan is that for the $300 million convertible bond, we either will be spending equivalent amount of money on share buyback or if there will be any remaining cash, then we will consider some kind of special dividend. However, the CB will only expire by March next year, so I don't think the board will make any decision or any special dividend before that. In the meantime, probably we will continue our share buyback program.
Yeah. Okay. That's clear. Thank you very much. Just one last little question. Just in case we get, let's say, a crash in demand for crypto-related spending this year, what kind of impact would that have on your business, do you think?
Well, actually, it has been happening. Its impact on the assembly equipment is not very big. Actually, it generates some demand on, for example, flip chip owners. That's typically the assembly technologies using flip chip. Most of our customers actually try not to buy new equipment for these applications. I think everybody knows there is always a certain risk factor associated with this part of the business, even TSMC highlight this part. So when we talk to our customer, we feel the same thing. So a customer, the first policy will be trying to allocate the existing capacity to satisfy this demand. However, as a whole, the assembly equipment industry so far has benefited from it, but the impact is small.
Okay. No, that is very good. Thank you very much.
Thank you. Our next question comes from Stefan Chang from Maybank in Taiwan. Thank you.
Hi, good morning, and congratulations for the great booking. Just two quick questions here. The first question is still about the gross margin. I understand you mentioned several factors earlier in the call, but I just recall that as a long-term, after the last quarter result, you did indicate that last year gross margin could be a good reference for us when we are doing our model. Now Q1 is already lower. So consider all the factors you are seeing now, do you think that comment is still valid for us to do our model?
I will say, probably what really changed a little bit is the exchange rate effect. The mix is not too much a concern for us because quarter-on-quarter, there is this natural mix variation. It will self-correct as we develop in the year. However, this currency is part of the factor, deviate a bit more from what we have anticipated in the beginning of the year. So, if you have to adjust your model, I think you probably can factor this into consideration in adjusting your model.
Yeah. Very clear. Thank you. Also, just a quick follow-up on the previous question. You mentioned about the advanced technology and also CIS. If I don't get it wrong, I think you indicate for the first half this year after strong Q2, CIS may not necessarily decline on a year-over-year basis, but what about the full year?
Wow. Full year is really difficult to predict. The semiconductor industry really doesn't have that kind of visibility. Furthermore, I think everybody would be cautious to monitor how this trade war develops between China and U.S.A. So I will say, what's happening may cast more uncertainty for the second half of this year.
Okay. Understood. Thank you. Sorry, just one last follow-up. For the U.S. and China, the trade dispute, I think one of the items that already listed is LED, but you also mentioned your LED booking now is still very strong. Do you see any impact from the trade dispute, particularly for the LED?
We don't know yet. We really don't know. So far, we understand U.S.A. is not the largest LED market. However, it is still a sizable market. We are not able to ascertain at this point in time how much it will affect our customers' business. It will not affect ASMPT's business directly. We don't really have, I would say, big LED customer in U.S.A. Even their LED customer in U.S.A., their production facilities are outside U.S.A. The direct impact to ASMPT would be small. But the indirect impact, we cannot ignore. But at this point in time, we are not able to really gauge how much will be this indirect impact at this point in time.
Understood. Very clear. Thank you very much, and congratulations again.
Thank you.
Thank you. Our next question comes from Mr. Chris Yim from BOCOM International in Hong Kong.
Hi. Good morning. Congratulations on strong results. I just have one quick follow-up on the bookings. If I look at your historical bookings, say 2016, 2017, it looks like 2Q is always bigger than 1Q, but this year it seems to be the other way around, based on your guidance. I was wondering if you are seeing any orders being pulled in, because you mentioned component shortage and basically strong demand, right? Are you seeing your customers pulling in, taking their orders earlier? Can you give us the booking outlook for the second half? Thanks.
Well, to be honest, the question you asked is also the question we ourselves ask. Whenever we come across a booking, we also very carefully check whether they are double booking, triple booking. But so far, based on our checking, we do not really feel in the booking for Q1 there are obvious double booking, triple booking over there. We do not really feel that. It seems to be customers are still very rational, not even in our material, booking for our materials. But certainly, this is an area we continue to monitor. On the second half of booking outlook, really difficult to predict. As I mentioned earlier, I believe all our customers are really closely monitoring this trade war development, closely monitoring with each other how people react. You can imagine if suddenly, really the ICs have no other choices but hold back their production.
They are not only affecting the 30%, 40% component from the U.S. company, but they will also affect the balance 70%-80% of components they buy from the non-U.S. companies. So that could trigger many things in the world, because the world is closely connected with one each other. So I think at this point in time, everybody just have to closely monitor it. Well, as I mentioned, I personally still optimistic view that people will be rational enough to avoid this, but you really don't know. So I can't provide you a clear outlook about the second half at this point in time. Yeah.
Thank you. That is all I have.
Thank you, Chris. Our next question comes from Leping Huang from CICC. Thank you.
Thank you to take my question. I think the dynamic of CapEx, how you comment China, first on demand side, because now the national policy trying to localize a lot of the process, both the back-end and the front-end. Also, I think there is a question before is that the phase two of the China's National IC Fund seems to be will subsidize the local equipment factor. Do you see any potential competitors in the local market on the equipment side? Thank you.
Well, in my opinion, not in the short- term. The local Chinese equipment maker has been there for quite some time. I would say they are comparatively much stronger in the LED compared to the IC/Discrete market. I am not saying they are very strong with the LED, but I am talking about that if I compare those makers, they focus in the LED market and the makers, they are focusing on the IC/Discrete market. The IC/Discrete market players are very big. The LED market makers players still can make some penetration into the market. So, in the short- term, we don't, we did too much for, in our area. Of course, in the long-term, we do not ignore any one of them. So we take every one of them seriously. We always say internally that, you look back 30, 40 years ago, ASMPT was also a very small company.
We can't rule out any one of them can repeat the success of ASMPT. That is why we take every one of them very seriously. On the China demand side, we believe China semiconductor to continue to develop. We are aware there are many fabs construction in the pipeline. When these fabs put into production, it will generate a lot more demand for packaging, and a lot more potential demand for our kind of equipment. We are fully aware, and we continue to strengthen our position in the China market.
Thank you.
Thank you. Next question. We have our following question come from Kyna Wong. Thank you.
Thanks. Just to begin my questions, I just wanted to ask because you have first quarter booking and second quarter booking directions and so forth, we probably may see the around nine months revenue outlook this year. Do you see this year will be another strong year, or you expect there will be a moderate growth here? Because probably third quarter will see some, based on the high base last year, third quarter will be not likely to grow strongly. But fourth quarter may come with some corrections. Do you see maybe some kind of first half versus second half division of revenue, such a structure, some indication?
Yeah. Well, the booking momentum in Q1 and also in Q2 are really exciting. Yes, you are definitely correct. With that, actually, it really kind of setting the tone for nine months of billing for the book. However, what is happening in the global economy is really something that holds a lot of uncertainty, holds a lot of challenges ahead. In our market, from our experience, people can also make correction very quickly if suddenly they find they are not able to deliver auto chips. You can imagine, as I mentioned, it is not only ASMPT. When ASMPT have been problem, they can cascade this to many other companies, many other industries. So if this is really the case, many of our customer or their own customer base start to react. That is something we can't predict at this point in time.
But let us put this aside, then I will say, based on today's momentum, seems to be our billing for the first nine months of this year will be pretty interesting. A bit too early to predict Q4. Anyway, we do not model. 2018 will be overall, on a year-on-year basis, it will be another year on a full year basis, showing a very high growth. We do not model that. If there is a growth, it is more moderate, that kind of situation. Because the industry already have a very strong performance for 2016 and 2017 already.
Got you. Thank you.
Thank you. Our next phone question come from Mr. Michael Chou from Deutsche. Thank you.
Hey. Hi, W.K. One question. What is your view for your organic growth momentum over the next couple of years? Did you have any idea when you do some internal forecast? What is your view for your growth outlook over the next couple of years?
Well, in this industry, it is challenging to really make a long-term forecast, long-term outlook. However, as I share on the qualitative, we feel we are addressing some interesting market applications. As I mentioned, CIS, we still holding to our view that in the next couple of years, because of technology innovation, the CIS market demand continue to be there. Despite the shipment volume for smartphone may slow down further. The technology innovation will drive the CIS market. We are in the market. We have a very good position. All the lead customers engage ASMPT for the next few years innovation development. In the LED market, we continue to see, yes, LED market may have up and down, but overall, the trend continue up. The volume for LED will continue to increase.
This trend actually also put ASMPT in a very good position, because we have a very strong position in this market. In also already two years in a row, or almost three years in a row, we see the power management market very, very strong. We believe this will continue, especially when 5G comes in, when more auto built-in applications, when fast charging, wireless charging, all this demand comes in. Power management will continue to be strong. ASMPT also have a very strong position in this power management market. Automotive is another strong market for ASMPT. W e also believe automotive market will continue. The electronic content, electric car will continue to, autonomous driving will continue to grow. ASMPT serve this market from both the semiconductor and the back-end equipment area. Another important area we really see for the last one and a half year already, industrial automation seems to be very strong.
Actually, today, we are more inclined to interpret the supply shortage, in the mechanical components I mentioned earlier, is due to the industrial automation robotics. Many companies are deploying the Industry 4.0 solutions that drive the demand. Once again, ASMPT is strong in this area from both the semiconductor and the SMT market. From an organic point of view, these few equitable market are really driving ASMPT. Actually, we also see this is the difference between ASMPT and our peers. For the past few years, we start to change the company to have more market focus. Focusing on the high-growth potential markets and try to serve the market very well. So far this strategy, very successful.
Even the market will be having a short-term up and down, short-term cycles, but I think just now the few applications I mentioned will continue to drive the near to medium- term of the industry. These are the organic growth areas ASMPT will benefit from.
Okay. Thank you so much.
Thank you. Our next question come from Simon Woo from BoA Merrill Lynch. Thank you.
Yeah, thank you very much. Very quickly, Mr. Lee. How do you feel the overall the Micro LED or Mini LED business opportunities? Are you ready to deliver any additional back-end machines for these areas?
Okay. We believe the Mini LED will come earlier than the Micro LED. Actually, in our opinion, they share different market. The Micro LED will be for a smaller display. Probably the largest display application for the Micro LED will be the screen of the smartphone. We think it is more applicable, more usable for AR, VR type of application, those goggles, wearable electronics. I think we believe these are more suitable candidates for Micro LED displays. With Mini LED, we see big potentials, because it could be the solution for high accuracy, high resolution, large display panels, either indoor and outdoor. So, we see these are two different applications. ASMPT today are working with various customers on the Mini LED solutions. Interesting progress for us. Still, I would say a distance away from significantly commercializing all those. This will be very interesting.
Now, of course, when it comes to Mini LED, there are two different solutions. One is the traditional time live bonding, a package LED, smaller LED. That actually ASMPT is participating already at this point in time. There are also other packaging methodology for this Mini LED. So this is the area I mentioned about ASMPT is working with customer to develop the solution. Micro LED will take a little bit longer time. Today, I would say overall in the whole industry, people still finding a very effective solution for the mass transfer of a huge number of LED. So until people find an effective and reliable solution for this, it is not easy for the Micro LED to take off in a big way. Cost is the major consideration.
Yeah, great. Lastly, any update for the TEL related business acquisition? What is the expected, roughly the revenue or your payment to acquire TEL NEXX , if you do not mind?
We already have fully disclosed this in our announcement. We pay $90 million as a base price, plus a potential earn out up to $8 million in two years time. For the revenue, it is really less than $100 million at the moment. But with the potential going to be on that. Yeah.
You mean the $90 million plus an $8 million in terms of the U.S. dollars , roughly $100 million total?
Yes. That is the post-acquisition. Yeah.
Yeah. Very clear, sir. Appreciate. Thank you very much.
Yeah, you're welcome.
Thank you. Our next question come from Laura Chen from BNP.
Yeah, thank you for taking my question. Like you mentioned that before, there are some different key component shortage overall in the supply chain. I just wondering that how that impact our order outlook in our observation? Our customers have some, like early pull-in, or how they behave to react to that overall supply chain shortage? Yeah. That's my first question.
Well, those shortages are more affecting equipment supplier like us than our customer directly. When we cannot satisfy their demand of pull-in delivery or short delivery time, that will directly affect our customers. Well, it's not an easy answer is the question b ecause those are really high-precision components. For those suppliers we have, in order for them to significantly increase their capacity, they have to build new plants, they have to train new people. Today I can see the suppliers are mobilizing all the short-term effort to increase their capacity. These people also start to look into really building a long-term solution to address this problem, including building new plants. I think on our side, in certain cases, we may have to pay a higher price for some of the components, although that has not been significant at this point in time.
I would say, it's definitely not a significant factor affecting our gross margin deterioration for Q1 because we have to pay higher price for components at this point in time yet. But we do see, if this shortage continues, that may be a challenge for us also.
Okay, thank you. My second question is also related to Mini LED, as W.K. already explained quite a lot. I'm just wondering what's ASM Pacific's position now in Mini LED or even Micro LED for the longer term. What's our preparation and our readiness here? Thanks.
For the Mini LED, actually, customers see ASMPT as the technology leader in this area. We are working with various customers on the solutions they are thinking of. Well, we believe not all the solutions will take off at the end, but we also partnerizing it and investing together with some of these people. I believe, in the long run, this will be exciting area. But on the other hand, on the Micro LED, we're also working with some of the key players in this area. But as I mentioned, I think there's still huge technology challenge the industry as a whole has to overcome. The Micro LED is still at a very early stage, at infancy stage, in my opinion, waiting for some major technology breakthrough.
One of it is what I highlighted for the assembly, is the reliable method of mass transfer of huge number of LEDs at one time.
Okay. Thank you.
Thank you. Our last question comes from Steven Pelayo from HSBC. Thank you.
Great. Just two follow-up questions. First of all, how big is the LED bonder market? Given that Kulicke and Soffa is making a lot of noise, they introduced, I think, some new products in SEMICON China last month, and they are talking about gaining a lot of market share last year and even this year. Are you seeing any increased pressure from Kulicke and Soffa specifically? That is my first question. One more follow-up after that.
Well, I think, it all to do with your base of comparison. When somebody have a very small base of comparison, if they make really some progress, it could be a fantastical rate. We at ASMPT have such a huge market share in this particular area. So we won't be able to deliver a 100%, 200% kind of growth rate. So that's the difference. However, I think you're looking at the LED market. Actually, the LED market, on a supply base basis, actually, there has been a lot of consolidation in our customer space. ASMPT actually continue to work with those key LED players in the market, and we have a very good market share with these key players. We do not lose this market share to our competitors with these customers.
However, we do recognize that people try to attack this market, but that's natural, especially when everybody believe the advanced packaging development, technology development in the IC/Discrete market will be threatening the overall wire bonder market growth in the long- term. So it's natural for our competitors to put in a lot more resources in this particular area. However, I don't really see our competitor making a solid progress yet. Well, of course, we don't ignore them. We don't take them lightly. So this is a survival battle for them. So they have to open up their revenue source. However, we believe this is a market, we know the customer much better. We understand the application, we understand what the technology roadmap of this industry, and also, we have the infrastructure to work with this customer. This is a market very much different from IC/Discrete.
You cannot just use your experience in the IC/Discrete market and replicate it in the LED market. You need different expertise, different setup to serve the market. So ASMPT enjoy such a market position in LED, not because of the last one or two years, it's the decades of investment in this particular. So as a result, we don't worry too much. But on the other hand, we take that seriously.
All right. My last final follow-up question. 90 days ago, I think you said the SMT market or the SMT business for ASM Pacific , given the tough comparison from last year, maybe down slightly this year. However, it appears you were surprised in the last 90 days with the booking strength in Europe and auto, industrial, and 5G infrastructure. What do you think now as you look at 2018 for SMT? Does it look like it's going to be a growth segment for [inaudible] this year?
To be honest, Steven, we are not able to answer the question at this point in time. Well, you see, a few months back, we also expect this to be slightly down for our SMT this year, because this year we do not expect a major order to come in similar to last year. However, along the past few months, we have been revising our internal forecast for the SMT booking a few times already. So the market is really strong. It really took us by surprise. However, I will say, we do not dare to make an assumption that Q2, Q3 will continue to be that moment. So, at that point in time, I can only say probably this should be better than what we expect a few months back.
But whether it will be sufficient to totally offset this and make this to be another growth year for SMT, we are not able to have a reliable prediction at this point in time.
Fair enough. That is all I need. Thank you.
There seems to be no further question at this point in time, sir.
Well, 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'll talk to you again next time. Thank you. Bye bye.
Bye bye.
Thank you for your participation. This concludes our conference. Thank you.