Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the conference call. Line staff, please be on call and I will be standing by. Thank you.
Good morning, ladies and gentlemen. Welcome to the ASM Pacific Technology 2017 interim results announcement investor conference call. Before we proceed, I would like to note that during this conference call, there may be certain forward-looking statements with respect to ASM Pacific Technology's business and financial conditions. Such forward-looking statements may involve known and unknown uncertainties and risks, which could cause the actual results, performance and events to differ materially from those expressed or implied during this conference call. With us this morning are Mr. WK Lee, CEO of ASM Pacific Technology, and Mr. Robin Ng, CFO of ASM Pacific Technology. We will start with a brief discussion about our 2017 interim results, followed by a Q&A session. Without further ado, let me hand this over to Mr. WK Lee. Mr. Lee?
Thank you, Leonard. Good morning, ladies and gentlemen. Thank you for joining us this morning. I will first provide you with a summary of our first half of the year results as at 30 June 2017, before we proceed with the Q&A session. We are very pleased to announce that the group has achieved solid performance and set many new records during the first half of 2017. The performance was primarily driven by strong orders received from the CMOS imaging sensors, CIS, IC/discrete semiconductor, advanced packaging, and SMT equipment. At the group level, our revenue for the first six months of this year amounted to $1.05 billion, representing year-on-year growth of 25.3%. Group bookings for the first six months set a new six month record of $1.27 billion, representing the increase of 30.8% year-on-year. The group continues to improve its profitability.
We achieved gross margin of 41.0% and 40.5% during the second quarter and the first half of this year, respectively. Group bookings for the second quarter of this year grew 17.8% year-on-year to $661 million. This new quarterly record attained was slightly ahead of the group's expectations. However, due to some late order entries and requests for postponement of delivery schedules by some customers, group billings in Q2 fell slightly short of the group's expectation. The delays were mainly from customers who were in the supply chain of smartphones. Nevertheless, the group is confident that the deliveries will be materialized during the second half of this year. By application market, mobility, communication, and IT was the most important driver for the group's performance in the first half this year. Its contribution to the group's billing had gone up towards the high 20% mark.
This was followed by the automotive and the power management and energy markets. Whereas contribution from the optoelectronics market had come back. The automotive market has surpassed the optoelectronics market slightly to become the second-largest application market for the group. However, we expect contribution from the optoelectronics market to pick up during the second half of this year. Book-to-bill ratio of the group for the first six months was 1.21, and backlog as of end June this year rose to $650.6 million, representing an increase of 18% from end of Q1 this year. For the past few years, the group has been implementing a number of strategic transformations to our business model. We are pleased that these changes are bearing fruit now. All our three core business segments are making solid progress and have broken new records during the first half of this year.
We expect some of them to continue breaking new records during the second half of this year. I will continue to provide you some highlights of the performance of our three core business segments. For the first half of this year, the revenue and bookings for back-end equipment segment rose 35.6% and 32.2% year-on-year, respectively. Back-end equipment set a new quarterly billing record during Q2 this year. The strong performance of this segment was driven by demand for CIS, IC/discrete, and advanced packaging equipment. CIS has become the leading growth driver for the group's back-end equipment business as the group holds a strong market position in this application market. The proliferation of rear camera in smartphones and tablets will increase the demand for both CIS assembly equipment and the AA machines.
During the first half this year, CIS equipment has surpassed optoelectronic equipment to become the second-largest pillar of the group's back-end equipment segment. Our extensive portfolio for advanced packaging market has expanded ASMPT's addressable market and helped the group to strategically position itself to capture the future growth opportunities. During the first half this year, we experienced strong growth in demand for high-speed flip chip bonder. The group also expects a ramped volume shipment of its new generation TCB bonder in the second half of this year. Back-end equipment segment achieved a gross margin of 48% and 47.4% during Q2 and the first half this year. The strong improvement was a result of increased production volume and favorable product mix. In Q2, new order bookings for materials segment grew 37.8% year-on-year but fell 14.9% quarter-on-quarter.
The contraction was actually expected since bookings in Q1 this year were extraordinarily strong. Despite a slight contraction, the group in general is satisfied with the strong year-on-year growth in bookings Q2, as well as the first six months of this year. The materials segment achieved a new billing record in Q2 in the first half of this year. SMT Solutions segment achieved a new booking record in both Q2 and the first half of this year, underpinned by the new smartphone investment cycle. In Q2, bookings of SMT Solutions increased 34.1% year-on-year, while billings increased 19.5% year-on-year to $185.8 million. During Q2, the group has won a major order from one of its customers. Part of the order has been booked in Q2, while the remaining was expected to be booked in the second half of this year.
Most of the billings for this order will be reflected in the results of the second half of this year. In conclusion, the market has been developing on par with our expectation. The group is particularly encouraged by the current strong booking momentum experienced by the defense, which has always served as a leading indicator of the market conditions. However, after two quarters of strong bookings and in line with the seasonality, we expect bookings for back-end equipment and materials to start to slow down from the third quarter of this year. We believe SMT Solutions segment bookings in Q3 will improve by up to a low double-digit percentage over the Q2, subject to the timing of smartphone orders for SMT equipment.
Based on the current strong backlog level, we expect group billings in Q3 this year to either be at a similar level as Q2, or to grow by a single-digit percentage quarter-on-quarter. Billings for the SMT Solutions segment is anticipated to show strong quarter-on-quarter growth, while billings for the back-end equipment and materials segment may stay flat or contract slightly as compared with Q2 this year. Gross margin of the group is expected to be at a similar level to Q2. Assuming that macroeconomic conditions are not going to have a significant impact on ASMPT's business during the second half of this year, we believe the group has a good chance to attain new records in both full-year billing and bookings for 2017. With this, I thank you for your attention to our results announcement. We are now ready to take your questions.
Thank you. We will now poll for questions. If you'd like to register for a question, please press star one on your telephone. Ladies and gentlemen, should you have any questions, please press star one. Thank you. Our first question comes from Mr. Bill Lu from UBS.
Yeah. Hi there. Good morning. I'm sorry, the line wasn't very clear, so let me apologize if you've already talked about this. Did I hear you say that bookings will slow down in 3Q for back-end equipment, but you'll see double-digit growth in SMT, is that correct?
Yeah. Good morning, Bill Lu. Yes, we expect the booking for back-end equipment as well as materials should come down starting from Q3 this year. This is in line with the normal seasonality and also after two quarters of very strong booking for these two segments. However, depending on the timing of the remaining orders for the smartphone orders that we have won, we could see SMT equipment booking experience a low double-digit percentage growth quarter-on-quarter. As I mentioned, it really depends on the timing of those remaining orders.
Got it. Within back-end equipment, can you help us with the trends in some of the segments? You said that strength was from CIS, discrete, and advanced equipment. Are they all coming down in 3Q? What are the trends by segment?
Well, I think we can't predict with certainty yet. Generally, by seasonality, most of the orders for CIS should come in the first half of the year. That's the pattern for this particular segment so far. Unless there are disruptions to this usual pattern, we do expect CIS booking to come down more strongly in the second half of this year, whereas we expect this optoelectronics order to pick up. Whereas for IC/discrete, we can't be sure at this point in time. We see there's a very strong momentum for IC/discrete this year. So, we are also trying to trace down what are the end applications driving this. It seems to be it is not tied up to a particular segment at this point in time. It could be affecting generally, there's a strong demand for general semiconductors also.
So, with this one, whether the normal seasonality will take this segment, or if this demand for general IC/discrete will continue in the second half, we can't be sure yet.
Great. Thank you, Bill. Our next question comes from Steven Pelayo from HSBC. Thank you.
Yeah, I guess I really want to follow up on Bill's question. It sounds like you are talking about kind of tough comparisons, I guess, with CIS, but you did talk about pickups in opto and maybe thermo-compression bonding in the second half of the year. You guys are talking more and more about advanced packaging and 3D sensing and this expanding addressable market. I guess I am a little surprised of things peaking kind of this early this year. Is there one particular sub-segment that is underperforming more meaningfully in the third quarter?
Well, as we mentioned in our result announcement, the advanced packaging equipment market is still very small compared to the rest of the segment. In terms of growth rate, it was exciting during the first half of this year. We also see a pickup for demand for this PCB, the thermo-compression bonder. Fan-out, this wafer-level fan-out and this panel-level fan-out are developing on track. However, we are still of the opinion that panel-level fan-out big volumes should come in beyond 2017, not this year. On the first half of this year, we see strong momentum, strong demand for this high-speed low I/O flip bonder. That is also one of the areas. As we mentioned, we have a very comprehensive portfolio for advanced packaging. When we talk about advanced packaging, not necessarily it must be fan-out, okay?
It could be this flip chip bonding by, as mentioned, our PCB applications, or also in the first half of this year, the high-speed low I/O applications.
Okay. If I could just sneak in one or two more quick questions here. SMT, obviously very strong. Congratulations on this major order. With a trend towards more Substrate-like PCBs, I am curious, is 2017 going to prove a tough comparison for the SMT business in 2018? Or do you think a broadening out of Substrate-like TCB can continue to drive SMT up to higher levels throughout 2018?
Well, I think it is a bit too early to say as of this moment. It seems the Substrate-like TCB is still, I would say, yet to be deployed by a broad customer base yet, okay? Still see it is used by limited customers. Of course, we like to see this become the mainstream in the market, because if it does, it will be in our favor, as ASMPT's SMT equipment so far demonstrate the best capability in terms of placement accuracy. So we cannot tell at this point of time. Of course, on the other hand, competition will never stand still. I think we cannot ignore the catching up by our competitors in the years to come.
Okay, fair enough. I will get back in the queue. Thank you.
Thank you, Steven. Next question come from Kyna Wong from Credit Suisse. Thank you.
Thanks for taking my questions. I have two questions. One is about the back-end business in second quarter. Because I see the booking in first quarter was a bit strong, like 37% quarter-over-quarter. As a result, the second quarter billing was like over 20%. I think what is the gap here, I mean, disconnect here between like the booking and also the billing? Is that because of some push out or some overbooking by customers? That is the first question. The second question is about the outlook of the CIS and also AA machine for next year. What do you expect from the 3D sensing about the momentum and also the overall market adoptions on the dual camera as well? Thanks.
Okay. Well, you are actually right. The booking for fan-in equipment was very strong in the first half, first quarter of this year. It was extraordinarily strong, and our experience, I think, hardly come across such a strong booking. So there is a gap, as you have pointed out, between the booking and the billing, the booking in Q1 and the booking in Q2. It reflects partly because of some customers are very aggressively place order and book our capacity in Q1 this year in order to secure their delivery slot. So not all the bookings they placed in Q1 this year was successful to deliver in Q2. Some actually are moved or originally planned for Q2 and beyond Q2. A small portion of it also, as I mentioned earlier, relate to some pushback requests by customers in the smartphone area. However, it has not been alarming.
We have pointed out, we expect these backlogs should be delivered by second half of this year. For the CIS, we still expect this strong demand going forward in the next few years. We expect the dual camera will continue to dominate the smartphone market. On the other hand, as we mentioned, we start to ship to our customers equipment for assembly of 3D sensing modules. We expect the new generation smartphone this year will come with these features. We are very excited to see how well these new features will be accepted by consumers. We are of the opinion, it should be able to generate some interesting experience and turn into a much stronger demand from the consumer side. So hopefully, not only one or two customers will offer this 3D sensing capability in the smartphone, but many more that will come.
If that is the case, it will drive our business going forward in 2018 and beyond.
Thank you.
Thank you. Our next question comes from Arthur Lai from Citigroup. Thank you.
Hi, WK and Robin. This is Arthur, and first, congrats on your second strong earning. You post year-over-year almost doubled the profit. I have two questions. Number one comes from the CIS. As you were saying, this category actually contains at least three different products. One is sensor packaging, and second is AA for 3D sensing, and AA for sensing camera, the viewing camera. I wonder how we think of the 3D sensing demand for the longer term. Do you think, based on the current design, the throughput is lower or higher than the viewing camera? This is my first question. Thank you.
For the 3D sensing, it is not only the AA machine. Yes, AA is one of the processes, but it also requires assembly equipment to put those few sensors, the laser, the dial, the meter together, and assemble them in a very precise configuration. AA alignment is only part of it. As I mentioned earlier, we do expect 3D sensing should generate some interest in the market, stimulate the consumers to pursue in this area. If that is the case, I think this will be a brand-new area. As of we, in our opinion, most of the customers are not equipped with capacity in this area. If we really take off in a big way, it could translate into big demand, very strong demand for both assembly of 3D sensing modules and also AA machines for these applications.
Yeah. Thank you. Second question is related to margin. I think based on your prospect, actually we expect a low double-digit growth in the SMT side. Based on the second quarter result, SMT's gross margin was about 80%, 8% lower than again. If we have a very significant mix shift, and you also guide the margin to flat, can we forecast a strong SMT margin improvement? Or it's because the packaging margin going even higher than before? How we think of this margin expansion in the next quarter? Thank you.
Well, for the SMT gross margin, as you know, it will be very, depending very much on the geographical mix, the customer mix. But typically, when it comes to Q3, our European customers are on vacation, so more shipment will be delivered to Asia, I think particularly this year, we expect. So in general, margin will come back. However, for the SMT business, we believe the margin will be relatively stable this year with a small range of fluctuation. Because of the general unfavorable geographical mix in Q3 will be compensated by a higher volume. As a result, we expect a relatively stable cost margin for the SMT. For piece of back-end equipment and equipment, as we do not expect a very big, I would say, growth quarter-on-quarter, in terms of billing. So we also expect our margin to be relatively stable.
Overall, we expect on an annual or a segment basis, I think there should not be a big fluctuation with gross margin quarter-on-quarter.
Thank you. Our next question comes from Donnie Teng from Nomura. Thank you.
Hi. Good morning, and thank you for taking my question. My question is regarding CIS business. You mentioned bonder sales business has grown 100% in the first half, and the booking may come down in the second half. I am just wondering whether you are still seeing a strong booking momentum for AA equipment for 3D sensing in the second half, and the slowdown is mainly from the ToF camera AA equipment?
Well, as I mentioned earlier, this CIS equipment, the order as a pattern. Most of the orders will be placed in the first half, although we do still expect some orders will be placed in the second half, but comparatively, it will be a smaller ratio compared to the first half. However, not all the orders placed in first half are already delivered, so some are still in our backlog. So typically, you will still see a strong contribution to our billing from these CIS equipment. This will continue. After doing this, we expect this demand for our CIS equipment, including assembly equipment as well as AA machine for dual camera and AA machine for 3D sensing, to continue in 2018 and going forward.
However, as I mentioned, we do not expect big orders bookings in the second half of this year for this particular segment due to seasonality.
All right. My second question is regarding your announcements on opto equipment. So you are seeing it is a little bit slower in the first half, and the sales contribution will be picked up in the second half. I am wondering if that is the overall opto equipment sales will grow in second half, or it is because maybe other applications are getting lower in the second half, so it makes your opto equipment to increase the contribution.
I think it's both. In terms of seasonality pattern, a strong booking demand for optoelectronics will come in starting from Q2. That is the typical seasonality. We do see a quarter-on-quarter, a strong booking momentum for optoelectronics. That's why that make us feel very confident the billing will be reflected in Q3 this year. Also, last year, we see a very strong demand from our customers to expand their capacity for this optoelectronics back-end. After these installations of this additional capacity last year, it's normal for them to take some while to digest all these newly installed capacity before they start on a new investment cycle. As I mentioned, I think the pick-up of this optoelectronics are both in terms of absolute increase in the second half, as well as a relatively increase while the contribution from other segments will come back.
Sorry, I have one last question. Since you already gave the booking guidance for third quarter across different segments, but I'm wondering, in terms of the overall booking momentum, will third quarter still be flat as second quarter, or the third quarter booking momentum will decline due to the higher base in second quarter?
Well, in general, when it goes from Q2 to Q3, we should be seeing a quarter-on-quarter booking decline due to this normal seasonality. This year a little bit special because we are still expecting this strong booking for SMT equipment. However, as you know, SMT contribute to only 30%+ of our business. At this point in time, we don't think even we are achieving low double-digit increase quarter-on-quarter, booking growth for SMT is sufficient to offset the decline of the rest of the segments in other fields. Overall, we believe it's more likely we see a quarter-on-quarter contraction of booking.
Thank you, sir. Our next question come from Mr. Ken Hui from Huatai. Thank you.
Thank you. Thank you for taking my questions. Can you talk a little bit about your display solution? I think, number one, there's been market talks with the trends in thin bezel smartphone design, there will be changes in display assembly from COG to COF. Secondly, there is also going to be strong brand in AMOLED in China, in Taiwan over the next few years. Do you think this is going to present meaningful opportunities for you over the next one to two years or even beyond that? This is my first question. Thank you.
Thank you. Well, we hope so. We are aggressively and actively working on it. To be honest, I think this is still an area we actively cultivating. We are engaging with some key customers on this development. Overall, display still a very small business for us. We certainly, I would say, look this opportunity in this display market segment, and working aggressively to cultivate this opportunity. But I think as of this moment in time, it's still too early to predict its contribution to the overall segment business.
Okay. Thank you. My second question is a more general one. I think you comment a little bit on specific segment regarding the outlook into next year. Overall, from a billing perspective, after a very strong 2017, do you have any expectation that whether the billings will be up or down into next year at this point in time?
Well, as you know, in this semiconductor industry, customers typically are very reluctant to look beyond three months. This second half of this year, already we see a lot of optimism from our customers. In general, customers are telling us they see effect Q4 compared to Q3. We consider this as a very positive comment from them. First, as I mentioned in the past, they are very reluctant to pull too fast far to share with us their view. Second, they have not seen a decline in Q4. Some of them even believe that it may be Q- on- Q up for Q4 across this individual customer. So I would say, today, what I can conclude is there is a fair bit of optimism in the market about the second half, about the Q4 this year.
If this view will really materialize, from our experience in the past, it could mean a very good market in the first half of next year. But I think today is really, I think too early to conclude that. Semiconductor industry, in general, cannot be seen for such a long time.
Okay. Thank you very much. Thank you.
Thank you. Our next question come from Jean-Louis from Haitong. Thank you.
Oh, hi. Yeah, thanks for taking my question. I haven't had a lot of time to look at this yet, so forgive me here, but just looking at the balance sheets, I'm just wondering what the strength of the cycle is going to translate into in terms of cash, because I don't really see that on the balance sheet yet. I'm wondering what that's going to lead to in terms of potential raising of your dividend payout. Is there any potential that free cash flow this year is going to be very strong? So maybe going back to years when we did see very strong free cash flow, back in 2010, 2014. Is it possible that we're going to see very strong free cash flow this year and potentially a raise in your dividend payout?
Well, we do expect to see a strong free cash flow this year. In the first half of this year, the problem we will face is a high inventory level as of end of the first half of this year. It's slightly related to the strong booking advance coming that we are preparing materials for the shipment in Q3, Q2, and also the anticipation of the big order we have just won. The delivery time is very short. That's why we have to prepare in advance. Since we have won the order, we have started with delivery already, we do expect inventory level to come down. During the first half of this year, accounts receivable is really on track. We have to treat with the effort from the colleagues in the company.
With all this effort, there's no reason for us to believe we won't turn in a strong free cash flow with a very positive momentum. As for the dividend, as we have announced since the first half of this full-year result, we have put the switch to this sustainable and this gradually increasing dividend policy. We may not go back to the high level payout ratio of 80% in the future.
Thank you very much.
Thank you.
Take care. Thank you.
Thank you, sir. We have our following question come from Steven Pelayo. Thank you.
WK , I am just curious. In the second quarter, you are back in business up a little more than 20% quarter-on-quarter. Yet, I am looking at your peer, BE Semiconductor guiding up 40%-50% quarter-on-quarter. I would have thought maybe you could even outperform them given your exposure to camera image sensors. What is going on that would allow them, I guess, to so significantly outperform you?
Well, I really will not be able to answer your question because I do not have the insight into their numbers. Sometimes it is also in a particular product, it also depends on some specific customer, I mean, whose customer base are expanding more aggressively compared to the others. Sometimes it is difficult to use one quarter to draw the conclusion. But in general, I will say the overall semiconductor market is very good in the first half of this year. I believe most of the equipment players in this segment are benefiting from this general positive market condition.
Okay. If I could just follow up on your materials comment. I guess I am a little confused. Bookings for materials were down 15% quarter-on-quarter because of the tough compare in the first quarter. Yet in your outlook comments, you talked about some strength in lead frame activity, yet you also guided materials billings down in the third quarter, which I think would be a seasonal peak. I guess I am just trying to understand what is going on in materials. Did people take a bunch of inventory, or why would materials be down into kind of a seasonal ramp in the third quarter? Should I be more concerned about that relative to your outlook comment that suggested you were seeing strength in lead frames? I guess I am getting mixed messages from your materials comments.
Well, actually, when you are looking at lead frame business income here, this first half and year-on-year growth, and this second quarter year-on-year growth, it is a strong year-on-year growth. A double-digit kind of year-on-year growth for materials business and for circuits are strong double digits. We are also looking at the actual level of the booking level. So we are actually staying at a pretty high level. As we mentioned, the Q- on- Q comparison is just because a very strong Q on booking. The comparison is making such difficult to compare. In general, actually, when you move into Q3, you should be seeing customers start to cut back in this booking level. I mean, the booking of the materials, they should start to trim down their inventory level, and they will only start to replenish their inventory by Q4 when it is better visibility of the market.
But as of this point of time, we do not see a very obvious slowdown in the booking. It should come down a little bit, but we do not expect after such a strong growth in the first half, starting from Q3, suddenly they hold back, and then they wait and consume all their inventory. No, we do not see that. So a very normal kind of seasonality adjustment. When we refer to the booking momentum, I would say we are referring to that. So it is pretty strong at this point of time.
Okay, that is fair enough. Last question is, on SMT, you had a big lump of orders come through a few years ago, and it looks like now another big lump is coming through again. I am curious about, were you able to gain market share in this latest round? Were you able to demonstrate more superior technology or something that allowed you to gain share with some of this latest round of orders?
Well, I will say a little bit too early for me to share with you that. We do expect we should be able to gain market share after these three years of solid performance in the field demonstrating to the customers. But I think wait until we receive all orders and deliver all the orders. So maybe by full-year result, I will share with you how much market share we have gained in this particular case.
I guess what I'm really getting at there is if you're trying to compare the last few years ago, that lump of SMT business that went through, is it much larger for you this year compared to what it was a few years ago?
It could be.
Okay, fair enough. Thanks, Vivian.
Thank you. Next question comes from Laura Chen from BNP Paribas.
Hello. Hi, good morning. Thank you for taking my question. I think just a quick one on the advanced packaging. Can you share with us what your progress in the fan-out packaging or PoP? You mentioned that PoP business is on track, but probably will be more like next year's growth. Do you have any expectation how big that would be or what the growth outlook you are thinking about? Thanks.
Yes. The development of this PoP, package level, panel level packaging is on track, and our customer is starting their low volume production at this point of time. The success of this particular area really depends on our customers' business success. However, when we understand our customers' business strategy, we do have good confidence in them. That is why we are eagerly looking forward to a much bigger order next year in this particular area. From a technology point of view, it is a promising technology based on what the customer has shared with us. The application, I think it stands a very good chance, they are able to take off in those applications. Of course, on the other hand, it is still a very new technology. There is still a lot of technical challenges need to be overcome. I will say today we are cautiously optimistic about this development.
Maybe next year we can share more. We believe once this particular customer starts to take off in their production, it will inspire many more other customers to follow. As of this point of time, we have many other customers, they try to start this development, but I would say compared to this particular customer we are working with, I think the others are still far behind.
Okay. How big is advanced packaging as your back-end packaging right now?
Well, the market is small. We have not disclosed this actual contribution. As I mentioned, it is a very, very small contribution to our revenue.
Thank you. We have another following question come from Kyna Wong. Thank you.
Thanks for taking my question again. I have a question about the memory contributions. How would the company, penetrate and expose the business in the memory industry.
Yes.
That is first question. Another one is about the overall, the outstanding shares, to calculate the EPS. I know this quarter, it seems the diluted EPS is still based on 4.8 million, and as a result, it's HKD 1.83. I think the last quarter, HKD 1.32, and then around HKD 1.2, and it comes out as like 3415 and so on. In the rest of this year, what's the base for us to estimate the earnings, the EPS? Thank you.
Well, first off, for the memory, traditionally, ASMPT's exposure in the memory market are not strong. This is the area we recognize we need to put in more effort. Good news is that we are actively involved in this area, so hopefully, I can make some good progress by the end of this year in this particular area. For the outstanding share, actually, typically, there's not much change except for the employees' incentive shares. We have allowed them, we have granted a number of shares to the employees. Other than this, the outstanding share base has no change.
Okay. It's still 432 million.
So four including the
That September 30.
At this point of time, it is 408 million. But by the end of this year, we expect another piece of addition to it. So altogether, it will be 432 by end of the year.
So pardon, sorry. Four
432 million shares.
Okay. Got you. Thank you.
Thank you. Following question come from Mr. Ken Hui from Huatai. Thank you.
Thank you. My follow-up question is about the TCB. You mentioned about the shipment of the new generation TCB. I just want to understand the contribution, because I think a few year ago when you shipped a large TCB orders to a U.S. customer, you used the word meaningful to describe the size of the order. Do you think this will come back to be meaningful again this year or next year? What is actually the driver, the application, for this new generation TCB? Thank you.
Well, that's difficult for me to really quantify this order. What I can share is that we are shipping, I would say, in terms of quantity, a double-digit volume of machine to our customers in the second half of this year, because we have yet to reach the triple-digit range. That's what we like to see. In terms of drivers, I think it's a wide application. High-end logic, high-end processors is one of application. The mobility market, some specific applications in the mobility market relating to some kind of communication chips is another applications. I think as customers continue to scale down the advanced new node of semiconductor technology, we do expect there will be more and more demand for TCB application. That's why the size of that existing customer, we see more customers are interested in TCB applications over the past 12 months.
Do you expect the numbers of units of tools that you are going to ship into next year is going to be higher than this year?
Next year higher than this year. There's such a possibility, but semiconductor business always changing very fast, so I cannot answer for sure. But we do have hopes of that. On one hand, we see there's the momentum in the market turning into this application, and we are also expanding our capability.
Thank you. Following question comes up from Arthur Lai from Citigroup. Thank you.
Hi. WK, I actually have a follow-up question. Based on your 20 years experience, are you excited about the new applications for the lineup for 2018?
The new applications?
Lineup. I am sorry, the echo is very strong. I do not know. Let me repeat my question again. We have an understanding about the memory, about the TCB, and also, we know that the AI and the GPU will have a big growth next year. But we have not seen so many new application line-ups for the semi industry. I just want to understand, are you excited about all the good things happening in the next year?
Well, I will say certainly. You see, if you look back for the last 10 years cycle in the semiconductor industry, the industry has been so dominated by smartphones. It is good and bad. The thing is, we enjoy some exponential growth, in terms of volume, in terms of demand. However, on the other hand, we are a little bit distorted in a way that the application market is so narrowly focused on smartphone. We do expect going forward, there will be multiple application drivers driving the semiconductor industry. You see, automotive is one of it. Talking about IoT is another. Now even in the smartphone, people start to talk about this AR, 3D sensing. We also start to see a lot of people talking about artificial intelligence, and this will also bring about demand for high-performance servers, cars, high bandwidth, data transfer.
In general, we believe the semiconductor content in many electronic systems and also applications has increased. That assumption at this point of time for the very good momentum of the semiconductor industry in general in the first half of this year. With this one, I would say definitely, we are excited about that. When we talk to customers in the industry, they are also excited about it. As I mentioned, on one hand, in the past, people know it is a smartphone cycle. On the other hand, people also deploy the smartphone cycle. We are seeing, with this, a more healthy development in the semiconductor industry, driven by multiple application demands. Probably, we are looking forward to a healthier ecosystem in this industry. It could translate into a multi-year growth for this industry in the next few years, although it is a little too early to predict.
Yeah. Thank you very much.
Thank you, Arthur. Our next question comes from Eric Zhong from Everbright. Thank you.
Thank you for taking my question. I have two questions regarding the SMT equipment. First is, what do you think is the most important driving force for the growth of SMT in 2017? Does this mostly come from auto electronics by increasing market share or new clients? My second question is, does the company with other smartphone brands will follow Apple to use Substrate-like PCB on their new product? Thank you.
Well, I think for ASMPT, actually, over the past few years, we have successfully built a multi-product portfolio, different products, different applications, service drivers. The good thing about this is that not all the applications will grow simultaneously. Like in just the first half of this year, when we come across very strong demand for IC/discrete, CIS, then we have a relatively, I would say, mild demand for these optoelectronics. This will help the company, help ASMPT to deal with all these demands in the different phases of the cycle. I think that will be the strength of the company. What is your next question? I forgot. What is your next question?
Oh, yeah. My second question is, does the company with the other smartphone brands will follow Apple to use Substrate-like PCB on their new product?
Well, in the smartphone area, actually, it has been the case for the past 10 years. The other smartphone makers are always following the market leaders. We have been benefiting from this trend. For example, we work with the market leaders for the AA development. We work with the market leaders for opening to the market, the CIS assembly systems. When the other phone makers start to follow, we benefit from that. That is why we are very excited to see the other phone makers start to follow, for example, 3D sensing. We hope that become a trend, and then we will continue to benefit.
Okay. Thank you so much.
Thank you, Eric. Our next question comes from Donnie Teng from Nomura. Thank you.
Thank you for taking my question again. I have a question regarding TCB and Fan-out. Could you elaborate more on your sales contribution from TCB and Fan-out this year? Which one will be bigger?
This year, I expect TCB will be bigger.
Going forward, in terms of the 7 nm packaging, do you think they are more likely to use TCB or Fan-out? Because according to my understanding, TCB has a relatively low throughput, while Fan-out is more suitable for large volume production. How do you think about the trend here?
That is one of the considerations. I think the most important consideration would be the application of the chip. If you are producing high I/O applications, for very high performance servers, cloud computing, TCB is the direction to go. However, when you are producing application processors for smartphone, I think Fan-Out will do the job.
Got it. Which one should we expect to have stronger growth next year, in your opinion?
In terms of growth, certainly, mobility market has a bigger volume. They are handling more application processors per year compared to high-end processor for servers and cloud computing.
I think you think probably Fan-Out would have more opportunity, right?
Yes, in the long run. As of this moment, what we understand from our customers, they are not looking at only using Fan-Out for building application processor for these smartphones. People are talking about these power management ICs, even memory products. So Fan-Out has the advantage of even building multi-chip modules. So that is the potential strength of Fan-Out. Of course, Fan-Out can never achieve the kind of accuracy, precision of TCB bonding. I think these different technologies will serve different application lines.
Because I heard that Qualcomm and HiSilicon has already using TCB on their high-end AP. I am just wondering, if they continue stay with TCB next year, would it make the Fan-Out progress to be slower than your expectation?
TCB is expensive process, because the machine is expensive, the throughput is slow. Actually, in general, it is a challenge to be used for smartphone applications. We and our customer have been trying to bring down the cost of the TCB bond for the past few years. But I think today, a more general view is to see that, unless there will be specific applications optimized for it, otherwise, TCB will be expensive technology for smartphone application. Whereas, Fan-Out stands, I would say, a better opportunity. Today, Fan-Out is still expensive, in my opinion, but judging from the semiconductor dramatic experience in the past, there is, I would say, more room for Fan-Out to lower their cost, when this manufacturing process become more mature than TCB.
Thank you so much.
Thank you. Ladies and gentlemen, should you have any question, please press star one on your telephone. Leonard, there seems to be no further questions. Would you like to conclude the conference?
Okay. Thanks a lot for joining our conference call today. I think we have had a very good discussion covering many different areas. I would like to thank you for joining us this time, and we will talk to you again next time. Thank you very much.