Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the conference call. Leonard, please be on call, and I will be standing by. Thank you.
Good morning, ladies and gentlemen. Welcome to the ASMPT 2017 first quarter results investor conference call. Before we proceed, I would like to note that during this conference call, there may be certain forward-looking statements with respect to ASMPT's business and financial conditions.
Such forward-looking statements may involve known and unknown uncertainties and risks, which could cause actual results, performance and events to differ materially from those expressed or implied during this conference call. With us this morning are Mr. W.K. Lee, CEO of ASMPT, and Mr. Robin Ng, CFO of ASMPT. We will start with a brief discussion about our 2017 first quarter results, followed by a Q&A session. Without further ado, let me hand this over to Mr. W.K. Lee. Mr. Lee, please.
Thank you, Leonard. Good morning, ladies and gentlemen. Thank you for joining us this morning. I will first provide you with the summary of our first quarter results and followed by Q&A session. We are very pleased to announce the strong financial results achieved by the group for the first quarter of 2017, with many new records set.
Our strong performance was driven by the robust demand from the mobility, communication, and IT market, as well as the automotive market. We believe the group has the right product offerings to ride on the growth potentials brought about by these markets. Group bookings reached a new high of $608.4 million. It was 39.2% higher than the previous quarter and 48.6% higher than the same period last year. Group billings were $484.7 million, rose 31.4% and 6.8% against the same period last year and the preceding quarter, respectively.
Group net profits surged 470% year-on-year and 92.9% quarter-on-quarter, respectively. The improvement was due to higher revenue, improved gross margin, and a non-cash gain related to the adjustment of the liability column of the convertible bonds issued by the group in March 2014. Group gross margin was at 39.9%, representing improvement of 686 basis points and 223 basis points over the same period last year and the preceding quarter, respectively.
Book-to-bill ratio for the group was 1.26, and backlog as of end Q1 increased to $551.5 million, representing an increase of 30.2% from the end of last year. By geographical distribution, China, Europe, Korea, Malaysia, and Americas were the top five markets for ASMPT in Q1 2017. CIS equipment was the main contributor for the significant increase in sales to Korea.
I will proceed to share the performance of our three business segments, starting with the back-end equipment segment. The group's back-end equipment segment attained a new high in both bookings and billings in the first quarter of the year, underpinned by the demand for CIS, IC /Discrete, and LED equipment. Bookings rose 63.3% year-on-year and 37.1% quarter-on-quarter, respectively. Q1 billings for the back-end equipment grew 56.1% year-on-year and 15.5% quarter-on-quarter.
Gross margin of the back-end equipment segment was at 46.6%, a new high since Q2 2011. It improved 673 basis points year-on-year and 385 basis points quarter-on-quarter, respectively. Segment profits surged 213.7% year-on-year and 46.4% quarter-on-quarter. Bookings for the materials segment set a new quarterly record in Q1 this year. It grew 35.4% year-on-year and 19% quarter-on-quarter. Billings also reached a new high for the first quarter of the year. It increased 16.2% year-on-year and 5.8% quarter-on-quarter, respectively.
Segment profit was flat year-on-year but declined 4.9% quarter-on-quarter. Gross margin was flat compared to the preceding quarter but contracted 210 basis points year-on-year. Billings for the SMT Solutions Segment also attained a new record for the first quarter of the year. It increased 9.6% year-on-year but declined 4.2% quarter-on-quarter. Bookings rose 34.6% year-on-year and 22.4% quarter-on-quarter, respectively.
Gross margin of the SMT Solutions Segment made significant improvement of 775 basis points year-on-year and 33 basis points quarter-on-quarter to 39.4%, while the segment profit increased 217% year-on-year and 11.3% quarter-on-quarter. As for the outlook of this year, we expect group billings to achieve a year-on-year strong double-digit percentage growth. We also expect bookings in Q2 to remain at a similar level as Q1 this year.
Lastly, as we anticipate high turnover from all three of our business segments, we expect gross margin of the group to continue to improve during the second quarter of this year. With this, I thank you for your attention in our results announcement. We are now ready to take your questions.
Thank you. We will now poll for a question. If you'd like to register for a question, please press star one. Thank you. Our first question comes from Steven Pelayo from HSBC. Thank you.
Great. Maybe we can start with a little bit of some detail. I am curious in your guidance for the second quarter. I know it is a bit vague, suggesting strong double-digit growth year-on-year. Could you maybe help us understand a little bit more what you are thinking sequentially, maybe? Maybe you could talk a little bit about, do you expect all three segments to grow sequentially as well?
Yes, we do expect all three segments to grow sequentially. Of course, Q1 already at a very high side. I would say we expect a stronger year-on-year growth compared to QoQ, but based on the very strong bookings received by all the three segments in Q1, we do expect continued sequential strength for the billings of the group as well as for all the three segments.
Thank you. Our next question comes from Mr. Bill Lu from UBS. Thank you.
Yeah. Hi. Congrats on the good results. I have two questions. One is that you said that 2Q bookings will be at similar levels as 1Q. Can you talk about the composition? Does it look very different in terms of the segments?
Okay. Well, I think for the Q2 booking, we expect a strong booking momentum from the SMT Solutions Segment . Probably the back-end equipment segment still will remain at a relatively high level. However, since the back-end equipment booking already increased so much quarter-on-quarter in Q1, at this point in time, we are not 100% sure there will be a continuously sequential improvement in the back-end equipment booking. However, we are confident the overall back-end equipment booking will remain at a high level on absolute terms, and similarly for the material segment. However, we do expect that even there are continuous sequential growth in booking for these two segments, the growth rate should come down significantly after such a strong growth performance in Q1. However, we do expect a strong booking momentum for SMT business into Q2.
Great. Thank you. My second question is on gross margin. Very good margin in Q1. Can you talk about the pieces of that, in terms of just scale versus mix versus cost improvements? The incremental margin in 1Q was, by my calculation, 73%. Can you talk about how we should look at incremental margins going forward?
For the good gross margin in Q1 this year, I think obviously it's first because of the strong performance of the back-end equipment business. It delivered a 46.6% gross margin. This improvement was a combination of higher revenue and also product mix. We have been shipping a lot more back-end equipment to customers in the CIS as well as the IC /Discrete market. So relatively, these are having a better margin compared to other applications like LED.
So I think this product mix has affected this revenue, and in fact, is another factor. At the same time, we also continue to enjoy the benefit of the cost reduction effort for the past few years, as we have been sharing with this restructuring of our manufacturing strategy, engaging a lot more external partners for the manufacturing. That really translates into a good result for us.
On the other hand, SMT business also delivered a good gross margin during Q1 this year. In Q1 this year, actually, there has been an exceptionally high contribution from the European customers, comparatively. So that actually, also this geographical and product mix, customer mix, contribute to the strong gross margin performance of the SMT. Going into Q2, while we expect continuous improvement, we do expect the magnitude of improvement should come down compared to the previous quarter.
Thank you, sir. Our next question comes from Michael Chou from Deutsche Bank. Thank you.
Hi, W.K. Two questions. The first question is, do you think the booking could pick up in Q2 this year, or it may still stay at the same level in Q3 and Q4 this year?
Well, this is a difficult question. Because the booking level in Q1 was already very high, while we are anticipating the booking level in Q2 should be very similar to Q1. We are already forecasting two quarters of a very strong booking. At this point, it's difficult for us to really predict what will be the case for the second half of the year.
The customer also not able to give us a good guidance at this point in time. Well, something that I would say very positive about the customers' expectations, that when we check with customers how they look at the second half of the year, generally, we do not receive customer continue to tell us second half will be another booming period. They will be placing even more order to us.
They don't say that, but at the same time, we do not come across any negative sentiment at this point in time. Nobody indicating they are expecting a significant comedown in the second half of this year. By knowing this industry for such a long time, knowing the psychological behavior of our customers, when they did not indicate such a negative sentiment for the second half, it's a reflection of they are cautiously optimistic about the second half.
At this point in time, I would say, we will also take the more cautious approach. We do not expect the second half to continue to go up. We hope to see that will be the upside potential for us, but from a business planning point of view, we do not assume that.
Okay. Do you have some idea about the split for the first half, second half in terms of revenue portion?
The split for the second half?
Yes, the split, such as maybe 40-60 or 50-50.
Michael, could you speak up?
Yeah.
Can you hear my voice?
I'm sorry. Do you have any idea for the split, regarding the first half, second half sales portion?
From a billing point of view, we actually expect this year, probably, there's no significant difference in terms of billing between second half and first half. Because we are still expecting a good booking for the second quarter of this year to be at a similar level of Q1. That means, as you know, it will translate into the billing for ASMPT in Q3. That means we are still expecting Q3 will be having a strong billing momentum, probably very similar to Q2, if our forecast turn out to be accurate. Overall, we do not expect, from a billing point of view, there's significant difference between first half and second half of this year.
Thank you, sir. Our next question come from Charlie Chan from Morgan Stanley. Thank you.
Thanks for taking my question. Congratulations for a very strong result. My first question is really regarding the very high B/B ratio. As you can see, the leading foundry like TSMC, their first quarter and second quarter revenue has dropped around almost 10% each quarter. For back-end customers, their CapEx doesn't seem to grow year on year. Can you explain what is this connection here, and if you have any market share gain, can you identify which segment you are gaining share? Thanks.
Well, I probably will not be able to really answer your first question. We also notice announcement from TSMC, talking about with inventory, the leveraging of the smartphone market, they're expecting Q2 will be a lesser shipment, Q o Q. However, judging from what we have seen from the customer base we have, ASMPT has a broad customer base.
I would say overall, we see from a back-end space point of view, this is really busy. Whenever we talk to everybody, we also monitor their capacity utilization, and partly also judging from the market momentum of lead frames. Because lead frame is a consumable in the semiconductor industry. All this give us a very good feeling. In terms of application, we still see smartphone and automotive are the two largest driver for Q1, at least for Q1 this year.
This also partly related to, typically, LED will have a seasonal pattern. First quarter of the year is not a strong quarter for LED. Overall, we really cannot explain why, on one hand, the foundry see a weaker shipment but on the other hand, such a good and strong business in the back end. Regarding your question on whether we have market share gain, certainly, I think we have the right products enjoying the growth potential, of the two strong or three strong market segment.
CIS, we have a very unique product offering in this active alignment machine for dual cameras, for 3D sensing. I think we continue to enjoy this as I have been sharing in the past. This will not depend so much on the absolute level of a smartphone shipment, because it's still more related to the penetration rate of the dual camera.
Even the absolute number of shipment of smartphones not going to increase, but if the penetration rate of dual camera continue to increase, the demand for active alignment machine will be there. Okay? Also looking from the fact that more and more Phone makers are introducing even more advanced features for camera.
For example, 3D sensing, and for example, we notice people are talking about deploying the augmented reality technology into the smartphone. This will actually increase the demand for all this. ASMPT is enjoying this particular segment. On the automotive side, we also are enjoying this growth from a multiple front. On one hand, our SMT business have been traditionally enjoying a very strong position with the automotive market. On the other hand, ASMPT back end equipment also have a stronger position with the IDMs in general.
IDMs have been actively participating in the automotive growth for the past few years. So ASMPT is enjoying this, and furthermore, in the power management area for this automotive, ASMPT also have very unique product in the market. So, that's why we are also seeing this. When we expect the LED market, we will take a seasonal bounce back in the second quarter of this year. We are also going to enjoy our strong position in the LED market. So overall, we believe ASMPT is in a good position to enjoy these market opportunities in 2017.
Thanks. It's very clear. My second question is regarding industry and the fan-out wafer level package. May I know how ASMPT specifically is involved, and do you have any solution to catalyze from this new market?
Yes, we do. Actually, we have been engaging with various customers in the fan-out solution in both the wafer level as well as the panel level fan-out. I can't disclose the name of those customers at this point in time. I believe the market closely monitoring them.
By the time they go into a high level of volume production later part of this year, probably everybody in the industry will be aware of, and they will be aware of what solutions these people are using. However, on an absolute basis, the advanced packages still contribute to a smaller part of our revenue at this point in time. Certainly, it's growing fast. We also noticed people like at TSMC talking about their CapEx will go up to $1 billion this year.
But unfortunately, if I look at it, the $1 billion CapEx, probably not totally, I would say, addressable by typical back-end equipment players like us and our competitors. I think probably also a certain part of it go into those end-equipment area. Yeah.
Thank you. Our next question comes from Mr. Arthur Lai from Citigroup. Thank you.
Hi, W.K. and Robin. This is Arthur Lai from the Citi Research. First congrats for the margin bit. Our house view is that the premium smartphone to grow rapidly and more features in the next two years. My question is, do you think your product portfolio in the 3D sensing for the premium smartphone to be materialized in this year?
From the technology side, we investors also wonder what's the extra investment for you to do the dual camera sensing and also the 3D sensor active alignment? It's almost fungible technology, or actually you need to invest more on the 3D sensor active alignment? Okay, thank you. This is my question.
Sure. Well, we believe the 3D sensing to take off, more 3D functions will be deployed in the smartphones. Of course, this is a very initial stage. That's what we believe. We believe actually there will be more innovation in the next few years, on how to make use of these 3D functions, 3D capabilities. So, the potential of it, not 100% sure at this point in time.
We have developed good solutions, and our solutions is going to be deployed by our customers this year. So we are expecting a higher contribution from this 3D sensing business, to our overall back-end equipment business. Yes, in terms of the technology development, as I mentioned, because of the we expect the application and the technology continue to evolve. So, we believe that actually, the equipment technology will not stand still. It will continue to evolve.
I would say today we have the solution for the market, but with the application continue to develop, I think we have to catch up with this one. That means opportunity for equipment supplier like us. That means customers will continuously looking for newer capability, not only for new capacity.
Yeah. So, in the next two to three years, can we continue to expect the higher output of the active alignment and also potentially, we can also increase the price of the active alignment machine?
Well, in this particular market, I think we can't simply increase the price. We must grow together with the customer, give them better value. Sometimes it's price dominance, sometimes it's maybe a better capability. We can align those cameras in a higher quality, better view. So we have a combination of this. Certainly, this industry is an industry always looking at lower costs, higher productivities. So I think that should be the direction to go. Yeah.
Thank you. Our next question comes from Tina Wong of Credit Suisse.
Hello, W.K. Congratulations on the strong results. I have questions to ask about the. Actually, I have follow-up questions regarding the advanced packaging, especially for the fan-out. Because we see the current bookings, which is quite strong in the back end for the first half. But does it actually already include the potential upside for the fan-out demand in this year? Or more potential will be from the second half, because some customer may decide to ramp up the production properly later this year.
In the booking for the first quarter of this year, it does include certain booking for advanced packaging. As I mentioned, the advanced packaging, as of this day, still contributes to a smaller portion of our overall back-end equipment business. We do expect customers to ramp up in the second half of this year. As I have been sharing in the past, we don't expect it will become something very big in 2017. Probably, the importance, the contribution from the advanced packaging will increase starting in 2018.
Okay. Thank you. Another one is about the 3D sensing. Do you see the trend from the Chinese smartphone makers? There is actually preparations for these 3D functions, probably maybe sometime second half, in order to catch the advanced features from the major U.S. smartphone makers.
Well, certainly, I would say. You see the technology gap, the innovation gap, actually, in the smartphone area getting closer and closer. We do notice that customers, those smartphone makers in China, actually are catching up very fast. In particular, in this camera technology, CIS, imaging sensor technology. We do expect that the pace of closing the gap will be getting faster and faster.
Thank you, sir. Our next question comes from Chris Yan from [inaudible]
Hi, good morning. Congrats on the strong results. I have a follow-up question on the bookings. On the back-end side, can you talk about the booking momentum you are seeing in different segments such as LED, CIS, automotive, IC/D iscrete? Thank you.
Well, I think, for the booking momentum for the back-end equipment, as I mentioned, CIS was very strong. Actually, in our first full-year result announcement last month, we already mentioned that entering into the new year, customers in the CIS market already start to place orders. So we do receive strong orders from these customers, partly also because they were aware of our limitation on this clean room space to produce this equipment.
So these customers actually really aggressively book our capacity for this. At the same time, we see very strong booking for IC /Discrete market. Overall, we see the IC /Discrete market was strong. We believe partly due to the smartphone application and partly due to the automotive applications. Comparatively, the LED market, a normal seasonal pattern in Q1 this year, does not show exceptionally high growth, on nine down, it contracted year-on-year.
However, we do not see the LED market momentum will slow down. Actually, as I mentioned, this is normal seasonal pattern, and we do expect the LED booking will have a seasonal bounce back in Q2. Because we see customers in the LED market also enjoying good profitability in 2016 with the strong investment they make. So with this one, we are confident they will continue their investment in 2017.
Thank you. Our next question comes from Mr. Ken Hui of Huatai. Thank you.
Thank you for taking my question. My first question is regarding the booking for SMT for this quarter. You mentioned that the momentum will pick up in this quarter. If you compare the momentum against the last cycle, which was 2014, do you see any difference in terms of the strength between this year and three years ago? Thank you. That is the first question.
Well, difficult to predict. From our point of view, of course, we expect with the groundwork, the effort we have done over the past few years, we are definitely expecting to enjoy a larger market share this one. Okay? However, until we get the order, I cannot be 100% sure. So I would say we are anticipating to have a larger market share this time.
Okay, thank you. My second question is, I think, many of the investors, including my clients, are very interested in looking at your factory, particularly for the production of the AA machine. Would you consider doing some virtual show in the near term?
Well, the investors are certainly welcome to visit us. I cannot promise to show you everything, because certain work with certain customers are confidential. But for those non-confidential, I will say certainly, you are welcome to pay a visit of it. Yeah.
Okay. Thank you.
Thank you. Our next question comes from Simon Wu from Merrill Lynch in Hong Kong. Thank you.
Yeah. Thank you very much for taking my question. Maybe a couple of questions, but first, just a little bit longer term business outlook focusing on China. Which part do you think could offer better momentum for your long-term growth, say, SMT versus back-end equipment?
Because everybody now may be optimistic on the dual kind of model demand, but the growth potential for China could be maybe Tsinghua Group's NAND capacity investment and also the back-end companies may try to expand the packaging solution in the production facilities, expecting the newcomers, CapEx increase for the memory or even the foundry. Maybe it would be great if you can provide some color for the China growth opportunities for back-end equipment versus SMT solutions. Thank you.
Well, I think China certainly is a very important market, important growth opportunity for the industry, particularly for the semiconductor back-end business. As we mentioned about the memory initiative by the government, and also the government's effort of boosting up the overall semiconductor industry in China. ASMPT has an advantage in this particular market. As you know, China always contributing the largest market to ASMPT and also contributing to more than 150% of our business.
We continue to work with this customer in this particular area, cultivating solutions for them. We believe China will continue to make themselves more efficient. We believe customers in China have to deal with the increasing wages in China. This become a challenge for many of them. So even high level automation, smart factory, Industry 4.0 or Made in China 2025, these are the directions customers are looking for solutions.
ASMPT actively participating into this, working together with customers, to go beyond the existing level, simply supplying them with, I would say, islands of automations. We are moving towards a total automation solutions. We also see customers in China are also addressing, or moving towards solutions for advanced packaging. China customers' participation in this area, still small on a worldwide basis, but we do expect this to increase.
So that presents an opportunity for ASMPT to work together with them. We also expect, in the longer term, the memory segment will grow significantly in China. However, as I have shared in the past, overall, ASMPT's market share in the memory market are not as strong as the other segments. But we are taking efforts to improve our position in this area.
Hopefully, in the later part of this year, and next year, we start to build up a more solid foundation in this memory market, with some major players, international player in this area. That, if we are successful, that will help us to continue to tap on, to ride on the growth opportunity of the memory market in China.
Okay. Thank you very much. Just last question regarding the convertible bonds. Going forward, your fully diluted EPS number will be based on the around 430 million shares versus previously about 400 million. Is it fair to assume like this?
430 million. Full conversion, how many shares I think? The full conversion is based on the conversion price right now is 95, so it is around 23,000-
23 million
million shares.
Million shares y eah.
Based on today, the outstanding shares are around 430 million, so you add another 23 million.
Yeah.
Around 430 something million.
Yeah.
Thank you, sir. We have a following question come from Steven Pelayo. Thank you.
Yeah, two things I'd like to explore with you. First, on margins a bit. Your OpEx was actually down sequentially on higher revenues. I'm curious about your outlook for OpEx into the second quarter. Next question on margins that I have is relative to SMT. The segment profitability in SMT was actually up, I think it was up almost 200 basis points quarter-on-quarter.
Yeah
on a decline in revenues. Maybe talk a little bit about SMT profitability. Then finally, on margins, if you could talk about SMT gross margins in the second half of the year as you maybe start shipping more to Asia versus Europe. Those are my three margin-related questions.
Well, I think, for OpEx, you mentioned about, it was sequentially down. But typically, that is the pattern for us. Typically, in the first quarter of the year, because a lack of the incentive share-related expenses.
Okay.
Typically, we got a lower OpEx in the first quarter of the year, so nothing special. However, we do expect a higher OpEx in the second quarter of this year and the second half of this year, partly because we start to book the incentive share expenses into the OpEx, and at this time, also at higher share price.
Also, typically, the group has a salary review in the middle of the year, so that will all translate into a higher OpEx expenses. In terms of SMT, segment profit, significant improvement, mainly due to cost margin improvement, and also, very good control on the OpEx. So, with these two, and also high revenue, so with all these factors combined, it is the leveraging effect, so translating into a very significant segment profit improvement.
Gross margin, as I mentioned, mainly due to a high contribution from Europe, during the first quarter of this year. As you are right to point out that, typically starting from the second quarter of the year, we start to increase our shipment to customers in Asia and particularly in China. That does have some pressure on cost margin. But we expect this time, it will be offset by the strong growth in billing, in the second and third quarter of this year.
On the other hand, whereas, if we are able to secure the order we have been looking forward to relating to smartphone. Because those are very high-end production of smartphone, it does require a very high-end machine. So those machine, typically, we are able to enjoy a better margin competitively, due to the capacity of those machines. Overall, I would say we are hopeful to see, to expect our gross margin in the SMT Solutions Segment will not come down, due to a higher shipment to China in Q2 and Q3.
Excellent. Thank you. If I could just follow up a little bit. On the OpEx ratio, do you think that can get as low as high teens, 17%-18% of revenues in kind of 2Q, 3Q timeframe? Can I nail you down to some numbers?
Probably not yet, I would say. That will require a very significant increase in the revenue. I think probably still around the 20%, close to, in my opinion. So plus or minus, very close to that level. Yeah.
Okay, one last final question on product. You talked about CIS strength really in Korea. I am curious about, is this just spreading out the CIS strength? I understand there is some competition in Germany and Japan, and even U.S. players have some active alignment tools out there. I am curious, is the concentration of CIS, is it fairly highly concentrated primarily in Korea? Or talk about the breadth of customers or regions that you have in that area.
Well, actually, we have a very wide span of customer base. I would say we are strong in all customer supply chain in the CIS area. Despite, as you mentioned, those competition from different parts of the world, there are bound to be those competition, but we still enjoy a very strong position in that area. The Korean supply chain actually has been our customer for a long time. This renewed investment for them is something exciting we are happy to see.
I was actually speaking specifically to active alignment. Is that concentrated in just a handful of customers, or how much breadth do you have in terms of active alignment adoption?
Active alignment definitely have a smaller number of customers. It is really high-end kind of camera modules, so a few big customers are fighting the market share among themselves. But we do expect increasing number of participants in this particular area.
Okay. Since I have you, I am going to sneak in one more, which is, what is your memory exposure in back-end equipment? Are you benefiting from some of the increased CapEx going on for DRAM and NAND?
Not immediately, as I mentioned. We do have memory customers, but as I have been sharing, our strength in this area are not as strong as in the other segments. We are taking, let's just say, actions to strengthen our position over there. Hopefully, I will be able to share with you, maybe next year or second half of this year, we have increased our presence in this particular area. We are not directly benefiting at this moment.
Thank you. Our next question comes from Michael Chou from Deutsche Bank. Thank you.
Three follow-up questions. Regarding your panel-level fan-out, from the industry point of view, what is the yield rate compression between panel-level fan-out and the wafer-level fan-out? Do you think the high-end smartphone solution will probably shift to panel-level fan-out for some customers in the future?
Well, difficult to tell at this point in time. It really depends also on the technology developed by different customers. In general, we, in the industry, expect wafer-level fan-out able to have finer dimensions. It has a lot to do with the type of middle-end equipment, those RDL equipment people use. With wafer-level fan-out, the RDL equipment are more, I would say, linked to those wafer fab equipment, closer to that.
Then you typically should be able to provide a finer geometry. However, the downside of it is the cost is high. Customers, they want to develop the panel-level packaging, other than the scale, a bigger panel, you have scale of economy. Actually, they are also advocating a less, I would say, critical dimensions, in those RDL trace operation. Of course, in exchange, will be a lower cost of production.
Now, but we do see the customers, they are actually, for the customer who developed the panel-level solutions, we see customers are very ambitious. They try to address different applications, from application processor to power management IC, the memory. I would say today, this is an emerging application area. The verdict is yet to be out. Finally, different technology will be more suitable for which kind of application, I would say only after people really go into the real production, then we can come to the solid conclusion. At this point, it is a little bit too early to predict.
Oh, so that means the yield rate still needs to be watched this year, right?
Certainly, yield is a big issue in this particular area.
Oh, sure. My second question regarding the 3D sensing. The AA machine for 3D sensing should be quite positive for your company. But do you think the Chinese smartphone makers can overcome the software issue of 3D sensing, compared to the leading company in the future? What is the implication for the AA machine [inaudible]?
Well, I think the demand for dual camera, the demand for 3D sensing, continue to go up. Especially when you read about those reports talking about introducing the AR technology into smartphone. It only gets us to believe the demand for all these kind of advanced camera sensor continue to increase. The China brand smartphone is a big part of the smartphone market.
We expect this group of customers, as I mentioned earlier, will catch up very fast. We totally don't rule out that they will be very fast adopters of all those latest technologies. Actually, in general, their way of innovation or their way of change can be very fast. We will benefit from that. Actually, we have been benefiting, and we are going to benefit more from this.
With all the competition for our AA machine, they're bound to be there, and not only competitors from the local Chinese market, also competitors from Korea, from Japan, from Europe, from USA. Today, we still have enjoyed a strong position, but we don't take it for granted. I think, we respect our peers a lot, and we believe they also have good technology. I think in order to defend our position, we just have to continue to drive our own innovation.
Does that mean your AA machine for 3D sensing solution, helps you even increase your dominance with AA machine long-term?
Yes and no. As I mentioned, this is an evolving technology. It could change very fast. A customer may come up with a new idea of how to use the 3D sensing, how to use the new camera. There could be a new way of constructing the new camera.
That can suddenly change the game. I will say, yes, we enjoy a very good position at this point in time, and I think our particular strength is customer typically will look for ASMPT to develop new generation solutions. We could be ahead of the others in time. But there's no guarantee we will continue to enjoy the market. We have to take the others seriously. Also, by saying this, I'm not indicating we are going to lose market share to any one of them market position.
Thank you. We have another phone question come from Ken Hui from Huatai.
Thank you for taking my question again. My first question is regarding the Q2 booking. Based on some of your comments, you said SMT should see improvement, while the other segment, you are not so sure. Can I say your guidance for sequential flattish booking is kind of conservative given that we are still early in the quarter?
Well, certainly. I think we cannot be so sure what will develop in the next two months. We are a little bit cautious also because we already enjoy such a strong booking in Q1. Otherwise, typically from Q1 to Q2, we should be forecasting a strong booking growth momentum. But this year, we tend to be more cautious, from moving from Q1 to Q2.
Okay. Thank you. Regarding the fan-out, you mentioned that there may be some revenue contribution this year. Would you be able to tell if that was mainly coming from OSAT foundry or IDM, or in general, do you think, from your perspective, which group of customer will likely provide more contribution in the initial stage to ASMPT?
The wafer of the fan-out, no matter wafer level or this kind of level fan-out, is really a different kind of game. It requires significant CapEx investment. It is not the typical OSAT will be able to make such a huge investment. It is a different set of customer. I am not able to really tell it too specific, otherwise, everybody can tell who is this, then I am in trouble. I also read a lot of reports from you guys. You guys actually are able to follow this closely. Some of you already are aware of those customers we are working together with. I think, while I cannot name it explicitly, the information is available in the market.
Thank you. Our following question come from Charlie Chan from Morgan Stanley. Thank you.
Thanks. Also a question on fan-out. Your company has a very good track record in gaining market share in the new segment. May I know what is the main competitors for you in the fan-out wafer level packaging market?
I think if you are looking back at why ASMPT has been successful in gaining market share in those growth areas, actually, it lies a lot with ASMPT's capability to work together with those customers to come up with new solutions. Actually, we are seeing this going to repeat in the wafer level fan-out. Our panel-level fan-out, when the customer engage ASMPT to do this, actually, we do not have 100% ready solution.
The customer assess our technology, they believe we are able to do the job they are looking for. They are willing to give ASMPT time to develop the solutions according to their requirement. Actually, this kind of working together really put ASMPT ahead of our competition. I would say, we are looking forward to repeating this success with this formula in the panel-level packaging
Besides your very strong execution, can you describe the technology difference between fan-out equipment versus the traditional packaging equipment? Because, from the manufacturing perspective, fan-out is more close to the front end, whereas those were founding is more close to packaging. I believe from equipment, the technology is different.
Yeah. We are not in the business of those RDL equipment. Those are more closer to either the front end or the LCD manufacturing. We still investing in those more close to the back end. For example, in the fan-out packaging, one of the equipment people need will be we call the wafer or the panel with construction machine. It is a high precision pick-and-place machine.
ASMPT has multiple solutions coming from both our back-end equipment business as well as the SMT Solutions Segment. This is one of the important areas. ASMPT solution is accurate, fast, and also able to handle a large bonding area. Talking about panel size, over 600 mm by 600 mm. This is one of it. ASMPT also have solutions for this wafer-level encapsulation. This is also another area customer like to work with ASMPT.
We also have this laser dicing, laser separation capability. This is another area ASMPT are participating. Also, another application will be after you assemble the chip, you still have to do the pick and place, test, inspect, and pack. ASMPT also have solution for this area. These are the strength for ASMPT. We compared to the others, we have more comprehensive solution. Because ASMPT has been a supplier of equipment, it makes ASMPT much ready to enter this market.
Furthermore, we also seeing, in the advanced packaging, the size of fan-out also at the high-end, this chip bonding, in particular, the TCB. This all together put ASMPT in a very good position to work with customers in this area. For example, take the TCB, I think our solutions are getting accepted by more customers, especially for the high-performance computing market. These are the, I would say, unique strength for ASMPT in this advanced packaging market.
Okay, thanks.
Thank you. Our next question come from Simon Wu from Merrill Lynch. Thank you.
Yeah. Thank you very much. Very quickly, regarding your laser grooving and dicing technology and machines, when do you expect a meaningful amount of the sales for the laser cutting equipment? Also, how you can be different versus competitors like Disco, Japan, or maybe even EO Technics in Korea? Thank you.
Well, I think, EO Technics in Korea is totally a different class of equipment. I think, we are in the A-league, but they are not. I think we are competitor only the Japanese supplier you are mentioning about. Of course, they have the advantage of having a much larger installation base, so, that's their strength. But ASMPT's solution technologically are much more superior.
Better cutting quality, smaller, we call the saw width, and also much faster speed because of our multi-beam, multi-lane technologies. This a patented technology. So, that put ASMPT in a good position. We enjoy very good growth year on year. Last year, actually, the business of this particular area grow more than double. Actually, last year was a record year for this particular business, including the time before they were part of ASMPT. Of course, it's still small. We start from a very small base.
We are eagerly expecting it to become a significantly larger contribution. Probably it will still take us maybe another two to three years, I would say. But looking from the technology trend in the industry, we are very confident this will become a significant business for us. We do expect this year we will continue to see a year-on-year growth for this business. We just cross over the critical momentum. Once we cross over the critical mass, again, build up the critical mass, I think it will become interesting business for us.
Thank you, sir.
Thank you. Our next question come from Steven Pelayo. Thank you.
Yeah. Just one more follow-up on the SMT Solutions Segment. I know we're all focused on kind of the smartphone opportunities here, but auto, industrial, I think you guys call it power as well, is 25% or so of the company overall, and I think a lot of that's your strength in SMT. So I'm just curious for auto, industrial, and SMT, do you see nothing but kind of sequential growth rates from those segments for SMT throughout this year or an outlook for maybe the full year for non-smartphone related SMT?
I think certainly it actually has already been reflected in our Q1. As I mentioned, Q1, we have exceptionally high contribution from Europe. Europe is not really the smartphone application market. It is mainly automotive and industrial electronics. We do see a good growth momentum in this area. But of course, the automotive markets, unlike the smartphone market, you won't see exponential kind of growth. It will be more gradual, but more sustainable growth. With the higher electronic content in the cars, we expect this area will continue to grow.
I noticed, W.K., you guys, you took out that slide from your presentation where you estimated the SMT market. Is there some changes on your guys' thoughts on how you're sizing it this year now?
We actually, in the past review, investors also asked the question about why we are still showing that. We ourself also, we weigh the accuracy of this forecast. Until we are able to give our more accurate forecast, we prefer to take out that slide at this point time. It does not mean that we have anything significantly changing about, but it just, we ourself also don't think that slide really reflect the reality of the market.
All right. Fair enough. Congrats again on the results.
There seems to be no further questions at this point in time, sir.
Okay. If there are no further questions, I think we have had a very good discussion today with very good questions. Let's conclude the conference call now in the interest of time. Thank you very much for joining us today, and we'll talk to you again next time. Thank you.
Thank you. Bye-bye.
Thank you for your participation. This conclude your conference. Thank you