Good morning, everyone, and welcome. By my watch, it's 9:30 A.M. It's about time to start. My name is Bernhard Schweizer, Investor Relations Contact. I have the pleasure to host this Microsoft Teams webcast of our Q1-
From Alphastar Capital.
May I ask participants to switch off their microphones, please? Thank you. I have the pleasure to host this Microsoft Teams webcast of our Q1 2022 results conference. With us today are Lukas Winkler, CEO of INFICON, and Matthias Tröndle, CFO of INFICON. The management team will first present the results and then take questions. During the management's prepared remarks, online participants are kindly asked to turn their microphones and cameras off. You should have received by now a press release on the Q1 results, together with a link to the accompanying visuals for this web conference. All documents are available for download in the investor section of the INFICON website. We ask online participants to pose their questions in writing using the chat function in MS Teams. This should be the second item in the top right-hand menu.
Alternatively, you can also add yourselves to the queue of people wanting to ask questions orally by clicking on the I Raise My Hand icon in the Reactions menu. I would also like to inform you that we record this web conference to archive the audio file later on the INFICON website. The oral statements made by INFICON during this MS Teams session may contain forward-looking statements that do not relate solely to historical or current facts. These forward-looking statements are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations, as well as future results of operation and financial condition. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Having said all that, I would like to hand over to Lukas Winkler now. Lukas, please.
Okay, Bernhard. Grüezi and good morning, everyone. Thanks for joining us today to review our results for the first quarter of 2022. The last two years, we talked about COVID-19 issues. Now we added two more crises: war in Ukraine and inflation risks. All three elements increase the uncertainty going forward. Strange but true, we see a record order intake in the first quarter of 2022 and published the second best quarter result this morning. We had a good start into 2022, despite the just mentioned three crises. On top of that, our single biggest nightmare is actually the global supply shortage. Let's talk about our first quarter results before we go into the guidance. We had sales growth in all markets except the RAC, automotive, and refrigeration market. We reported new quarterly sales records in Europe and Americas.
Bernhard already mentioned that you can see the same PowerPoint presentation also on the investor relations tab on our website. On page three, where we start with, you see the key figures for the reporting quarter. In total, our revenues were organically almost 15% above last year's first quarter, and we finished with sales of $138.3 million, which is, as I said before, our second-best quarter. Compared to our best quarter, which was actually the last quarter of 2021, sales decreased approximately 4%. With a Book-to-Bill ratio far above one, it's needless to say that this represents a new quarterly all-time high order intake as well.
At the current sales level and sequentially improved gross profit margins, slightly increased overhead expenses, we finished the quarter with operating income of $27.3 million, almost 20% of sales, compared to $24.6 million, which was exactly 20% of sales for the same quarter a year ago. With an average tax rate of approximately 20%, net income reached $21.2 million or 15.3% sales. Currently we will review the detailed figures later on. Now I will go through the different, the four key markets first. On this slide, number four, you see the sales breakdown into our served four key markets, as well as the regionally quarterly sales trend.
The pie chart on left side shows an increased contribution from the Semi & Vacuum Coating market, primarily at the expense of a reduced contribution from the refrigeration, air conditioning, and automotive market. Semi & Vacuum Coating market, again, represent more than 50% of the overall INFICON sales. Asia remains the most important sales region for us, but did not reach the record level at the end of last year. On the other hand side, in Europe and Americas, we achieved new quarterly sales records. Now let's do a quick analysis market by market.
I'll start with the smallest one, which is the security and energy market, where we had 35.2% higher sales compared with the same quarter last year, but an 11% sequential decrease and reached $5.1 million. The security side of this market remains depressed and we only sold a few HAPSITEs to a handful of customers. As mentioned before, the largest potential customer, the U.S. Department of Defense, is testing successfully our new generation of HAPSITE products. First, larger orders are expected before year-end, and we got first orders for this new product from a police department in Europe. On the energy side of this market, we continue to gain market share in the U.S. gas distribution and landfill monitoring market.
The IRwin, this yellow product that you see on the lower right side, portable infrared-based multi-sensor device, starts to become the preferred instrument for the service providers in the U.S. market. In Europe, the Fusion, our Micro GC-based unit, increased its acceptance in the biomethane gas applications, especially in France and Italy. Overall, we expect the full year 2022 sales to be above the previous year's performance. Now moving to the refrigeration, air conditioning, and automotive market on this slide number six, where sales decreased 6.4% year-over-year as well as 5.7% sequentially and reached $23.1 million. We experienced a stable refrigeration market, a very dynamic lithium-ion battery testing business, and a continuation of a weak traditional automotive market.
Industry 4.0 digitalization needs and fully automated and therefore operator-independent quality inspection applications in conjunction with tighter specifications are the main driver in the market for refrigeration and air conditioning manufacturers. The E-cars drive the need for more lithium-ion battery capacity and the need for safer battery devices are asking for better quality inspection instruments, such as our new INFICON ELT3000 lithium-ion battery leak detector. Since new gigafactory production sites are planned and built in all regions around the world, we expect this market to be the main growth driver over the next few years in this market. We expect to end this year with a three-digit million-dollar figure by the end of December 31st.
Now let's go to the semiconductor and vacuum coating market, which includes solar display, optics, and of course, all the semiconductor applications on slide number seven, where sales increased almost 70%, but decreased 7.6% sequentially and reached $71.6 million, with the major contribution coming from the semiconductor device and equipment manufacturers. All major players in the supply chain of the chip-making industry continue to invest in the latest state-of-the-art technologies for analog logic chips as well as memory devices. China Semi initiative continues. Unfortunately, the U.S. trade and technology restrictions remain in place, and we need individual U.S. export licenses for our U.S.-made instruments to serve certain listed companies such as SMIC. On the other hand side, local Chinese equipment manufacturers continue to grow, and we gain market share with our European-based products.
Semiconductor market will remain the most attractive growth opportunity for INFICON, not just from a financial point of view, but also technology-wise. If you can develop and sell products for advanced semiconductor applications, then you can use the same technology to serve many other markets as well. We continue to work very closely with OEMs and end users to develop new sensors, solutions, and methods to ensure high-quality chip productions. Unfortunately, supply shortages and capacity bottlenecks prevent us to generate more revenue, especially to semiconductor customers. The dependency from single sources for critical electronic components alarms the global economy and even governments. Therefore, government incentive programs have been put in place to support initiatives to produce the critical parts locally.
The high number of announced new fabs in all major regions of the world as a result of the current supply shortages and the government incentive programs represent a huge growth opportunity for INFICON and will keep us busy for the next years. 2022 is expected to be another record semiconductor year and will be limited only by our ability to produce, ship, and install high enough quantities on time. Finally, we had a good start into 2022 in the general vacuum market in slide eight. Sales of $38.5 million, which reflects a year-over-year increase of 17.2% and 4.6% above the last quarter of 2021. Chinese customers, as well as sales to our European private label distribution partners, represent the majority of the growth.
We sell our analysis, measurement, and control products for many different industrial applications through private label partners, primarily vacuum pump manufacturers, and via direct sales channels to industrial OEMs and distributors in order to reach and serve smaller customers around the world. We expect a successful year 2022, but with increased uncertainty in China based on the recent lockdowns in Shanghai. Let me close my part of the presentation with an outlook for 2022 on slide number nine. Despite the increased uncertainty due to the two additional crises, we maintain our full year guidance for this year since we do not see any impacts in our order book. Sales is expected to be between $550 million and $600 million, with operating income above 20% of sales. Our main concerns are the availability of certain components, mostly electronics.
Our capacity addition programs are on track, and we will soon have 50% higher manufacturing capacity available. Market-wise, as I mentioned before, we see an ongoing strong dynamic from various parts of the world. In descending order, I would like to highlight a few trends. Semiconductor market is still going strong globally. The e-car trend will continue, and for the next few years, we will see an exponential growth for new lithium-ion batteries. Alternative energy solutions are becoming more prominent. Fast-growing Chinese vacuum applications are a main driver in the general vacuum market, unfortunately with some hard to predict impacts from the Shanghai lockdown. Last but not least, we expect the new HAPSITEs to be the favorite of the new American DoD program. With that, I'd like to turn over to Matthias, who will give you more details about our financial performance. Please.
Thank you, Lukas. Good morning, everyone, also from my side, and welcome to our Q1 conference call. I will cover our Q1 financials and also briefly comment on our guidance and expectations. My commentary starts with slide 11. As you have seen from our press release, we achieved revenue of $138.3 million in Q1 2022. This compares to $122.7 million in Q1 of last year. This represents an increase of 12.7%. Taking into account the negative currency impact, which is mainly driven by the strong U.S. dollar of -2.2% or $2.8 million and a small contribution from acquisitions of 0.3%, we achieved an organic growth of 14.6%. Mr. Winkler has already commented on the details of the individual end markets we serve.
The highlights are that sales in all markets except RAC did increase, and that these markets did grow by double digits. The sales in Semi & Vacuum Coating market increased also clearly by 17% or about $10 million, and that the security and energy market increased by 35%. Compared to Q4 last year, sales to the general vacuum market did increase by another 5%, while the other markets showed a decrease. Ahead of all, the Semi & Vacuum Coating market, which declined by 8% but still achieved its second-best figure to date. With that, the first quarter of 2022 showed a 4.3% decrease and reached after Q4 last year, the second best quarter in terms of sales. Now let's turn to the regional distribution of sales compared to previous year.
We had the highest growth in North America with 20%, followed by Europe with 13%. Both America and Europe showed a strong growth in Semi & Vacuum Coating. Asia showed also an increase of sales in 10%, driven by the general vacuum market, but also in the semi vac market. Let's go to the next slide. Gross profit margin reached 47.1% in Q1, down 294 basis points versus Q1 last year, and improved 41 basis points compared to previous quarter Q4. The higher volumes partially offset by rising material prices, increasing broker fees, freight and duties have been the main drivers for that. On the cost side, we did spend $11.5 million on R&D in Q1, a decrease of 5%.
As a percent of sales, these expenses decreased to 8.3% in the first quarter from 9.9% in the previous year. Some less external spend and some favorable FX impacts did drive this decrease while we have unchanged focus on our research and development projects. In SG&A, the expense level showed a $1.6 million increase. Personnel expense due to increased headcounts have been the main drivers for that. Let's go to the operating profit. For the first quarter, we achieved an operating profit of $27.3 million on 19.8% of sales after $24.6 million on 20% in Q1 last year. This corresponds to an increase of around 11%.
The income tax expense for the first quarter was at $5.3 million, which represents an average tax rate of 19.8%. The net profit therefore, as a result, reached $21.2 million or 15.3% in Q1. This compares to $19.6 million or 16% in the prior year, an 8.2% increase in absolute numbers. Consequently, we see nearly the similar development in earnings per share. This also went up by 8.1% and stands at $8.66 in Q1. Now let's move on to the balance sheet. Our net cash reached $51.6 million, which is with $3 million slightly lower than end of last year.
Both inventory turns and DSO, days sales outstanding, finished at a similar level compared to Q4. Our working capital, which consists of accounts receivable, inventories, and accounts payable, closed at $162.6 million or 29.4%, and with that, would have been about $11 million higher than end of last year. The majority of that increase is attributed to a $10 million increase in inventory due to the higher business levels.
As usual, our first quarter is a little bit low in cash flow due to payouts of performance bonuses and other provisions, and also as a consequence of these working capital levels, our operating cash flow, which you can also see here on the bottom right of Q4, ended a little bit lower at about $5 million and reached a level of $8.5 million. The balance sheet shows a solid structure with 70% equity ratio and no long-term debt. Those were my comments on the balance sheet in Q1. Let's have a final look to the outlook. Mr. Winkler had already gone into the details and the assessment of our end markets. Due to the current geopolitical situation, the ability to forecast is generally somewhat limited.
Nevertheless, based on our order book, order intake, and the overall business situation in our end markets, we are quite positive for the started year. We expect sales between $550 million and $600 million and an operating income of over 20% for fiscal year 2022. With that, I would like to close the presentation and we are now ready to take your questions.
Thank you, Matthias. We have three people wanting to ask questions. No, four people actually. I would like to suggest that we start with Marta Bruska and just go down the line. Marta, please.
Hello, good morning. Thank you for taking my questions. Actually, I wanted to ask with regard to the EBIT margin development. So the EBIT margin came in at 19.8%, only 20 basis points below the Q1 of the last year, despite the fact that the gross margin had declined yearly by 300 basis points. That seems an extremely resilient result versus the historical trends. You know, when I had a brief look through the model you had in the past, you know, decline of from 51% on gross to from 48%. That was accompanied by even stronger decline in the EBIT margins by, you know, 400, 500 basis points.
I was just wondering, what gave you this super resilience this time, and what are some of the key areas you have improved that helped with that? That's probably sustainable, also when the gross margin is improving going forward. Would you agree with that? I have two more, please.
I'm not 100% sure if I really understood your question properly enough, but let me try to explain in my way. I think the result of the operating income close to 20% is driven by two facts. One, certainly the top line growth, which was positive compared to Q1 as of last year, and secondly, by the gross profit margin that had a unfortunately negative trend. What I would call it, stable overhead expenses in terms of overhead and R&D. As a result of that, and I always explained it the way that we have a leverage effect, and I think this is the major driver of the bottom line.
Unfortunately, heavily influenced by a negative trend in gross profit margin, primarily based on the impact from brokerage fees that we have to pay to get our electronic components. That had the single biggest impact on the gross profit margin. If you run a factory at the capacity level, you would expect that you have a higher gross profit margin. That's what we expected as well. Therefore, the brokerage fees that we have to pay had a huge negative impact on where we landed at the end of the day. I think the result of still being close to 20% is based on that leverage effect with stable overhead costs, but unfortunately, not a good positive trend on the gross profit margin side.
Okay, thank you. I mean, I was just referring to the fact that in the past you also had quarters when you recorded growth, but a decline in the gross profit margin and you have seen a much stronger hit on EBIT. That was it. Maybe I take that offline to more. I think thank you for that. That was a good start for the explanation. I also wanted to ask how big is your food packaging business at the moment?
It's still in a small single-digit figure, numbers, in the first quarter of this year.
Thank you. With regard to the slowdown in the refrigeration market this quarter, what was that driven by?
Primarily by the fact that the traditional automotive market is still not very attractive. Only for lithium-ion battery we can grow. We had a declining trend for traditional car manufacturers, compensated luckily by the increased contribution from lithium-ion battery application and a good after sales service activities, somehow reluctant, I would call it reluctant behavior of refrigeration manufacturers to heavily invest in new ways of how the quality assurance can be made with more automation-based and digitalized kind of methods. This is currently a trend that we see in all areas around the world for refrigeration and air conditioning manufacturers.
They like to get away from operator-dependent quality inspection activities to more operator independent, but take some time, and that's where we exactly are currently. We believe that, once these new methods are well established, we will see a next wave of probably further investments for those quality inspection solutions.
Thank you. That's very helpful. Thank you very much.
You're welcome.
Thank you for your questions, Marta. I suggest we continue with Joern Iffert.
Hi, Lukas. Hi, Matthias. Thanks for taking my questions. The first one would be please on your semi end markets, also looking at 2023. Who knows where semi wafer equipment CapEx will land? Can you talk about your prospects with the end users, with the TSMC, Samsung, what you would expect and what you're seeing currently, in terms of dynamics? If, for example, semi wafer equipment CapEx would be down in 2023, do you still see prospects here with the end users? What is the confidence level here? This will be the first question, then I would have two others afterwards, please.
I mean, this is looking into a crystal ball, of course, a little bit. What we can refer to is just what we see on the front end of the business at the end users, talking to the customers that are on top of what the current technologies actually are able to provide. There, where we see the majority of the spending going on with the two customers that you mentioned, they all work on 3 nm, and even eventually going to 2 nm over the next few years. That requires a quite large investment. Momentarily and currently, we do not foresee any kind of weakening demands coming from the top-notch customers for various reasons. One, certainly the technology that drives the business. Secondly, the demand of the chip itself.
Last but not least, as I mentioned before, everybody wants to become more independent from a single source. Everybody's looking for a kind of a local source for certain critical components. You have seen the announcement from Intel building up a fab in Germany, TSMC doing one in Japan as well as in the U.S., and eventually in Europe. It's not clear yet. Samsung investing heavily in the U.S., adding another factory there. Of course, on top of that, do not forget the Chinese initiative. They will continue to invest heavily.
They changed a little bit their behavior of not necessarily going to the top-notch technology, meaning going below 10nm because they realized that this would be probably a fight that doesn't make sense currently and try to convince the U.S. government to give up the technology issues. They focus on line widths that are above 40 nm, but like to expand that business and continue to provide, if possible, local supply to the local Chinese customers. For the next, and you talked already about 2023, I don't think that we'll see a slowdown over the next one to two years at all.
Thank you for this. The second question would be on your gross profit margins. You elaborated, the brokerage fees had an impact. Can you tell us how big the impact were, 100-200 basis points, and what are your key actions to improve the gross profit margins over the next couple of quarters? Roughly, what is your best guess where gross margins are ending for 2022?
Now let me try to give you some insights. The brokerage fees did show in Q1 some increasing trend. We had it already in previous quarters every now and then, but it seems like it's increasing. To give you a feeling, it's in the 2 percentage points area of impact in gross margin and bottom line. So it's a real substantial amount. We have, of course, a couple of actions and initiatives in place to limit the negative impacts, including, of course, price agreements, respectively, shared pain agreements on these kind of critical components and critical supplies.
Don't underestimate also our investment program to add capacity. Some of the money is going into more automated calibration testing and even some welding and leak detection applications. We can use the installed tools 24 hours per day and not just on one shift. That helps also to offset a little bit the price pressure that we see from the supply side, to have a more efficient in-house manufacturing developed over the next few months.
What is roughly the best guess how gross profit margin are trending? Do you think Q1 was the trough?
Certainly we hope so.
Mm-hmm.
Also, I don't think that they have seen the worst yet, because now with Shanghai lockdown and some rare material coming from Russia, we might even have another round of unexpected bottlenecks over the next few months.
Okay.
I would say it's realistic gross margin, at least for the next two quarters could be between 46% and 48%, something like that. Yeah.
Okay.
And-
And-
Yeah.
Yeah. Sorry, Matthias.
That's all.
The last question, if I may. On the R&D spend, when you adjust for the fact that you mentioned that maybe R&D was roughly flattish, why is R&D not growing given all the opportunities you're having? Is your current engineering capacity enough to exploit all the trends, or how shall we think about it?
In general, you never have enough R&D resources. If you would have enough, something is wrong. But that's a general statement. No, I think it has also to do with some timing effects. As you know, we finished a huge R&D program of developing this new HAPSITE product, and usually projects are more expensive at the end of a project than at the beginning when you have to invest also in tools, in material, in prototypes and testing and so on. That is one effect. Second effect clearly has to do with I mean, this is just one quarter that you now currently see. Typically what also happens is that the R&D departments, they clean up everything by the year-end, so they can start at zero in January.
Whatever they have forgotten to turn in as expense usually shows up in Q4, but not in Q1. I think it's more a timing effect and not necessarily a part of do we miss any opportunities?
On top, I would say the R&D costs are always somehow impacted by these project costs. You know?
Yes.
They could be, they could not be. You can have some external support and special R&D material you might need. There are always some pickups and going down. I would not agree that we don't invest anymore. I believe that's a good number. Yeah. You see here the $11.5 million and as I said, we are still working with full pace on all these projects to develop further.
Okay. Very sorry for my last question, and sorry to extend it, but, Lukas, with the news that you are stepping down, you want Matthias now to sort out the downturn in 2024, or what is exactly the rationale? If you are still young and dynamic.
No.
Just some words would be appreciated.
This is a long-term planning step and unfortunately biologically I'm not getting younger, and now it's the time to hand over to the next generation who can take care about the next two decades. It's as you mentioned before, it is guaranteed that over the next five to eight years we will have a downturn somehow. We are prepared for that, and even the next generation of managers are prepared for that. I'm actually looking forward to enjoy a little bit more time, but of course, I'm not completely disappearing out of what I'm doing currently.
Okay. Thanks a lot.
Thank you, Joern.
Thank you for your questions, Joern. We now continue with Martin Comtesse. Your questions please, Mr. Comtesse.
Hey, good morning, everyone, and thanks for taking my question. I would have three questions, but I'll take them one by one if that's okay. The first question would be on your growth in North America, which was surprisingly strong, I would say, twice as high as in Asia. Can you give us a little more color around where that growth has come from and whether this is already from, you know, domestic investment programs? Also, is it fair to assume that that growth has actually even helped you on the gross margin because, you know, the whole tariff topic was, yeah, is not impacted by growth in North America? That would be the first question.
Let me start with the second part. I'm not sure it's a consequence of the U.S. policy or tariffs. At least I don't think that we have seen a big impact on that. I think it's more an issue of which markets are behaving well and which are less. We see that, as I mentioned in my remarks, we get some nice successes with these monitoring devices for landfill and gas pipelines. That's a part of the growth. We had some growth also in the semiconductor market, end user related with some software packages that we have sold. Does it really have an impact based on the U.S. policy? I don't think so.
As I mentioned, those two elements and, of course, the general vacuum market behaved well as well, but here we talk about thousands of customers, so I cannot single out one or the other application, but I can clearly see three applications contributed to growth. One is semiconductor end user, the other one is landfill and gas pipeline monitoring. Those are the drivers. I don't think that the policy had a big impact on that.
Sorry, I meant with the policy more that, you know, because you were growing faster in the U.S. than you were in Asia, that should have normally helped your gross margin, no?
Oh, you mean on the gross margin?
Yeah.
No. I don't think so. The only impact it could have is on foreign exchange rates, because most of the products that we sell into the U.S. are also U.S.-based. Well, not all, but some of them. We had no impact. In Asia, our traditional major customers are chip end users, and they have above INFICON gross profit percentages. Whereas equipment manufacturers and private label distribution partners usually have a below INFICON gross profit margin in general. Therefore, I don't think that the U.S. growth did contribute to the improved gross profit margin.
Very clear. Thank you. The second question would be, you already mentioned that the strong growth in China in general vacuum is at risk.
Mm-hmm.
due to renewed lockdowns.
Mm-hmm.
Can you just help us understand the current situation there? Is it mainly the supply chain or what are you exactly struggling with?
Well, our major sales service and application office is in Shanghai, and all of our engineers are actually now locked in their apartments. We cannot go to customers, we cannot do services on site. We can help them over the phone and via video conferences, but we are very limited if it really comes to do demonstrations and really help them on their solutions. Therefore I see an unclear impact. Yeah, let me call it that. I hope it will be soon over, but we simply don't know it. The major impact will come from the fact that we really need to stay in Shanghai and we cannot travel, we cannot go to customers, we cannot do demonstrations and problem solving on site.
Okay. Understood. The last question would be on the operating cash flow. It was down, you mentioned EUR 5 million, year-on-year, mainly due to high inventories and accounts receivable. Is this something you expect to reverse in the course of the year? Is it right to assume that it's mainly because of unfinished goods that sit on your warehouses at this point?
Expectation is that this will reverse in the next quarters. As I tried to comment a little bit, typically our Q1 is very low. We even had some years ago a Q1 where we had negative cash flow. This is mainly driven by our you know payout schedules of variable pay, performance bonuses and so on. This mostly happens in Q1. There is always a big impact on our cash and cash flow situation. In this time it has been basically two impacts. One was inventory increase and working capital increase and in parallel payouts. This did result basically in a little bit lower cash flow for Q1. There should be no worries on this number. I still sleep very well. I really assume and expect that Q2 onwards we will see here better results again.
I'd like to add one element. We had even in the first quarter still a very high CapEx investment payout close to double-digit figure as far as I remember. That's also a part that we expect probably was to peak this year and might go down over the course of the next few quarters. Because we are almost finished with the capacity addition programs.
On that capacity extension, can you say when it's going to be finished and when you're running on full capacity approximately?
Approximately by mid-year, we should be done with all the major investments.
Okay. Excellent.
From Q3 on, we will be able to run at a higher capacity.
Okay. Thanks for answering the questions.
Thank you.
Thank you.
Thank you, Martin. The next questions come from Harald Eggeling. Are you there, Harald?
Hello? Do you hear me now?
Yeah. We hear you. We don't see you yet, but we hear you.
What is, from your point of view currently, the two biggest challenges in the supply chain? Do you expect this to change during the course of the year? Second question is regarding the phasing of sales and EBIT. With your comments, I interpret that we might see a rather back-end loaded 2022 or even a Q4 loaded 2022. Thank you.
Start with the second question. Your assumption is probably right. Yeah, we expect a back-end loaded full year. Second half will probably be above the first half or certainly be above the first half if nothing goes wrong, under the current circumstances. Let me go to the two major challenges. Supply chain-wise, one, clearly electronics. This is by far the biggest headache that I have. Secondly, the uncertainty about the supply chain. That's my second headache, because we do not see any light at the end of the tunnel and that this is even more annoying than just having an issue. When you know that the issue will be solved in a few months, then it's okay, but we do not even know if it's solved or not.
Okay. One follow-up please, if I may.
Sure.
Regarding your sales or service hub in Shanghai, what is currently the annual run rate of lost revenues we are talking about?
We don't know what is actually what's really lost because the lockdown just started. We had a good start into 2022 in China with a huge order intake and also a huge backlog. We are behind the installation that we should run, and now we might get even more behind because we cannot go to customers. How much did we lose already in Q1? Not that much, I would say, because we have been limited by supply chain anyway. Going forward, as I said, this is a part of my two challenge. We simply don't know it yet. Will the lockdown continue for two more weeks or two more months? That can make a big difference.
If it will continue for three more months, then certainly China, for us as a market, will have an impact on the overall INFICON performance.
The major downside would simply be that if we see again another lockdown in Q3 or Q4 in Shanghai, right?
That would be a complete disaster. Absolutely.
For a rough ballpark figure, would it be correct to assume that on an annual basis, roughly $40 million sales are at risk?
If we have a very long lockdown overall in China, it certainly will be double-digit. How high? Maybe $20 million-$30 million might be a best case.
Okay. Thank you very much.
A best case for a worst case.
Yeah.
Yeah, sure. Thank you.
Do you have any further questions, Harald? No, I don't think so. I do not see any written questions, and no one has his or her hand up. Thank you, ladies, and gentlemen, for your questions. Lukas, Matthias, there is Emrah Basic with an additional question.
Yes. Hi, sorry for the late add on. Just thank you for taking the question. Just a quick one on the EV battery part. So is it I mean, I don't know if I read somewhere that you announced a new battery testing or leakage solution last year. Is that true? If so, how is it developing? And just in terms of this new growth potential, do you see already like some strong commitments due to all these gigafactories being built up? And who are your customers there? Is it still just the car makers or is it also battery makers, you know, such as LG, Samsung, CATL, et cetera?
Starting with the second part of the question, we are only talking to the battery makers. We are not talking to the car manufacturers. We only talk to the battery manufacturers. Having said that, the market for lithium-ion battery testing, and we are not just talking about the testing, so we are not an integrated part of the battery. We are an integrated part of the manufacturing process at the end of the assembly line and during the assembly line of making lithium-ion batteries. There we have basically two steps or two different from a stage point of view, where our instruments should and can play a critical role to the quality of the lithium-ion battery. One is, that's the new product when we test the smallest unit of a full battery package.
That's still at the beginning of the development because we are measuring directly if there might be a hole in the smallest unit, so that certain electrolytes might be released, and those electrolytes, if they are released, catch fire immediately. That's the initial part of the testing that we do. Here our market penetration is still relatively small, but we are the only one providing such an instrument, and it's at the beginning of a growing trend, and we already sold a couple of systems and continue to be very successful, as I mentioned, with the battery manufacturers, not with the car manufacturers. We are talking about larger battery as well as small batteries for mobile devices, not just for e-cars, but also for mobile devices.
The second element of this quality inspection program starts when all these small units are packaged into larger modules. Those modules, again, need to be hermetically sealed. For that quality inspection step, we use a traditional leak detection inspection system that we already have available for the last few years. That's currently the biggest part of the market because every single individual lithium-ion battery manufacturer has now realized that they have to do a final integrity check at the end of the assembly line. Here we talk. You mentioned a few of them, the big guys, and there we sell hundreds of systems over the next few years, and this is the single biggest growth driver currently.
Might then be replaced by even selling more systems to actually check the leak integrity of the small unit that I mentioned before.
Great. Thanks a lot.
You're very welcome.
Are there any additional questions? Anyone? If not, then Lukas, Matthias, any closing remarks?
I simply like to thank you and hope that you do not have any supply shortage problems like we have with whatever supplies you need. Therefore, I just like to wish you very nice springtime and talk to you again either in person and if not, at our Q2 earnings call at the end of July, I believe. Thank you very much. Have a great day, and enjoy the weekend.
Thank you. Bye-bye.
Bye-bye.