Earnings Call: Q4 2018

Feb 21, 2019

Welcome everyone to Chroma's 2018 4th Quarter Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation there will be a question and answer session. For your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.kruma.comtwinvestorindex under the Investor Relations section. And now I would like to introduce the CFO, Paul Ng. Mr. Ian, you may begin. Thank you, Jason. This is Paul Yu. Welcome everyone to the 4th quarter financial results release for the 2018. And let's start with the 2018, the consolidated sales amounted to $16,900,000,000. This is a gross. And 2018 net income totally amounted to around $2,500,000,000. And that Chroma's group total approximately around 3000 employees all over the world as of December of 2018. And regarding to the, call it highlights, if you look at the 2018 fourth quarter, The sales revenue of the apparel company amounted to 1697,000,000 This is a 13% Q over Q down and another 17% down on a Y or Y base. Although the, drop off the sales revenue, q over q and y over up y, the gross margin, we're still maintaining above 50% pretty well, which is 52%. The operating margins is approximately 17%. And the net income for the fourth quarter of 2018 mounted to 479,000,000. This is a 22% down on our Q over Q base and 46 percent down on a Y oy base simply because the last year in 2017, the 4th quarter has a very strong base of the automation of MAS. In 2018, 4th quarter highlight, is the, the sales contribution in fourth quarter of 2018 is mainly coming from the 20 solutions This is a 60% growth on a Q over Q phase. So this is the 4th quarter's financial results. If we look at the 2019, the guidance for the 2019, well, mainly the Chroma consolidated sales revenue has grown on a consecutive 4 years' growth. And this is to represent a CAGR of 15%. The year of 2018, a consolidated sales represents another year of growth in 14% compared to 2017. And this result in 2018 was mainly contributed from the NAS. The automation business represents a strong growth of 92% almost doubling the numbers of 2017. While the Chroma test equipment business, it's a flat compared to the last year 2017. The net income, in 2018 was 2,500,000,000 and also a flat compared to 2017. On the outlook of the 2019 of the Chroma business, Well, we have presumed the first quarter will be low due to the supply chain relocation and the Chinese New Year. And we expect the shipment will pick up from the 2nd quarter and the earnings in 2019 were not lower than the last 2 years. The Test Management business expected to grow in 2019, Well, that will be mainly from the EV market and OEM EMS relocation, and it will continue to drive the growth of power electronics testing equipment and a solution base. Well, the semiconductor and the photonic testing solutions will be mainly contributed from the VCSEL capacity build and the pilot ramp up top time of flight. Well, this is the guidance for the 2019. And now we come to the section of the and A, any question from anybody. Questions. Questions. Thank Thank you. The first question is coming from Jeff O'Hullar from Macquarie. Go ahead please. Hi, Paul. Thanks for the time today. Can you talk a little bit about, you mentioned 2019, you do see earnings growth and also, ATS growth. Can you talk about maybe turnkey, year on year and also the semi year on year? And then within semi full time, can you talk about, you'll maybe the traditional semi testers versus, SLT versus photonics? Thank you. Well, hi, Jeff. Basically, I think we don't guide the each of the single solutions. And regarding to the checking solutions, I think we expect in 2019, it's pretty, well, similar to last year. And finally, we believe that it will be a little bit better than last year. I think that's for the year. That's for the thinking. Okay. And then, obviously, you're coming off 2 very strong years for the MAF business. And any thoughts on 2019 there? In 2019, for the mesh operations, we expect it won't be that rapid growth like covering the size of the as the 2018. So currently, we pretty much expect that the mass operations will be similar to the achievement at You're welcome. And the next one is from Jerry Su, Credit Suisse. Go ahead, please. Hi, Paul Jennifer. Thanks for taking my question. I'd like to ask you about Camtek. I think you announced the transaction, after the Chinese New Year. So can you talk about what kind of synergy you can achieve by licensing their technology, which an application you're looking for. And also, you know, I think in the in the presentation, you mentioned that you want to develop some, lower cost products. Can you also elaborate on that? Thank you. Hi, Jerry. I think for the Cantech, well, the main purpose of this investment not only for the financial purpose, but also the synergy that we can achieve from both sides I think you can treat, Camtek as a very much concentrated and focused on the semiconductor industry and also application kind of a technology company. But at the same time, the, white light handler technology, which is in sitting in the middle of, you know, 2 hands of, that kind of, inspection technology of trauma, it's kind of like a, compensate to Chroma in the, in the application so that we, we can use it to the several kind of a different, applications such as the, cell phone case kind of inspection. And, like, the, soft pack of the, of the battery cell, for a lithium battery cell, for that kind of application, which is, it's brand new for the, the chemtext, kind of industrial application. But to us, we've been, providing the solution and also facing the inquiry from the customer base for a period of a long time. And this is will be one of the energy. And the other one is the for Camtek for the current market occupation. To them, I think, they are developing they are trying to developing a theory, or, a model of the low cost kind of, application to shooting for those, lower end kind of a market. In there, they will leverage the manufacturing capability of Chroma and also the channel and the marketing efforts of promo in a major market so that we can have a major benefit in there. So these are the synergy that we can look at. Right now. I hope I answered your question already. But one follow-up, is, so, if you specifically develop, the low cost products and then, So will you be booking, this revenue, or you will be, booking by, you know, by contact and then you enjoy the that, that, so that you're trying to put the equity investment income. Okay. Jerry, I just want to, added some information regarding to the synergies that our CFO highlight. Regarding the second synergy that is mainly proposed by Camtek to develop the low cost of 2 d inspections. This is because one of their this year is to increase the Asian condition. According to current Asian markets, this kind of low cost 2 d inspections, they do have their own marketer content in the past many years, they're mostly focused on high end or mid to high end, especially for bumping testing. And they probably have about 60% of their sales actually compounds come from bumping contribution. As you know, this is a kind of a advanced package on this kind of core wire technology by measure non measured the size of each pump each pump. According to their statements, after we visit the factories, a per wafer basis actually have over 1,000,000 for this kind of bump. And then the measurement time is very, very efficient. But we don't want to just pay the 29% premium just because of pure financial investments or the market they have right now. We would like to elaborate this technology to other sections. First to meet their, their target to increase the penetration in Asia, which is above this kind of 2 d low cost equipment. They already have a design model, but they think if the manufacturing is kind of attached to us in Israel to work over U. S. Market will be quite expensive. So they want to use our 1st manufacturing scale plus the our distribution channels in Asia. So that's the that's the they want to since they already come to mid high end, they want to go down to also cover some of the, lower end markets. And second one is that we are doing this kind of negotiation period. We're running this case for almost 8 months Okay. We actually tried other several cases other than semiconductors, including phone cases, plus this kind of pouch type of ED battery cells. And it actually works on efficiency. It's much about 2 or 3 times faster than, you know, if you're using this kind of wireline in information. I don't know. In, while I inform smaller trees, sorry, it's difficult. Because they're according to current, inspections of capability, they are very good at about 2 micron to 10 microns. But why our interperformed phone tree is better? Because our solution right now, that we have right now is the best design for 2 nano vintage low, which is 1 micro loads. But per market, you know, mostly fit into these 2 micro to ten microns for current bonding testing. So, we would like to do this period. We also can elaborate this technology just the application, we we we already try and it works, which is, you know, casing as well as the EV battery patch, EV pouch type of battery cell. Implies some solar cells applications. Okay. Thank you. And then the other question is I think regarding, you mentioned that you're seeing some capacity relocation by EMS. Can you elaborate a little bit on that? And then how would that, benefit, commerce, you know, you know, revenue? I think besides capital management is going to also going to help, semiconductor as well. Thank you. So regarding to this kind of relocation, inquiries from customer space, I think starting from last year, we've been facing a lot of big either OEM or EMS kind of manufacturing, brand name owners. They are looking for non, China Manufacturing capabilities. And several of the locations has been decided, mainly in other places in Asia, like, Vietnam, like, India or even Thailand or or back to United States or to to Taiwan. But since the, yeah, the trade negotiation between China and United States right now is still ongoing. And, not, so much uncertainty right now. So nothing really decided and we didn't see anything that that solid yet, but it seems to be that we'll be, kind of a, a trend at least starting from last year all the way down to probably this year or to the year after. So, there's no, a clear, filter that is coming from this, relocation right now. We are facing dozens of inquiries from different kind of company or customer base right now. But, it really took time to, you know, funnel a new site and also lay out and put the construction of the new site, then move in the installation of the equipment. So it it do take time. Okay. Thank you. You're welcome. There are currently no questions, then I'll hand it over to CFO Paul Ng for closing remarks. Mr. Ng, please proceed. Thank you. Thanks, Jason. Well, if we look at 2018, we started with a very high first quarter and then all the way to the third quarter. Although the quarter is not a peak, but 4th quarter due to the uncertainty of the, trade negotiation between China and United States and other kind of headwinds for those, semiconductor business. It seems to us that we still can maintain the profitability is, ultimately on the American compared to 2017. So 2019, Although first quarter is definitely due to the, the low trend of the, starting from, last quarter. We do expect that 2019, the legacy product and also the original business. The core business of the a measurement. And for Chroma still will be ongoing, growing. And, for that, we can expect that 2019, we really do not, domestic on that that we all come. So thanks for your attention and see you next time. Bye bye. Thank you. And ladies and gentlemen, we thank you for your participation in Chroma's conference. There will be a webcast replay within an hour. Please visit www.chroma.com/investor/index. Under the Investor Relations section, you may now disconnect. Goodbye.