Welcome everyone to Chroma's 2018 fourth 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. Please follow the instructions given at that time if you would like to ask the question. For your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.chroma.com.tw/investor/index under the investor relations section. Now I would like to introduce the CFO, Paul Ying. Mr. Ying, you may begin.
Thank you, Jason. This is Paul Ying. Welcome everyone to the fourth quarter financial result release for the year 2018. Let's start it with the 2018. The consolidated sales amounted to TWD 16.9 billion. This is a growth. 2018 net income totally amounted to around TWD 2.5 billion. The Chroma Group total approximately around 3,000 employees all over the world as of December of 2018. Regarding to the quarterly highlights, if we look at the 2018 fourth quarter, the sales revenue of the parent company amounted to TWD 1,697 million. This is a 13% QoQ down, and another 17% down on a YoY base. Although the drop of the sales revenue QoQ and YoY, the gross margin, we're still maintaining above 50% pretty well, which is 52%. The operating margin is approximately 17%.
The net income for the fourth quarter of 2018 amounted to TWD 479 million. This is a 22% down on a QoQ base and a 46% down on a YoY base, simply because the last year in 2017, the fourth quarter had a very strong base of the automation of MAS. In 2018, fourth quarter highlight is the sales contribution in fourth quarter of 2018 is mainly coming from the turnkey solutions. This is a 16% growth on a QoQ base. This is the fourth 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 of four years growth. This represents a CAGR of 15%. The year of 2018, the consolidated sales represents another year of growth in 14% compared to 2017.
This result in 2018 was mainly contributed from the MAS. The automation business represents a strong growth of 92%, almost doubling the numbers of 2017. While the Chroma test equipment business, it's flat compared to the last year, 2017. The net income in 2018 was TWD 2.5 billion and also 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. We expect the shipment will pick up from the second quarter, and the earnings in 2019 will not be lower than the last two years. The test measurement 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 the solution base.
Well, the semiconductor and the photonic testing solutions will be mainly contributed from the VCSEL capacity build and the pilot run of TOF, time of flight. Well, this is the guidance for the 2019. Now we come to the section of the Q&A. Any question from anybody?
Thank you, Mr. Ying. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for any of today's speakers, please press zero one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press zero two to cancel the question. Thank you. Please press zero one on your keypad to ask a question. Thank you. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. The first question is coming from Jeff O'Halloran from Macquarie. Go ahead, please.
Yeah. Hi, Paul. Thanks for the time today. You mentioned 2019, you do see earnings growth, also ATS growth. Can you talk about maybe turnkey year-on-year and also the semi year-on-year? Then within semi photonics, can you talk about maybe the traditional semi testers versus SLT versus photonics? Thank you.
Well, hi, Jeff. Basically, I think we don't guide each of the single solutions, regarding to the turnkey solutions, I think we expect in 2019, it's pretty similar to last year, slightly we believe that it will be a little bit better than last year. I think that's for the turnkey.
Okay. Then obviously you're coming off two very strong years for the MAS business. Any thoughts on 2019 there?
Well, I think 2019 for the MAS operations, we expect it won't be that rapid growth like doubling the size as the 2018. Currently, we pretty much expect that the MAS operations will be similar to the achievement at the 2017.
Okay, great. Thank you.
You're welcome.
The next one is from Jerry Xu, Credit Suisse. Go ahead, please.
Hi, Paul, Jennifer, thanks for taking the question. I'd like to ask you about Camtek. I think you announced the transaction right after the Chinese New Year. Can you talk about what kind of synergy you can achieve by licensing their technology? Which end application are you looking for? Also, I think 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 Camtek, well, the main purpose of this investment is 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. At the same time, the laser triangulation technology, which is sitting in the middle of the two ends of that kind of inspection technology of Chroma, it's kind of like a compensate to Chroma in the application so that we can use it to the several kind of different applications, such as the cell phone case kind of inspections, and like the soft pack of the battery cell, for lithium battery cell. For that kind of application, which is brand new for the Camtek's kind of industrial applications.
To us, we've been providing a solution and also facing the inquiry from the customer base for a period of long time. This will be one of the synergies. The other one is for Camtek, for the current market occupation, to them, I think they are trying to develop 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 Chroma in Asia market, so that we can have a mutual benefit in there. These are the synergies that we can look at right now. I hope I answered your question already.
Yeah. One follow-up is, if you specifically develop a low-cost product, will you be booking this revenue, or you will be booking by Camtek, and then you enjoy the 20% equity investment income?
Okay. Jerry, I just want to add 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 2D inspections. This is because one of their target this year is to increase Asia penetration. According to current Asia markets, this kind of low-cost 2D inspections, they do have their own market. Camtek in the past many years, they mostly focus on high-end or mid to high-end, especially for bumping testing. They probably have about 60% of their sales is actually come from bumping contribution. As you know, this is a kind of advanced package on this kind of CoWoS technology by measure the size of each bump.
According to their statements, after we visit their factories, per wafer basis, actually have over millions for this kind of bump, and then the measurement time is very efficient. We don't want to just pay the 29% premium just because of the pure financial investment or the market they have right now. We would like to elaborate this technology to other sections. First, to meet their target to increase the penetration in Asia, which is about this kind of 2D low-cost equipment. They already have a design model, but they think if they manufacture this kind of testers in Israel to work over U.S. market will be quite expensive. They want to use our first manufacturing scale plus our distribution channels in Asia. Since they already have the mid-high end, they want to go down to also cover some of the low-end markets.
Second one is, during this kind of negotiation period, we run this case for almost eight months. Okay? We actually try other several cases other than semiconductors, including phone casing, plus this kind of pouch type of EV battery cells. It actually works. Efficiency is actually about two or three times faster than if you're using this kind of white light interferometry. Sorry, it's difficult. According to current inspection capability, they are very good at about two micron to 10 microns. Why our interferometry is better because our solution right now, the technology we have right now, is best designed for 2 nm load, which is one micron loads. Current market, most fit into this two micron to 10 micron for current bumping testing. We would like to, during this period, we also can elaborate this technology, which is the application.
We already try and it works, which is casing as well as EV pouch type of a battery cell, and plus some of solar cells applications.
Okay, thank you. 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? Then how would that benefit Chroma's revenue? I think besides tester measurement, is this also going to help semiconductor as well? Thank you.
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 a manufacturing brand name owners. They are looking for non-China manufacturing capabilities. Several of the location has been decided mainly in other places in Asia like Vietnam, like India or even Thailand or back to United States or to Taiwan. Since the trade negotiation between China and United States right now still ongoing, so much uncertainty right now, nothing really is decided, we didn't see anything that solid yet. It seems to be that will be kind of a trend, at least starting from last year all the way down to probably this year or to the year after.
There's no clear order that is coming from this relocation right now?
We are facing dozens of inquiries from different kind of company or customer base right now. It really takes time to find a new site and also layout and put construction of the new site. Move in the installation of the equipment. It does take time.
Okay. Thank you.
You're welcome.
As a reminder, please press zero one on your keypad if you would like to ask a question. Thank you. There are currently no questions. I'll hand it over to CFO Paul Ying for closing remarks. Mr. Ying, please proceed. Thank you.
Thanks, Jason. If we look at 2018, we started with a very high first quarter and then all the way to the third quarter. Although third quarter is not a peak, fourth quarter, due to the uncertainty of the trade negotiation between China and the U.S. and other kind of headwinds for those semiconductor business, it seems to us that we still can maintain the profitabilities, optimally on the net income, compared to 2017. 2019, although first quarter is definitely due to the low trend starting from last quarter, we do expect that 2019, the legacy product and also the original business, the core business of the test measurement and for Chroma, still will be ongoing, growing. For that, we can expect that 2019, we really do not pessimistic on that, the real outcome. Thanks for your attention and see you next time.
Bye-bye.
Thank you. 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.tw/investor/index under the investor relations section. You may now disconnect. Goodbye.