Welcome, everyone, to Chroma's 2024 Q4 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 a question. And 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 CFO Paul Ying. And Paul, please begin.
Thank you. Hello, everyone. This is Paul Ying from Chroma, and welcome to the 2024 Fourth Quarter Earnings Conference. I will give you a highlight on the financial review, and then Jennifer Chang will follow up with the operational highlights. You also can fetch the my presentation material on the website. We have already put that in the website, and if you look at page number 5, or slide 4 the corporate profile, you can see that some of the key figures. Look at the 2024 consolidated sales. We reached at the TWD 21.6 billion, and the net income for 2024 reaches at the TWD 5.3 billion, and the total headcount for Chroma Group all over the world at the end of 2024 is somewhere like a little bit less than 3,600 people.
If you look at the financial performance, you also can look at the return on equity for 2024. We have reached over 20% and reached at the 22% again at the year 2024. For the dividends for 2024, after the board meetings this morning, we declared TWD 9 out of TWD 12.49 EPS, which is the payout ratio is somewhere like 72%. If you look at the 2024 condensed consolidated income statement, you can see from this page at the slide number 10, you can see that the total sales numbers is TWD 21.6 billion compared to last year. It's a 16% growth. If we look at the detail of that, I think later Jennifer will give you highlights and the detail for the breakdown.
But for the gross margin portion, you also can see that 2024, we reached at the TWD 12.7 billion, which represents 59% of the gross margin. And compared to the year of 2023, it's an 18% growth. And for the operating income, we reached at the TWD 5.4 billion. And compared to last year, it's a 17% growth. And again, for the net income, we reached at the TWD 5.4 billion. Compared to last year, it's a 32% growth. And for the year of 2024, we reached at the EPS at the TWD 12.49. And this is a brief of the financial numbers. And then, Jennifer, it's your turn to.
Okay. Good afternoon, everyone. This is Jennifer. I will go through the product mix in fourth quarter and the whole year in 2024. Please refer to slide 13, and first, the ATS sector in fourth quarter reaches TWD 1.68 billion, which is similar to third quarter, but better than 2023 fourth quarter by 12% year- on- year. We do see this is a sign of the recovery. In 2024, the whole year's ATS was down by 16% year- on- year, reaching TWD 6.8 billion. And still, a decline was mainly come from low sentiment of EV and ESS markets. However, we expect these sectors to bottom out in 2025, mostly contributed for EV and ESS recovery and also the 5G power devices demand.
Followed by the Semiconductor and Photonics sectors, which has remained strong in fourth quarter, reaching TWD 2.1 billion, presented a growth of 14% quarter over quarter and 141% year- on- year. The whole year sales revenue for semiconductors and the photonics sectors in 2024 was TWD 6.9 billion, slightly over ATS, and presented a growth of 135% year- on- year. The major growth was mainly coming from the mature nodes, IC testers, and the system-level testers for AI and HPC products. We expect semiconductors and photonics sectors were still the major growth drivers for the companies in 2025. Number one, because the qualified metrology equipment would start generating meaningful sales revenues from 2025. Then the demand for system-level tests will be coming from AI, HPC, and the new auto and gaming chips ramp-up, and also the capacity ramp from the IC makers.
We believe the semiconductors and photonics sectors will contribute more than 50% of the company's sales revenue in 2025. For Turnkey Solutions in fourth quarter reaches TWD 275 million, presented a decline of 15% quarter over quarter, and also declined 25% year- on- year. However, the Turnkey Solutions for the whole year in 2024 reaches TWD 685 million, presented a growth of 51% year- on- year. Besides, we did some small projects from the EV battery sales. Another contribution was coming from our new design of Turnkey Solutions for AI process and manufacturing. These projects have been launched from the second half of last year, and they will be continued delivery in 2025. A couple of key highlights for 2025. First one, we still expect to do better than 2024, presenting the growth. We're expecting the semiconductor to be able to present a double-digit growth.
Then the second key point is this year, we will have a capital gain from transfer that develops a residential area to our talent employees. The estimated capital gain will be approximately TWD 3 billion. That's all about the operation highlights. We could move on to Q&A. Thank you.
Thank you, Jennifer. And 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 star key and number 1 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 star key number 2 to cancel the question. Thank you. Now, please press star one on your telephone keypad if you would like to ask the question. Thank you. Now, we have our first question from Wern Juan Chng at HSBC. Go ahead, please.
Hey, Jennifer. Hey, Paul. Thanks for taking my question. I have two questions, then I'll hold back the queue. The first is just on your metrology segment. I was wondering if you could give us a bit of an update on your penetration into overlay. And just to clarify, is that essentially overlay only in advanced packaging, or are you in overlay also in the front end? And just to clarify, this overlay does not include optical critical dimension, right? So that's my first question. I'll hold back. Then I have a follow-up. Thanks.
Sorry. You mean what's overlay ? You mean RDL or sorry?
Yeah, Jennifer. Not RDL TSV. So on your slide, you know the slide towards the back, essentially the slide where you show RDL TSV, you talk about the two to five nanometer, but you also mentioned overlay. So I'm just curious to know, and the reason why I'm asking this question, Jennifer, is because overlay is different from RDL and TSV. And I want to understand whether or not you are only in overlay for advanced packaging, or are you also in overlay for front end? Because.
Okay.
Can you?
You have to put the slides because I couldn't find the.
Semiconductor measurement solutions, the slide where it shows your 7980, 7981, 2D, 3D metrology measurement system.
Okay. Regarding to your question, I have no idea what your overlay means. But let me give an update regarding to our metrology equipment. Basically, currently, we have two models for metrology so far, 7980, which is for top mark. And then the other one is for RDL testing. And then we don't currently, our sales is not only limited to foundry, but we also cover some of the OSATs. So we will define our position is our equipment, which is metrology equipment, will be focused on advanced package.
Okay. This is very clear. Then for the you mentioned, I think in the past, RDL TSV, it sounds like, at least from my interpretation, that's going to shift this year. But I'm just curious, Jennifer, because so overlay, right? Overlay, as I understand, you're undergoing qualification. Is it fair to assume that the overlay segment for advanced packaging will be qualified in the second half, and the deliveries will be in 2026? Thanks.
Sorry to interrupt. I don't know what's over there. Sorry. I really don't. I have to say, there is no qualification need for outside because we already qualified it.
Okay. I'll hold back the queue. Thanks. Thanks.
Thank you. Next one, Arthur Lai, Macquarie. Go ahead, please.
Hi, Jennifer. Yeah. Thank you for taking my question. So we already understand this year's good year. And in your highlight, you also mentioned that there's a six billion residential project. This is how our company will reconcile the profit. And can you give us some idea? Thanks.
Okay. Okay. We granted this acquired land several years ago from the central governments. And according to the incentive schemes, about 10% we need to because if this is a plan, as an incentive for industrial power purpose, of course, you need to have labor, which is human resources. So according to the plan, the 10% needs to be residential. And then we have co-developed with the constructors. And we grant close to 50% of the housing. And we decide to give us incentive schemes to some of the talent engineers. Okay? And then the houses are finished and just start to transfer to our talent employees this year. And we estimate approximately capital gains will be around TWD 3 billion.
Okay. So this is really new to me. So would be all into this year's financial report, or would be then multi-year?
No, this year.
This is only one time.
One time. Oh, okay. Okay. Got you. Got you. And can we also view this as an employee incentive scheme?
Yes. Because we sell them by discount basis of the market. Yeah.
And then you will also motivate the morale of the employee because they got a pretty good deal, right? So it's a win-win-win.
I mean, in all of Taiwan, high-tech will need to retain the talent employees, especially for R&D engineers. This is one of our incentive schemes.
Okay. Cool. Cool. And then another thing I think long-term investors, they will really appreciate is that you actually increase R&D spends. I think it's about so can you kind of give us a breakdown that how you're going to allocate the R&D into the semiconductor?
We don't break down our R&D based on the product mix. We base on the talents, special technologies. So this is how we're able to maximize each talent R&D. And however, I think our company's goal is to set the R&D expenses target around 11% plus or minus the actual is about 12%.
Got you. Got you. And then so because and the other thing I want to ask is that in our guidance, you guide that the semiconductor will continue to outgrow the other business, right? And in 2024, you already make up almost one-third. So shall we expect this year this business will continue to gain the revenue share?
You mean overall semiconductor sectors?
I mean, the semiconductor in your total revenue will continue to above the 30% or higher?
I think even you use a consolidated sales. I think our semiconductors still account about half. Yeah. I think you can refer to the product mix breakdown, which is about 40-something%. Yeah.
Got you. So on the other hand, they will the other business, for example, the ATS will be bottom up , but their growth rate will not be as high as semiconductor. Is that the right way to think about?
We can't really say. I think the correct statement would be we're expecting maybe based on current orders on hand, our semiconductor sectors will account over 50% of the total revenue while our business will still bottom up, so there's no conflict. Yeah.
Yeah, yeah. And actually, I'm not asking the guidance, but based on the last statement of the 2025 outlook, you mentioned that the AI GPUs will be launched for the second half of this year, right? Sorry, second half of last year, and it will continue to this year. So how should we think about this business size?
You mean?
Yeah. So it would be the same to Turnkey Solution last year because last year was around the 6.
Another one. The reason why Turnkey Solution has some quite a decent growth last year is many contributions on these AR glasses. Maybe you think in this way would be more clear.
Oh, okay, okay. When you come, you will really come quite meaningfully, right, in the Turnkey?
No, but the issue is already came.
Oh, okay, okay. Got you. Thank you.
Thank you.
Thank you. Next question, Catherine Jiang, Macquarie. Go ahead, please.
Hello. Hello, Jennifer. First of all, congratulations on the good result. I have a few questions regarding your metrology business. I'm just wondering about how is your metrology tools compared with your competitors in terms of market share and ASP? Thank you. That would be my first question, and I have a few follow-ups. Thank you.
Last year, we got qualified by Foundry regarding our metrology equipment. Actually, Foundry had their own ecosystem or process regarding this kind of qualification process. During this qualification process, of course, core-wise, it's not the first year. We definitely is, I would say, second one to be qualified. The condition to be able to qualify, of course, you need to do better than ECC makers. Otherwise, why you qualify? Yeah. Why you won't spend over years doing this kind of qualification process? However, today, we already got qualified, and then we will be mostly in charge with the new capacity ramp from Foundry. And then another message we would like to clarify here is our metrology is not limited to target to Foundry's customers. In these days, we also start to penetrate to OSATs because both of them will also very much interest to penetrate advanced packaging.
I see. Okay. Thank you. Thank you for answering this question. And the second question is regarding to photonics and CPO products. How do you see the photonics and CPO growth in the next few years?
Actually, we already are existing vendors, and we're actually helping our customers to be able to qualify their FAU products. And I would say current stage from the customer base is around, I would say, right around or small volume R&D ramp-up. If you talk about mass production, I think most of our clients are targeting next year. So honestly, CPO contribution is not much this year, and most of the customers are focused on next year.
Okay. And how much would that, if the CPO products go into ramp-up, contribute to our revenue?
We can't disclose this particular customer's order. Yeah.
Got it. Thank you. Thank you very much.
Thank you. If you would like to ask the question, please press star key number 1 on your keypad. Thank you. Next question for Wern Juan Chng , HSBC. Go ahead, please.
Hey, guys. Yeah, it's me again. Just two follow-up questions, then I'm done. So the first question is just to clarify. So what I mean by overlay, right, is going back to the slide I was talking about earlier. It's the alignment of your chiplets above the RDL TSV layer. Are you doing any of that? So the alignment of the chiplets to the interposer, the alignment of the bumps to the chiplets and interposer, so everything above the interposer, are you also doing the alignment for that? That's my first question. Thanks.
Okay. RDL is actually doing that kind of interposer alignment jobs. But I really have no idea. Maybe you can just send me what you mean by overlay later. But basically.
So the bumps above the RDL, so the bumps above the RDL, so aligning the chiplets to the whole package. Because the interposer is a front-end process, I get it. But above that, so the chip to wafer, the chip to wafer bumps, and then the chiplet to the interposer. Are you also doing that? Is your machine also examining those?
Okay. Please refer to our this quarter's presentations, slide 18. We actually disclose very detailed, and we also have a diagram showing what we covered. We basically covered the RDL that we cover, including RDL, TSV, and OVL. It's all the three major features we covered. You may refer to that slide. Yeah.
Okay. Got it. And then just a follow-up question. I noticed you mentioned Broadband Light Interferometry System . That's inspection. That's inspection. So I'm just curious to know what is the progress or timeline that you can comment? Is it 2026 or beyond 2026? And into front-end? So beyond the advanced package into the wafer? And is it inspection or metrology? Yeah.
First, we will only target our advanced package. We currently have no plan to cover so-called front-end process. All our metrology equipment, mostly, is targeted on advanced package. Advanced package, the growth of advanced package includes a spec increase. Today, you maybe only see the top mark and also RDL and other TSV. Future could be including other specs, for example, measuring the thickness of the wafers, etc. In the future, you also have SOIC and the PoP package. CPO also need to do this kind of so-called advanced package process. Please position ourselves that we are interested to cover even further front-end metrology equipment like the KLA. This is all different equipment.
Got it. Okay. Thanks, Jennifer. Thank you. Next one, Alex Wong, BofA Securities . Go ahead, please.
Hi. This is Alex. Thanks, Paul and Jennifer, for the presentation. My first question is for metrology. Last time, so four months ago, you mentioned in earnings that you expect multi-hundred million dollar revenue for this year. Have you changed this guidance?
No.
Okay. Cool. And second question is about CPO. You mentioned that one of your customers is already in the pilot run. So is that the U.S. IDM you mentioned or Taiwan Foundry or the GPU company you mentioned?
Okay. First, Foundry will not do the FAU process. FAU will be assigned to another vendor of Taiwan. And then they will send in the FAU for Foundry to do the alignment. I mean, or you could say package. So depends on how you define. You mean if you say we cover these customers, yes, we do cover these customers who manufacture for FAU. And we also cover the other optical customers. Yeah.
I see. And you expect your CPO-related business will drive revenue, have some revenue in 2026 or 2027?
Okay. First, we already are existing vendors. That is why our customers are able to receive the qualification by the Foundry regarding their FAU. And I think that's why we're able to commit this year's monthly target on this kind of pilot run. Next year will be mass production. That is the reason why our customers would like us to increase the throughput, so to meet the mass production next year.
Understood. Very clear. And my last question is about the power tester business. So maybe the Panasonic line in the U.S. will provide revenue stream this year. And how about the demands for other customers for power tester this year?
Okay. First, we do see the recovery from EV and ESS, but we didn't use the word like booming from EV and ESS markets. But we do see one thing besides the EV and ESS market recovery, we also see another power devices actually demands continue to increase, which is AI server and data center. Okay. Look, you see, number one, the power density is continuing to increase, especially for this kind of high-end data center servers, typically highlight to OpenAI, etc. But think about people talk about this SiC. Okay. This is kind of like a general, okay, maybe friendly versions of AI server and data centers. But these things also need power devices. So I guess this is the reason why okay, let's go back to fundamentals.
No matter you develop which version, whether you want to go for the high-end version or general versions or other versions or ESS versions, but all these products all need to have power devices. We guess this is the reason why we do see picking up the 5G power devices demand.
I see. And you expect this will help your ATS business to have some recovery this year?
Yeah. This is exactly we see the sign of recovery.
I see. Thank you. That's all from me.
Yeah.
Thank you. We are now in question- and- answer- session. Please press star key number one on your keypad if you would like to ask a question. Next we'll have Haslu, UBS, for questions. Go ahead, please.
Hello, Jennifer. So thank you. First of all, thank you for taking my question. This is UBS Annie on behalf of Haslu. So my first question would be more about the competitive landscape. So currently, Chroma is doing very well in the high-end metrology and SLT sectors, and the position is already strong. So I would like to hear your thoughts on many competitors continuing to seek to enter this market and about how far ahead do you think we are to provide some color?
We all need to say to get qualified by Foundry is kind of tough. This is not something you claim you have the technology and you're able to penetrate. I don't really think so. After more than five years work hard on metrology development, we don't really think to get into Foundry qualification is easy task.
Got it. Thank you. And also, so we mentioned that our semi currently has like 50% of our revenue share. Do you see it maybe increasing a bit to 60% over the next this year?
Possible. Yeah. As you could see, a part of it for semiconductor sectors is continuing to increase. The other from past 10 or 15 years of penetration starts on legacy SLT, photonics, then metrology. Yeah.
Okay. Thank you. That's all for my questions.
Thank you. And ladies and gentlemen, we thank you for all your questions. We have no further questions at this moment, and we're going to close the meeting. And 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. And you may now disconnect. Thank you again. Goodbye.
Thank you.
Thank you, everyone.
Bye.
Bye-bye.