Good day, ladies and gentlemen. Thank you for standing by. Welcome to the ACM Research Second Quarter 2021 Earnings Conference Call. Currently, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
As a reminder, we are recording today's call. If you have any objections, You may disconnect at this time. Now I will turn the call over to Mr. Gary Givorchak, Managing Director of BlueShark Group. Mr.
Dvorchak, please go ahead.
Thank you, and good morning, everyone, and good evening in China. Thank you for joining us on today's call to discuss Q2 2021 results. We released results after the U. S. Market closed yesterday.
The release is available on our website as well as from Newswire Services. There's also a supplemental slide deck posted to the investor portion of our website that you'll reference during our On the call with me today are our CEO, Doctor. David Wong our CFO, Mark McKechnie And Lisa Fong, the CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to Slide 2. Let me remind you that remarks made during this call may include predictions, estimates or other information that might be considered forward looking.
These forward looking statements represent ACM's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under Risk Factors and elsewhere in ACM's filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward looking statements, We'll provide ACIEM's opinions only as of the date of this call. ACIEM is not obliged to update you on any revisions to these forward looking statements.
Certain of the financial results we provide on this call will be on a non GAAP basis, which excludes stock based compensation, A loss relating to a change in fair value of financial liability and an unrealized gain in trading securities. For our GAAP results and reconciliations between GAAP and non GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website. With that, let me now turn the call over to Doctor. Wang, who will begin with Slide 3. David?
Thank you, Gary. Good day and welcome to today's call. We had another productive quarter With solid financial results, we delivered record revenue and shipments with good profitability. 2nd quarter results reflect ACM's growing customer base, technology leadership, expanding product line And increased production scale. Revenue grew to $54,000,000 up 38% year over year.
Shipments were $82,000,000 up from $45,000,000 in the Q2 of 2020. We delivered good balance of growth and profitability with a 40.5% gross margin and 10.4% We are committed to drive profitable growth as we increase our investment In R and D to drive innovation, further strengthen our existing product portfolio and grow Our addressable market with new product. On the bottom line, we reported $0.19 of net income per diluted share Compared to the $0.29 in the same period last year, we ended the quarter with $70,000,000 of cash. In addition, we hold the SMIC stock market share worth $31,000,000 as of quarter end. I will now discuss the recent operational highlights on Slide 3.
First, our Q2 revenue growth was a Broad base driving by current and new products and current and new customers. Our web cleaning and other front end process tools represent 85% of total sales in Q2. We had a good growth from our flagship SAPS product with incremental contribution from our semi critical tools, Advanced packaging, other products, vendor service and apparel grow significantly to 15% of sales Versus about 3% last year. The strong growth of this group was driven by advanced packaging tools, Including weather atcher, stripper, developer, encoder and a bigger increase in our service and spare parts business. This 1st generation semi critical and advanced packaging tool accelerated our revenue growth and further Strengthening our position as a leader supplier in the China semiconductor industry.
The higher mixing of this product, However, partially dilute our gross margin during this introduction stage. We enter this new market segment To capture the strong demand for our China based customer and to deepen the moat that easily our flagship product from competitors, In Clini, our newer semi critical tool, ACM flagship SaaS, TiVo and Tahoe products will cover more than 80% of the total community market opportunity. In advanced packaging, Our newer ECP AP product line expanding our current portfolio was highly differentiated products. Put it all together, We remain committed to our 40%, 45% corporate gross margin target. As a part of our normal product management, We expect improvement in gross margin for our semi critical and advanced packaging tool.
This will come from tightening feature content As we early model and beta a range of options for customer evaluation and a cost reduction in later generation models, We also expect our cost benefit from volume production. Meanwhile, gross margins for our flagship cleaning product remain consistent With the past period, which we expect to continue, ACM strategy is to enter a market with advanced differentiated products, Such as our flagship premium product, our ECP tools, advanced furnace tools and other new innovative products. This product allow us to win major customer and provide us the profits to fund future product development. It also allows us to enter middle range or lower end product that may come with a lower margin in Early stage, but allow us to capture a much larger market opportunity as we scale the business. We remain committed to our gross margin target, which we believe we can achieve by balancing continuous innovation at high end With the disciplined product management, cost engineering and production scale.
Let's turn to Slide 5 to discuss ACM's growing customer base. We have 5 major front end customer In Foundry, 3 d NAND and DRAM, in 2021, we expect the Wahgn Group and YMTC To remain our top two customers, we expect good growth from them this year. However, each may represent a lower percentage Our total revenue as we expect to see significant growth from other customers. We also expect a contribution from SMIC, SK Hynix and 6MT. Importantly, we recently received new orders For several tools from SMIC for the second half of the year.
During the past 12 to 18 months, our team has done a great job of Broadening ACM tool content at SMIC, including a full range of cleaning products And all you see BTUrs. We are getting indication of higher demand from SMIC in 20 22nd, But it is still early. SMIC demand is subject to further licensing progress by then with other U. S. Equipment supplier.
We recently added a number of new China based semiconductor customers who manufacture power, analog, CMOS image sensor, compound semiconductor and other devices. This customer including 4 of 5 Tier 2 player And a handful of new Tier 3 and other customers. Although it is a rather small, let's grow our new Tier 2 and Tier 3 customer As a whole, we could contribute 10% or more to 2021 revenue. As newer customer Investing in new capacity for supporting growth of 5 gs, IoT and EV technology. ACM has good penetration with a range of tool, including SAPS, semi critical cleaning, ECP and the furnace products.
Our 3rd customer growth is advanced packaging and other processing and also processing customers. Top customer have including JCAP, Tongfu, Maphos and WaferWorks. In Q1, we discussed order from 2 Advanced Packaging House and we now expect to add more customer as moving through the year. Collectively, we expect a significant growth from the group, driving by increased industrial focus from advanced packaging, Penetration of new customers and a new product cycle for ACVCP AP Tools. Looking ahead, we believe that our current customer base We present a significant opportunity for ACM.
Most of these customers are still in early or middle stage of the multi year Capacity expansions. We remain committed to further broadening our customer base as we believe every major semiconductor manufacturer And benefited from our technology. Please turn to Slide 6. We delivered total shipment of 82,000,000 In the Q2, a new record in the company's history, shipment in Q2 were $28,000,000 higher than revenue. The difference largely represents shipment of first tool awaiting customer acceptance.
We view this as a positive indicator as it reflects demand for new products and from new customers. This level of shipments is a testament to ACM production team At our Changsha factory, we are scaling capacity to meet strong customer demand in a generally tidy supply chain environment. Our in house high performance factory and the strength of our manufacturing team are helping us manage near term Supply chain constraint. That gives us confidence in our ability to navigate environment During the second half of this year, we plan to begin production in the second building of our Changsha factory in the Q3 of this year. We have increased our capacity plans and now target a run rate exceeding Q4 of this year that represent more than We expect to further increase production capacity in 20 22nd.
Our long term plan is to build and R and D center in the Lidang region of Shanghai. The 1,000,000 square feet of the floor space will enable us To increase our annual production capacity to US1.5 billion dollars we completed additional architecture and design work In the Q2, with initial production now packed in the beginning of 2023. Please turn to Slide 7. We continue to invest in new products to broaden our offering. Today, I'm pleased to announce Babble Etcher, extension to our weather product line.
This product using a wet etch method to remove dielectric, Metal and organic material films as well as contaminants under wafer etch, ACM Edge approach minimize impact of edge contamination or later process steps and thus improving Manufacturing yield. The Bevel Etcher product leverage ACM's web processing expertise to deliver performance benefit Compared to joint approaches, it consumer less chemical and support a broader range of device type and process depth, Including 3 d math, DRAM and advanced logic process, we expect to ship our first tool For high volume manufacturing for China, based logic manufacturer this quarter. Additionally, with ACM provided technology, This new beveled edge product can achieve more accurate and efficient wafer sanding alignment. This will enable our precise bevel edge and will enhance product yields and wafer throughput. In addition, we are currently developing Advanced technology to deepen our leading market position in Clinini, which we will add more products to our Portfolio in 2022.
We remain bullish in our ECD product line In front end smaller geometry require advanced plating solution. Meanwhile, back end advanced packaging Are becoming more important as the industrial looks for packaging innovation to drive higher performance As the industry moves beyond voice law, our ECP product line indicates ECP MAP, a front end tool for damaging copper Interconnection, the ECP Tier 3 for full synovial, also for front end And ECB AP for advanced packaging, we believe the total global market for ECB will triple from $5,000,000 last year to up to $1,500,000,000 in the coming years. Although we did not Revenue in the Q2, we delivered 3 first tools to 3 customers. We expect to deliver a higher volume ECP tools in the second quarter Second half this year with good revenue contribution from repeat shipment in Q3 and Q4. We also continue to see strong interest for our Ultra FN furnace joint process tool portfolio.
We delivered several first tools including doped and non doped party LPCVD in the first half and expect to deliver additional units As we progress through the year, we remain on track to add high temperature oxidation and needing accretive To our furnace product line in the Q3 of 2021. Building on that, The next major development in our furnace roadmap is to either batch atomic layer depletion or air deposits. We view this as the most challenging and promising product for advanced manufacturers. We expect the furnace product cycle To become more meaningful in 2022 timeframe, we are making significant R and D investment In 2 major new product categories to achieve our goal of doubling our total addressable market from $5,000,000,000 today to more than 10,000,000,000 We continue to bring the top engineering talent to support this progress and are confident our team will deliver products And move forward with customer evaluations on our first product line in the first half of next year and the second product line in the second half I'm happy to report we made a good progress with the potential U. S.
And Taiwan based customers since our last call. Despite the COVID related travel restriction, our team is heavily engaged in business development. We are confident that we can secure orders From at least 1 new major 1st year global semiconductor manufacturers in 2021. Before I provide our updated 2021 outlook, let's discuss the status of the stock market IPO of IACM Shanghai. We continue to make good progress.
On June 10, 2021, the Shanghai Stock Exchange Commission, submitted the ASM Shanghai's application For registration with the StarMog IPO to China Security Regulatory Commission, CSRC, Moving up, we have a closer towards our goal. We are hopeful that the CSRC approves And complete our registration soon. When we receive CICE RC approved, we estimate that the insurance Process will take another 1 to 2 months. Keep in mind that the timing is subject to numerous factors Outside ACM Shuttle Control, we are confident that our eventual stock market listing combined with our non stock listing Can provide a strong foundation to accelerate our mission to become a major global player in semiconductor equipment industry. Now let's move to our 2020 outlook on Slide 8.
Our guidance reflects optimism about our growth opportunity for 2021. Based on our strong results through the Q2 and improved visibility for demand and our supply chain Through year end, we have reached outlook for the full year. We now expect the revenue to be between 225,000,000 And $240,000,000 up from the prior range of $205,000,000 to 230,000,000 The revised revenue range represent 40,000,000 percent annual growth at the midpoint. Our updated outlook For 2021 is based on several key assumptions. First, the global COVID-nineteen situation continues to improve.
2nd, the stability in U. S.-China trade policy. 3rd, a range of spending Scenario for the production ramp of key customers 4th, variance in the trajectory of the DRAM recovery And finally, a range of timing of customer acceptance of First Cool. Our results and outlook Demonstrate a successful execution of our strategy. Our strong growth is supporting additional R and D spending on new products.
We're building our global sales and marketing resource to penetrate the new customer in new regions. And we are scaling production capacity to support Our long term growth plan, our mission to become a major equipment supplier for the global semiconductor industry remains on track. To conclude, I would like to thank our employees for their hard work and dedication. I also want to thank our customer, partners and shareholders for their continued support and the confidence in ECM Research. I will now turn the call over to Mark to discuss the financial results in more detail.
Mark, please.
Thank you, David, and good day, everyone. We delivered solid financial results in the Q2. Unless I note otherwise, I'll refer to non GAAP financial measures, Which excludes stock based compensation and unrealized gain in trading securities. The reconciliation of these non GAAP measures to Comparable GAAP measures is included in our earnings release. Now on the 2nd quarter shown on Slide 9.
Revenue was $53,900,000 up 37.9 percent. Revenue for single wafer cleaning tools, which includes SAPS, Thibaut Tahoe and our semi critical cleaning was $45,500,000 up 36.4% from 33,300,000 We had no revenue for ECP, Furnace or other technologies during the Q2. As David noted, however, we delivered 3 first tools in the quarter and we expect more revenue contribution in the back half of the year. Revenue for Advanced Packaging, Excluding ECP, services and spares was $8,400,000 up from $1,200,000 in 2020. Total shipments were $82,000,000 versus $45,000,000 in the Q2 of 2020 $74,000,000 in the Q1 of 2021.
This includes deliveries for revenue in the quarter and deliveries of systems awaiting customer acceptance for potential revenue in future quarters. This represents another quarter of record shipments, a great accomplishment by our production team given industry wide supply constraints. Gross margin was 40.5% versus 49.7%. This was at the lower end of our normal Expectation range of 40% to 45%. The decrease in gross margin, as David mentioned, was due in large part to product mix.
We expect gross margin continue to vary on a quarterly basis due to a variety of factors including product mix and manufacturing utilization. Operating expenses were $16,100,000 versus $11,200,000 The increase in operating expenses reflected higher R and D on new products, Our expanded U. S. Sales team and legal costs related to our U. S.
Civil suit and the China Star Market IPO, R and D expenses grew by 52% $7,700,000 or 14.2 percent of sales versus $5,500,000 or 12.9 percent of sales last year. The increased R and D intensity reflects ACM's commitment to new products and innovation. We expect to continue to Increase our R and D spending in 2022. Operating income was $5,700,000 down from 8,200,000 Operating margin was 10.5% versus 21%. Unrealized gain on trading securities related to the change in the market value of our SMIC investment $3,800,000 in the Q2 of 2021.
Note that we exclude this non cash item from our non GAAP results. Tax expense was $15,000 versus $1,900,000 in the year ago period. Net income attributable to ACM Research was $4,100,000 versus $6,200,000 in the year ago period. Net income per diluted share was $0.19 Compared to $0.29 in Q2 of 2020. Tax items and the effects of foreign exchange fluctuations on operating results Provided a net headwind of $300,000 or $0.01 per share in the Q2 of 2021 versus a net headwind of $900,000 or $0.04 per share in the Q2 of 2020.
We'll now review selected balance sheet items. Our cash balance was $70,200,000 at the end of the second quarter versus $78,800,000 at the end of the first quarter. In addition to the cash balance, we also had trading securities of $31,300,000 related to our SMIC investment. This includes a significant unrealized gain from our original purchase price. Total inventory was $136,900,000 at the quarter end, up by $33,600,000 from the prior quarter.
The quarter on quarter increase was driven by 2 items. 1st, finished goods inventory grew by $68,000,000 to $64,000,000 This represents first tools that have been delivered to customers for evaluation and are carried on our balance sheet at cost pending potential customer acceptance. The second item is work in process and raw materials, which in total grew by $16,800,000 from the prior quarter. This was due to purchases to support shipment growth expected for the remainder of the year. Short term borrowings at quarter end were $22,800,000 Down from $23,500,000 at the end of the Q1.
Long term borrowings were $18,700,000 up $1,300,000 from the Q1. Cash flow used by operations was approximately $10,000,000 for the 2nd quarter, but it was slightly positive for the first half of the year. For 2021, our base case plan for capital spending is about $15,000,000 This includes $2,800,000 already spent through the first half of the year. Our 2021 investments will be primarily focused on capacity increases at our Chuanxia factories, investments to support our R and D programs Planning and some initial spending on Lingang. In sum, we continue to execute on our strategy.
We are providing we are Participating in the growth of major new IC fabs, we're ramping production and we're developing and delivering new products to a growing list of customers. We're positive on our opportunities in China and expansion outside of China. We remain committed to achieving our mission to become a major player in the semiconductor equipment Market, let's now open the call for any questions that you may have. Operator, please go ahead.
Thank you. At this time, we would like to take any questions you might have for us today. We have our first question coming from the line of Patrick Hall from Stifel. Your line is open. Please go ahead.
Thank you very much and congrats on the revised outlook. Maybe for David or Mark, The semi equipment industry has gone through a lot of supply chain constraints over the past quarter. Given your results And your outlook, it looks like you're managing through it very well. And can you just qualitatively give a little bit of color on whether you're seeing any supply Your supply chain is probably a lot different than some of my American companies, but I was just wondering how you saw Supply chain constraints during the quarter or if any going forward.
Okay. Thank you. Actually, you can see that the market is booming, the components of the pipe get tighter and tighter, right? So we do see some long leading items get there even further longer. So only way we're managing that is that we're Based on our projections, so in the half year even beyond, and then we're looking for their early ordering Early purchases, right, and there is a long leading item.
So we do see some components get longer, which impact us. However, we get a pretty much good control and we'll continue to see that. Hopefully, this is getting booked. And at this moment, we feel comfortable about our revenue this year. And actually also we're also comfortable about also our shipment this year too.
Great. That's helpful. And maybe this
is my follow-up question for Mark. Gross margin is between the 40% to 45% range. A lot of moving pieces every quarter. As we look at the high shipment kind of relative to new Tools and first time tools to customers, how do you balance that versus your overall, I guess normal operations because if you get a quarter of multiple systems that could weigh in pressure on gross margin And take you out of that range. What are some of the steps that you're taking to try and ensure that your gross margin steady, you say your stated range,
Great. So yes, Patrick, I'll probably add and maybe David, if you wanted to add to it. But Patrick, It's an art and a science, certainly. I mean, right now, demand is quite strong and so we're focused on our production. We do what we can, of course, to balance our revenue items versus our shipments our first tool shipment items And to balance the gross margins, but many times really it's our customers have strong demands and we do what we can to support our customers.
So we are it's very important for us To focus on innovation at the high end, but then we're also moving to deliver some round out Product market to create a moat between us and our competition. So we do feel very comfortable that we can balance all the items to deliver The gross margin is in the range in the 40% to 45% range. David, do you want to add anything to that?
Yes. Actually, you mentioned quite a bit, Akir. And I want to add something really this moment. I think for us, we want to gather balance Our product portfolio, right? And you see that there say a year ago, most of our shipments are single wafer, cleaning, And those are normally higher margin and those margins still keep not changing.
As we introduce the semi critical product And also more of our advanced tool in the packaging and they're spreading lower margin product come out, right? So We combined together that kind of margin you see, the dilution. However, as we continue mature our product, You mean in a semi critical tool and also control our cost of manufacturing, also scale production, plus Well, additional innovation product, I can see AP continue mature sell and also the 1st furnace come out. And so we'll see that balance continue, right? So We believe at this moment, we try to also secure position and also especially keeping competitor get into our flagship product.
It was to gather semicritical or other relatively low profit product. However, as I With our confidence, with our also future innovation keep going, even add a new community function, more of a new feature even to our community major product, Then we'll see that margin eventually at the back, right? We're still confident in 40%, 45%. And as I said, continued innovation and the new product development that will help in our margin keep going in the range.
Great. Thank you very much. Thank
you. Your next question comes from the line of Ken Bolton From Needham and Company, your line is open. Please go ahead.
On the ECP
Maybe if you could give us a sense how many tools you have, ECP tools you have waiting, customer acceptance and Any thoughts whether ECP might be able to get to 10% of revenue next year as it ramps and customers accept tools?
Okay. Okay. You're looking at ECB product, we've got actually a major, I should say 3 major categories. Let me clear that. 1 is the damaging process, we call ECB MAD, MAP.
And second one, we call it ECB PSV, right, major for the Dvir PSV palladium. Number 3 is actually our Advanced packaging tool, which we deliver for the packaging, fan out and the Pilar, all other advanced packaging requirements. Number 4, we come with actually another copper plating for the compound semiconductor, A relatively small size, 6 inches and mostly eventually expand 8 inches So with that all product portfolio expanding, This year, we see quite a bit of shipment and to the new customer. We are looking for actually probably 20 plus Total, sure. We'll deliver total again this year.
And some of them are recurring revenue, but most of them, I mean, I should say, It's hard to tell right now, but some of them will be technical next year. But again, obviously, next year We'll become a rigid order and then that will be we'll add a bigger revenue booster or revenue, I call the product and to our portfolio next year. So it
sounds like if you've got 20,000,000 plus of tools delivered this year, repeat orders and
just continue. 20 It's another 20,000,000, 20 tool number, another 20,000,000 20 tools. Wow, okay. Yes. Got it.
That's a lot of numbers, right? I know that. Yes. Got it. Got it.
So we could definitely get to 10% of revenue pretty quickly. Got it. Thank you, David, for that. And then, Mark, just thoughts on OpEx. I know you guys are increasing the R and D To invest in all the new products, but as we look at the quarterly progression of OpEx, can you give us any sense as to what increases you might expect into Q3 and thoughts whether OpEx would increase further in Q4, whether it would follow normal seasonality and Maybe tick down a little bit in the Q4.
Thank you.
Yes. I mean we don't give a lot of detail On our OpEx, we tend to guide on the top line. But for the year, we think the OpEx should be 28%, 29% of sales, Kind of a good mix of R and D that we've talked about, sales and marketing And then followed by G and A. So yes, you don't expect any kind of Significant changes in the back half of the year, but so you should get a little leverage in the back half of the year on the overall revenue growth.
Got it. Thank you.
Our next question comes from the line of Krish Sankar from Cowen, your line is open. Please go ahead.
Hi, thanks for taking my question. I had 2 of them. First one, David, on this bevel etch using wet chemistry, who are the main competitors? Because it seems like most of them use dry, so I'm just trying to figure out Who the comments are on the bevel next process? And then I have a follow-up.
Great. Actually, like you said, I mean, I should say, you lost probably 10 years, right? A lot of our barrel ashes by the dry patches, which I should say, It's pretty good performance. However, you have other than Tardigo Remaining on the, I call it, edgelispris, right? And then for that portion, how do we get it clean again?
The wet process, I call it edging tool, you adjust wet etch process making a much better profile And also give you clean etcher without almost no particle on top. So that's really helping reduce The film the particle contamination and edge to the edge dye. For our case, actually also Innovative method, as I mentioned, we have a very precise alignment to control the center or to test the center wafer. And so therefore, we can reach much better centering performance, therefore, reaching much better control for the barrel accuracy, Well, leading to the better yield, right? That's our product.
Got it. Got it. Very And then just a follow-up on electroplating. Thanks for the color on the different drivers for electroplating. I'm just kind of curious, David, you mentioned the direct trillating market could triple to $1,500,000,000 in the next few years.
I understand the different drivers like The throughputs are pretty high, the ASPs are pretty low. So I'm kind of curious what gets you to a tripling in market size to $1,500,000,000 Is it just these 4 drivers you spoke about? Or is there anything else going on like ASP increases or throughput reduction happening? Thank you.
Yes. Okay, great. I think the major driving force is still from, I should say, probably Tier 3 and also the 3 d packaging, right? Obviously, balancing process has been likely very stable. Obviously, the more volume, more wafer people talk about, that will continue to increase.
I think more of the driving we see here is like order 3 d packaging. Now they're talking about a pillar from 100 micron, We did 200 micron, it got mega pillar. With those kind of a higher pillar, you need a more of a process time And to plating such a thicker pillar, right? So also they're talking about 2.5d and 3d. So there's a much more 3d application come out And for the packaging, obviously, not only for advanced, I call it, application, Even people today consider even 28 nano or even 40 nano, they're trying to combine with the advanced packaging technology There's a further enhanced performance.
So with that in mind, we think that there's a market continue to grow, right? And people project that this year Probably when we reach is 700,000,000 as a total, dancing and packaging altogether. So we're very see that a growing opportunity. Again, because pretty driving by their post Morris Law, right? People focus on their
Very helpful. Thank you lot, David. Thank you very much.
Thank you.
Our next question comes from the line of Charlie Chan from Morgan Stanley. Your line is open. Please go ahead.
Thanks for taking my question and great results. David, good evening and Mark, good morning. My first question is about the lead time between your shipment to the revenue. So maybe, Mark, can you please Remind us what is the lead time?
Maybe I'll give you 1st, Mark. At this moment, I should say our average lead time around 6 Month already, right? And again, I will try some specific product, shorter or something maybe longer. It's about the 2 months longer than our So that's the answer now. Hopefully, as time going on, We can shorten that product cycle.
At this moment, still I should say supply a certain leading long leading item And taking the much longer time to get in hand. That's the major reason.
Okay. Thanks. Yes, so because as is because You talked about your annual life of production, right? So if I look at second quarter, Your shipment is above US80 $1,000,000 and the full year production is exactly 350,000,000. So I'm thinking that when you try to expand your analyzed Production to US500 $1,000,000 My question is that when will company's revenue scale will hit US500
million dollars Wow, that's a tough question. Again, right, I mean, shipment number, we normally do not have a real, I call it, final release in almost end of the year, right? So obviously, I can tell you this year, our shipment is much, much higher than last year. And actually number, I still say, I'm not waiting for our Q4 early release. But then, I mentioned $5,000,000 revenue or shipment, right?
Be careful. So if it's a shipment, probably easy to reach, right, hopefully within next year. But the revenue wise, we're still built Based on what you say, a lot of new product and new customer, our rare recognition take time, right? So again, I can see that a lot of shipment going on, but revenue wise, we'll give you probably by early next year, then we see more visibility What is our sales order next year?
Our next question comes from the line of Donnie Tang from Nomura Securities. Your line is open. Please go ahead.
Thank you, David and Mark for taking my question. My question is related to customers, right? So I In your prepared remarks, you mentioned about that you recently received new orders from for several tools from SMIC For the second half of the year, right? So I'm just wondering, Is there any approval granted by SMIC's U. S.
Suppliers so that they can start to Procure more equipment from SM Research as well or is there any other reason behind? And for another customer like 1TC, right? So I think 1TC is running out of its Phase 1 capacity expansion Maybe by the end of this year or maybe by sometime next year. So just wondering if you could kindly give us some update on maybe When will YMTC start the potential Phase II capacity expansion? So this is my first question.
Okay. Okay. Well, again, right, regarding licensing, there's a lot of different information flow in the market, right? And we do see some anyway, our same player in the industry, they said they got a license And we look for the entire tool, offer the big tool. And also we heard is some even component supplier, They also get their license too, right, maybe 4 year one time license.
So again, we see that I call that a Tianxin got released. But again, I don't know all this total product and the S and S is going to buy, How much percentage you get? How much you not get? So that information, I really cannot comment. That's as I heard so far, what SMC.
But however, we do have indication and they're trying to expansion their demand, their customer, It really demand their capacity, right? So next year, we do have an expanding plan that go into next year, for us, I would say, right? So So we'll see probably as timing go reach the end of this year and also maybe Q3, you can see more clear picture on that. Regarding YMTC, as we know, their Phase 1 factory almost full occupied, Right. And by capacity.
And probably end of this year, the first Phase 1 fab is going to be fully loaded. Then if we look in the building, I can only say what I say here, right? As I be careful what is very confidential. So even looking The building next one, that in the process. So by that building second building right now, We probably can say, probably end of this year, they can finish that construction.
And then again, we're as a major supplier, We're expecting off the finished construction issue, they're expanding their second half. Recently, I heard that they will make a successful 128 a layer manufacturing, right? So with that, their technology developed. It's very natural thinking that we continue expanding their 128 layer mass production. And obviously, this is a recent game.
We're also I think that going to even 198 or even more of layer R and D for the coming year. So YPC is a very good customer for us and we have very good relation. And also we're expanding our product portfolio, Right. Not just only cleaning product and we're expanding also other like copper plating and also other furnace product, eventually getting The YMTC also all the new advanced requirement, especially for the 225 layer and above, We're doing very good there, I call it, planning to improving all product we have today to make sure we can meet their requirement, Right. 2 years, 3 years from now, probably that time is 300 layer or even more.
So we're working very close and to give a joint develop our new product
David, I have one follow-up on SMIC. So When you say that you receive new orders from SMIC, is that for like the Shanghai Fab, the most I've mentioned, high fab or is for like Beijing, more mature nodes like above 28 nanometer?
Yes, we got actually from Beijing, the mature notes. And also I'd say that the expansion plan, as I mentioned, right, they're compound also their Beijing is most that happened, maybe a Shenzhen, right? That's what we heard so far. Okay.
And my second question is probably for maybe longer term business expansion, right? So I think based on your sales scale, right, if we consider you have maybe like 80% of sales roughly from wafer cleaning Then I guess it probably will translate into like at least more than 10% of the market share in China already in terms of wafer cleaning tool. So I think probably you are the biggest already the biggest one and continue expanding market share in China Domestically, but I think that kind of market share has been pretty high, right? So inevitably, you need to expand to more New product portfolio, as you just mentioned, like ECP, advanced packaging, etcetera. But on the other hand, previously that you are also trying to penetrating into overseas Leading semiconductor customers.
So I'm just wondering which targets are the priority right now? And could you kindly give us some update on your expansion in the overseas market? Thank you.
Great, great. Okay. I should say both important, right? Both the margin China is important and also outside China is important. And actually, our long term goal let me give you the long term goal.
We are trying to make our revenue 50% come from China market And Peter will stand from outside China market, right? And that's why we are actively, at your higher building our strong game in the U. S. To approaching leading customer in U. S.
Also enhance our team in Taiwan too, right? And plus Recently, also we have further enhanced our sales team in Europe. We believe our core or provide the technology Like SAPS and T Bone for 3 d cleaning without damaging and also Tahoe product with our I call the Sobeck saving process. And also and where I should say that, we also add additional new function, new requirement And for the strength in our cleaning product, right, in the advanced nodes too. So with all innovation in the hand, we're trying to First, the industry probably in the China and the Korean market.
And we believe our product will eventually Well, I think in Apache, there are all major customers in the world. The way we did, every key customer, They need a fast technology, right? As I said again, our provider technology and is a real unique approach we're providing. And with all the benefit, we think our Defensure product will get into the market outside China, right? And We're very confident and we see that in a bigger movement and also building as order type in the U.
S. So we definitely want to participate better in a growth market in the U. S. And also obviously can see the growing market in Taiwan. And also and the potential maybe is something happening in Europe, right?
The people talk about it too. So as ACM today, really we're again equal Important, even revenue major come from Mainland China right now. However, we do see our future growth and also what comes from outside China.
I have a follow-up, right? So because previously, impression is like you put more focus on expanding overseas customers, but in past few quarters, it's like it looks like our new products or our new equipment expansion to be Faster than expected, so we put more emphasis there. I'm just wondering, is this kind of situation A correct way to say or Does that mean that we our schedule the qualification schedule with the overseas customers continuing to be
Well, again, right, I'd say we're working closely, right? Again, it's not there I should find the material not the final material yet, but again, we're making progress, right? And when the timing And reaching, we're going to announce that. But at this moment, I said that we're very working closely with the customer.
Great. Sorry, we should probably move on to the next question please.
Our next question comes from the line of Jo Lin Cheng from Credit Suisse. Your line is open. Please go ahead.
Okay. Thank you, Liz, Jolien. So David, you gave us some color on SMIC and YMTs and can you talk a little bit about I'm just curious that SA has been doing pretty well with all the other major guys in China, but it seems that the business is a little bit slower with
Yes. Actually, we do see that there is a pickup, Right. And probably you see the 2 locations, 1 in the Beijing, 1 in the Hefei, right? And again, we're working closely with them. I will see that some, I call it, order were already receiving and from Beijing, they're Beijing new factory, too.
I know they have a bigger 40 ks expansion, right? And that will keep going and The partial release that order, we'll say probably most of it happen next year, but they're continuing to improve their technology And improvement capacity. So we're safe, right? And we're working very close with them too, our cleaning product And also a couple of ladies. And also we'll further try to working with them together, expanding our further spot, right, getting to There are production line too for the evaluation.
So thanks to the customer and we hopefully eventually they become top Customer for us and in the coming year soon, right? So that's our effort to put it here To win the customer, have 6MP.
Thanks, Josevic. Our next question comes from the line of Suji Desilva from ROTH Capital. Your line is open. Please go ahead.
Hi, David. Hi, Mark. Congrats on the progress here. On the global customer, I know you said you're going to ship In calendar year 2021, and since you have 6 month leads, I guess, you have the visibility there. Just trying to understand if this is a production volume or a pilot volume?
Is it SAPS, TiVo or Backend, Advanced Drilling Node, those kind of that kind of color would help. Thanks.
Wow. And I really couldn't release any product, right? Obviously, the NDA control, Even there's not a lot of talk about which part they buy. But anyway, when I can say that product is a community tool And that will be the evaluation tool. And hopefully, what we end up the repeat order appeal And that's a typical process.
1st of all, the evaluation given the liking of the product, they get Order production verification, then we'll hopefully get a repeat order, right? So anything will repeat what that will happen next year, right? That's what we're expecting. Again, it's a good opportunity. That's why we're doing very good effort and make our team really Sales and also servicing and all other related logistics supporting, right, for those happen.
All right, David. Appreciate that color. Thank you so much. Bye.
Our next question comes from the line of Chi Chi From Jefferies, your line is open. Please go ahead.
Hi, David. Hi, Marge. Thank you for taking
the question.
Could you give us some color on your Asia IPO? You said it's going to take another 1 to 2 months. So can you share what kind of process you are left with the PSRC? What's going to take for the IPO to go through.
Okay, good. So Chi, actually, as I mentioned, in June 10, right, with Actually, the SEC, right, Shanghai stock changing, this needs application, right, to the CSRC. So we're going through question and answer. Actually, so far, the question give us all answered already, Right. And now I think probably in their internal procedure process and to get a final proof.
And also just 2 days ago, we also submitted a Q2 financial review, right, and to this CSRC also. So we'll see. Maybe they come in with some questions come back to our Q2 data. And anyway, we're prepared for that. Again, ACM probably is the 1st U.
S. Company has a category U. S. They also have another IPO with their subsidiary in Shanghai and they applied for stock market IPO, right? I'm pretty sure this is a really unique and first case.
So it's reasonable, right, they take more time consider and take more of A cautious effort, especially you have this, I call it, short survey report come out, right? All things put together. Anyway, we have confidence. As I said, we're a good housing company and good technology and with our strategy. And I think We should be overcome in this, I call there, eventually, the IPO in the submarket.
I believe that's what we both really benefit our rail ramp, our expansion plan in China. And that's their That's where we believe in will be the win win, right? And for the customer in China and Our financial investor in the U. S. And also ACM Global Growth.
So it's a good thing to try To work hard and make it happen.
Yes. Thank you very much. My second question is regarding your R and D I think you have a very big job on your first half R and D expense. I think that's very positive given you are expanding your portfolio. Can you give us some color on your long term R and D expense?
Will it say, let's say, like Hi, Mr. Mittings going to next 2, 3 years?
Yes, good question. Actually, let me put this way. As I mentioned in our earnings call previous time, We want to balance, right, and profitability and also growth opportunities, right? So I think probably Last two years, you can see about 10%, 11% R and D. And this quarter, we got into the 14%, right?
So I think probably 15% is a good range and for us to stay, right? Why, we had a and this gross margin 40%, 45 This is all operations coming together. You have to gather 10% plus, right? That's kind of a profit there. So without a balance in hand and that's probably give you 50% is our probably number we try to be keeping for next 2, 3 years.
Let me add another difference where for other big guys. We spend R and D money very efficient, right? Looking at the last 2, 3 years, We're developing copper plating and we're developing furnace. We spend also semi critical in the cleaning process. Also by end of this year, we're pushing additional new cleaning function, other even dry technology come out and with our cleaning product.
We are spending very efficient money. We spend every $1,000,000,000 and to maximize our R and D effort. So I think 50% is a good number and we can without spending, we have confidence, we're getting to our New product come out on a time line. And also, I think our key for our success or R and D is We are always getting innovation product, right? Always I call it defense.
We don't want to get me too, that's number 1. Number 2, We also have a very good team and working in Shanghai and working with the Korean market And I'll create an all site. So that really give us a strong R and D effort and then really either our product or market. That's really, I mean, historically, it demonstrates that. So with continued innovation, we are very confident, right?
We'll continue pushing R and D At the next level with new innovation product come
up. Yes. Thank you.
That's very helpful. Our conference has a good result.
Thank you.
Thanks. Next question
please. Our next question comes from the line of Christian Schwab from Craig Hallum Capital. Your line is open. Please go ahead.
Hey, great quarter guys. I tried to sneak in 2 quick questions. I'll just ask them quick. Recent news about a leading customer's bond default, would that is that potentially going to have any impact on you is question 1. Question 2 is, what happens if YMTC gets put on the entity list?
Is there any way to ship to them?
Mark, you want to answer that or
Yes. I can start and then if you finish. But yes, the first one on the bond defaults, David has talked about that on prior calls. We're pretty confident that the operations of that customer Our general thought is that financing will be available Hopefully, from so long as the operation continues to execute that they can I seek funding from other areas and it's more of about an ownership issue rather than a funding operation issue? In terms of the entity list, it's they're an important YMTC is an important customer.
I think David talked about we expect growth, but likely a lower percentage. We're moderating closely and hopefully they don't get put on the entity list. We feel pretty confident given our manufacturing operation in Shanghai and a lot of our technology came from there That we might have some more flexibility to shift to cost should they get put on the list. But of course, It is dependent upon their ability for the other suppliers to get licenses. So we'll monitor it closely And we'll update if necessary.
Great. Thank you for letting me sneak in 2 quick questions. Again, congrats on a good quarter.
Great. Thanks, Christian.
Thank you.
That wraps up our Q and A session. I'll turn back the call over to Gary.
Is it Mark Meter? Next one?
Yes. Guys, I think That's it. Thanks, operator, and everyone for participating on the call. I just want to mention some upcoming Investor Relations events. On August 24, we're going to present at the Needham Second Annual Virtual Semicamp and EDA Conference.
On August 31, we'll present at the Jefferies Virtual Semiconductor IT Hardware and Communications Infrastructure Summit. In addition, we'll present at the Jefferies Asia Forum on September 9 22nd Credit Suisse Antitian Technology Conference on September 10. Attendance at these conferences is by invitation only for clients of each respective So interested investors, please contact your respective sales representative to register for 1 on 1 meetings to secure time. So this concludes the call. Thank you everyone.
You may now disconnect.
Thank you. Bye.