Good day, ladies and gentlemen, and thank you for standing by. Welcome to the ACM Research second quarter 2022 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 Gary Dvorchak, Managing Director of The Blueshirt Group. Mr. Dvorchak, you may begin.
Thanks, Carmen, and good morning, everyone. Thank you for joining us on today's call to discuss second quarter 2022 results. We release results before the U.S. market open today. The release is available on our website as well as through newswire services. There's also a supplemental slide deck posted to the investor portion of our website that we'll reference during our prepared remarks. On the call with me today are our CEO, Dr. David Wang, our CFO, Mark McKechnie, and Lisa Feng, the CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to slide two. 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, which reflect ACM's opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certain of the financial results we provide in this call will be on a non-GAAP basis, which excludes stock-based compensation and an unrealized gain or loss 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 David Wang, who will begin with slide three. David?
Thanks, Gary. Good afternoon, everyone, and welcome to ACM Research second quarter 2022 earnings conference call. Please turn to slide three. Our second quarter results represent a solid recovery following the Shanghai COVID restrictions this spring. We delivered strong revenue and profitability as our facilities returned to normal operations. As we had expected on the Q1 call, the restrictions turned out to be temporary. The Chuansha facility was reopened on the closed-loop production process in late April. As of July 1st, operations in Shanghai were largely back to normal. I want to sincerely thank our employees, business partners, and customers for their dedication as we navigated the COVID pandemic. Let me share some financial highlights for the quarter. Revenue of $104 million was up 94%.
Revenue includes the shipments of tools in the second quarter that could not be delivered in the first quarter due to the late March restriction in Shanghai. A strong product cycle from ECP and incremental business from new customers also contribute to their growth. Shipments were $112 million compared to $82 million last year. Gross margin was 42.4% within our normal range of 40%-45%. Operating margin was 21.1%. We ended the quarter with $469 million of cash equivalents and time deposit. For the first half of the year, revenue grow by 50%. Cleaning tools grow 27%, while ECP tools grow 490% and contribute to 20% of the sales. Demand from our top China customer remains strong.
We believe many of our customers are in the early to middle stage of multi-year expansion plans, and we see good growth of opportunity for the next several years. We grew our share of China market with our cleaning tools based on our technology, good execution, and new products. We had incremental revenue contributions for ECP product cycle for both front end and back end, and with multiple customers. We are gaining market share in China with both ECP and advanced packaging products. Over time, we target 50% of market share in plating in China and 25% share globally. We target a similar trajectory for our furnace product cycle in the coming years, and we are building a longer-term opportunity with the introduction of two new product categories, which are on track for later this year.
I will now highlight a few recent announcements. On April 21st, we announced that our 18-chamber, 300-millimeter Ultra C VI single-wafer tool was qualified for mass production by a mainstream memory chip manufacturer in China. This tool provide 30% more throughput than our 12-chamber tool, but with a similar footprint and is an important tool to support higher volume production line at one of our key memory customers. We expect the 18-chamber cleaning platform to play an important role with this customer and others for 3D NAND and DRAM. On July 12, we introduced a new post-CMP cleaning tool for silicon and silicon carbide wafer substrate manufacturers. This tool expands our cleaning product portfolio by serving as a cleaning step following chemical mechanical polishing. CMP is used in manufacturing high quality substrate. I will now provide some highlights of our major customer initiatives.
I will start with the U.S. We recently delivered 2 Ultra-C SAPS -V 12-chamber cleaning tools to the fab of a major U.S. semiconductor manufacturer. This is a great achievement for ACM, a testament to our technology and our North American sales and marketing operation. We delivered the first tool in June, which our customer is evaluating based on its unique technology feature. We also deliver second SAPS-V tool in the middle of July. Our target is to qualify both tools and put them into production by the end of the year. We have staffed a full site service team in the U.S., and we now have a visiting team of engineering from Shanghai to support installation and evaluation.
We believe a success here could lead to follow on orders with this customer at the server sites and perhaps lead to interest from other major customer in U.S. and Europe. Next, we remain engaged in the China-based facility of three larger international semiconductor manufacturers. The first is a global IDM with a China-based packaging facility. We delivered the first Ultra C PR wet stripping system in Q4, 2021, followed by a second tool in Q1, and we receive additional order for delivery later this year. We're hopeful that a success with our first product could lead to a broader adoption of other WLP products at this important customer. The second is a regional Asia-based semiconductor player with a China-based fab. We deliver a Ultra ECP map development tool in Q1, and the customer has began its evaluation with our service and process team.
The third is a major global semiconductor manufacturer with China fab. We deliver Ultra C SAPS-V 12-chamber cleaning tool in Q2, and we are moving forward with evaluation. Looking to second half of the year, demand for our tool is strong, and we have good visibility through year-end, and we are starting to receive orders for the first half of next year. We expect solid growth in 2022 and beyond from our core cleaning products. The ramp of our ECP Pro tools and increased shipment of our furnace products. We are committed to gaining additional share in a $1 billion market addressed by our current products. We have two important new product expansions. In cleaning, we have a sub- and supercritical CO2 dry tool, and in furnace, we have ALD. Both are on track to be delivered in the second half of this year.
Furthermore, we are on track to double our addressable market opportunity with upcoming introduction of two new product category also in the second half of this year. Now let's discuss our capacity expansion plans. We continue to add capacity to our Changzhou facility. We moved our parts inventory to a third building, which freed up additional 5,000 square meters at our secondary building for final assembly. We remain committed to grow our production capacity to $625 million this year, and our Lingang construction project is on track. We plan to complete the first production building in the beginning of 2023, with initial production to start by midyear. We are also planning R&D center in Wuxi and Beijing to support the several key customers, and we are considering a more meaningful investment with a potential production facility in South Korea.
We currently have about 100 R&D engineers and staff and supporting staff together with the pre-production facility. A larger presence in South Korea with a meaningful production capacity will establish a local footprint near two major players and provide our global customer with a secondary production center to ensure continuity. Before I provide outlook, I'm pleased with the progress with our new auditor. On May 19, we appointed PCAOB-compliant auditor, Armanino, as our independent public accounting firm for our first-year 2022 audit. On June 30, this was ratified by our shareholders. Following our 2022 annual audit and filing of a 10-K, we expect to be removed from list published by the SEC pursuant to the U.S. Holding Foreign Companies Accountable Act. I will now provide our outlook.
We have strong orders through year-end. Due to a tight supply chain environment, we are keeping our outlook unchanged in the range of $365 million-$405 million. The range of our outlook consider, among other factors, continued expansion of production and shipping operation in Shanghai, the absence of unexpected interruption of our supply chain, and continued demand by our customers. Now let me turn the call over to Mark, who will review detail on first quarter results. Second quarter results. Mark, please.
Thank you, David, and good day everyone. Please turn to slide five. Unless I note otherwise, I will refer to non-GAAP financial measures, which exclude stock-based compensation and unrealized loss on trading securities. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Before I provide the normal review, I want to address the impact of the COVID restrictions in Shanghai on our business. As a result of the restrictions for the first half of the year, we experienced a negative impact on revenue and shipments, and overall results were below the original plan established prior to the restrictions. In addition, 13 tools that could not be shipped to customers in the first quarter were subsequently shipped in the second quarter.
To quantify, these 13 tools amounted to $24 million in shipments and $12.9 million in revenue. Qualitatively, we had higher operational costs and some inefficiencies across different groups during the restriction. The restrictions did also impact our operating cash flow, primarily with the relatively high percentage of shipments in the latter half of the quarter. Our accounts receivables grew. With the easing of restrictions, we are now focused on delivering tools to meet the demands of our customers. I'll now provide financial highlights for the second quarter. Revenue for the second quarter of 2022 was $104.4 million, up 93.8% from the second quarter of 2021. Total shipments were $112 million versus $82 million in the year ago period.
Revenue for single wafer cleaning tools, which includes SAPs, TEBO, Tahoe, and Semi-critical cleaning was $72.6 million, up 59.7%. Cleaning mix as a percentage of total revenue was 69.5% versus 84.4% last year. Revenue for ECP, furnace, and other technologies was $20.5 million, or 19.6% of sales, compared to no contribution in the year ago quarter. Revenue for advanced packaging, excluding ECP, services and spares, was $11.3 million, up 34.6%, or 10.8% of sales versus a mix of 15.6% last year. Gross margin was 42.4%, up from 40.5% in the prior year, which is in line with our normal expected range of 40%-45%.
We expect gross margin to continue to vary on a quarterly basis due to a variety of factors, including product mix and manufacturing utilization. Operating expenses were $22.3 million versus $16.1 million in the second quarter of 2021. The majority of the increase was from R&D personnel for new product development and other factors, and increased SG&A costs to scale the business in China and new global markets. Operating income was $22.0 million versus operating income of $5.7 million in the year ago period. The large increase in operating income was due primarily to leverage in our top line. Operating margin was 21.1% compared to 10.5%.
Unrealized loss on trading securities was $0.4 million in the second quarter of 2022, versus an unrealized gain of $3.8 million in the year ago quarter. This non-cash item is excluded from our non-GAAP results. Income tax expense was $7.7 million. As described in our earnings release, a change in the US Internal Revenue Code Section 174 that went into effect on January 1st, 2022, has caused a meaningful potential increase in ACM's effective tax rate for the full year. We're still evaluating the impact of the new tax provision for 2022, and we note that Congress is considering legislation to defer the capitalization requirement to later years. Net income attributable to ACM Research was $14.6 million, versus net income of $4.1 million in the year ago period.
Net income per diluted share was $0.22, compared to net income per diluted share of $0.06 in Q2 of 2021. I will now review selected balance sheet items. Cash and cash equivalents, restricted cash, and time deposits was $468.9 million at the end of the second quarter, versus $533.1 million at the end of the first quarter. Total inventory was $288.1 million at quarter end, up from $271.5 million at the end of the last quarter. This included finished goods inventory of $103.4 million, work in process of $45.7 million, and raw materials of $139 million.
Net cash used in operations was $33.6 million with net income offset by an increase in accounts receivable and inventory. As mentioned previously, our receivables were higher due to the relatively higher percentage of shipments made in the latter half of the quarter as a result of the Shanghai COVID restrictions. In closing, demand for our tools remains solid and our operations have returned to a more normal level. We will continue our investments in new products, new customers, and capacity as we continue forward on our mission to become a major player in the global semiconductor industry. Now let's open the call for any questions that you may have. Operator, please go ahead.
Thank you. As a reminder, to ask a question, simply press star one one on your telephone keypad. One moment while we compile the Q&A roster. Our first question comes from Quinn Bolton with Needham & Company. Please go ahead.
We're with on.
Hey, guys. Congratulations on the nice results and the strong recovery in the June quarter. David or Mark, just wanted to ask my first question around the 2022 guidance. I know you're keeping it unchanged at $365 million-$405 million. It sounded like you said part of the reason you're keeping it unchanged was due to supply chain constraints. I guess my question is: do you have the demand that could actually lead to upside and you're not changing it because of the supply chain, or did I mishear your comment?
Okay. Quinn. Hello?
Yes.
Okay. As we said that. You know, everybody aware that is the supply chain still continue, I should say, still very tight. That's the reason even we have very strong demand and PO from customer because uncertainty of this supply chain. That's why we're still keeping $365 million and therefore $405 million of our projections for this year.
It sounds like, David, you might have actual demand that would allow you to exceed that level, but you're keeping the annual target mostly because of concerns around the supply chain.
Well, as I said, if supply chain, you know, it's really get better or if we have our long-lead item can be delivered as we expected and probably can reach a high side of our, you know, projection, right? It's really this moment, we still have some surprises, right? Sometimes they say they can deliver next month, but when the time comes, they say delay. So there's certain parts holding us, you know, to put this way. That's why we're still keeping this number no change.
Got it. Understood. David, second question for me. You've got a number of new platforms coming out in the second half. You've announced two of those, which are the supercritical dry and the ALD furnace tool, and then the complete new platforms. Can you talk to us, you know, as you introduce those tools, when do you think you'd actually be able to start to rev rec those tools? Could the supercritical dry and ALD furnace rev rec in 2023? Or do you think the evaluations for those tools, as well as the new platforms that you haven't announced yet, do you think that rev rec on those platforms really are gonna start to kick in for you more in 2024? Just trying to think about the timing of these additional growth drivers. Thank you.
Yeah, great. Actually, those two, as I mentioned, you know, will come on second half this year. Normally, like your furnace ALD, also we have the supercritical CO2 dry, including also two new category product. When we put in the customer side, normally take about a year, a year and a half, right, for their full qualification. I should say we're probably expecting real revenue come out in 2024.
Understood. Thank you, David. Thank you, Mark.
Thank you.
One moment for our next question, please. Our next question comes from Suji Desilva with ROTH Capital. Please go ahead.
Hi, David. Hi, Mark. Congratulations on the execution in a challenging environment.
Hi, Suji.
Yeah. Just to kind of maybe elaborate on Quinn's question a little differently. I want to ask about the visibility in the sense that you had backlog you were catching up from in the first quarter that showed up in the second quarter. Does any of that still remain for the third quarter, or have you kind of worked through the tools you couldn't ship during the COVID lockdown?
Okay. Mark, you wanna cover that?
Yeah. Yeah, sure do. Hey, Suji. There were two factors, right, for the first half of the year. I mean, one is, you know, we did deliver all the tools we couldn't deliver in Q1, we delivered in Q2. Certainly in the first half of the year, our overall production output was impacted. You know, so no, we have not caught up with all the demand, you know, for the tools that we have from our customers. You know, the lead times for our deliveries are longer than normal.
Really, if you look at the back half of the year, it's gonna be about our execution on the supply chain side and our suppliers, yeah.
Okay. Thanks, Mark. That helps paint a picture there. Then, David, perhaps, the foundries in China, SMIC and some others, are starting to be able to deliver leading edge, nodes, maybe with or without EUV, and, they have obviously a mix of trailing and leading edge they're trying to grow into. Is there an uplift potential for your addressable market as the foundries in China try to target the leading edges more, or is that kinda nascent and maybe less of an opportunity versus what you're shipping today?
Yeah. Actually, you're right. Leading edge product, right? At this moment, I think we're really focused on the 28 and above, right? A lot of product we sell right now is the 45. 28 nano and, you know, put this way, as a larger market exists in China here, you can still use the, you know, 45 nano and 28 nano technology to make the, you know, the product. So we see that the potential is still tremendous, right? It's including our cleaning product, for example, where we announced the Auto Bench that's mostly used for the 45 nano above. Obviously, 20 nano in a lot of our single wafer clean, right?
I still see the potential going there and there, you know, there are products who can be, you know, keep going as this, you know, fab build up and for those, 20 nano and above.
Okay, great. Maybe if I could take one last quick question. On your U.S.-based semiconductor equipment partner, any update there on the, I guess, the development effort you were working with? Thanks.
Yeah. As we said, we have two tools has been delivered, right? To the, you know, one of the major U.S. customer, and we're inspecting those two tools, and will be qualified probably by end of this year, and which also we're needing additional PO, also additional other kind of product they're interested. Meanwhile, we're also working, you know, closely with other customer in the U.S., also in Europe, right? I think our goal is really a global market and is our, you know, target. So with our differentiated product, you know, in the cleaning, in the copper plating, and also in the future furnace by special ALD, we're developing right now.
We see still a lot of potential market, you know, get our differentiated product and to be, you know, penetrate into the global market.
Okay. Thanks, David. Thanks, Mark. Congrats again.
Thanks.
One moment for our next question, please. Our next question comes from Donnie Teng with Nomura. Please go ahead.
Hi, David, Mark. Thank you for taking my question. Can you hear me?
Yes.
Yep.
Yeah. Congrats on the strong result. I think first question is still regarding the second quarter result. I think previously our impression is like the second quarter sales may be less than $100 million or not as high as today. Could you elaborate more on if it was mainly due to just, you know, the tools shipment being postponed from first quarter to second quarter, and we probably miscalculated a couple of tools in the second quarter? Or it's because of like, some customers will want to pull in first in the second quarter. Just want to have an idea what's the mismatch in the second quarter sales result in the previous impression. Thank you.
Mark, you wanna let me cover or?
Yes, I can cover that, David. Yeah.
Yep.
Thanks, Donnie, for the question. Really, the upside in Q2, you know, I'd characterize that as just good execution by our factory. It really, you know, as we discussed earlier, it's the customers' demand for our tools was pretty high. We quantified how much, you know, that we couldn't ship from Q1 into Q2. We had pretty good output, and also on the customer acceptance side, you know, the combination of that drove the upside for Q2.
Understood. Sounds like it's mainly due to demand driven rather than just, like, pull-in or-
No.
Shipment performance.
Yeah. I, Donnie, it really was the demand was there, and it's there for the back half of the year. To be clear, it was really the execution of our factory and the supply chain.
Yeah. Let me add on there, Donnie, your comment. Actually, we're not pull-in, we're pull off. You know, we're still not there, we'll meet our demand in the Q2 from our customer. Some of this product had to be delivered Q3. That's the status. Because, you know, we still lost almost April, and even back to the, you know, 2.0 online production in May, there's a lot of restrictions to happen for the logistic delivery and also the clearance of the customer of the import parts. So anyway, that's the real still impact in our Q2 revenue and shipment.
Understood. Can I have a follow-up on the full year guidance again? It looks like we are facing some supply chain constraint or supply chain uncertainties. Does it mainly refer to our component supply or, you know, the customers' capacity expansion uncertainties? Just want to have a more clear view on what exactly mean the supply chain uncertainties to have some constraint to our full year guidance.
Yeah. Well, actually, our customer demands, they're very strong, right? We can see that our PO has straight up, you know, this year, and some PO even go to the Q1, Q2 next year. I think the factor that really limits us is, you know, securing some short or long lead times. Of course, we're ramping our production, and we still need to train our staff and manufacturing people and increase our efficiency and then deliver the tool, right? That's a major constraint and for our revenue realization.
Could you let us know what kind of components we are facing maybe have a much longer lead time? Could you give some examples?
Well, I don't really touch that detail, right? You know why? Because, you know, I have a vendor, right? Supplier. If I mention what's the product, they may be not happy. Anyway, not a lot, you know, a few of them. So we're still lacking, you know, I call their secure or their fully production capacity either, right? I think they also, you know, supply other customer too. So it's really shortage. So, we're still working very close with them, and we are working with second source. Even at some time, we have changed our design and, you know, changing the components, and that's the strategy we're taking right now.
Yeah. Understood. My second question is regarding to our progress with the customer. It looks like we have quite good progress in different type of equipment. If we want to focus on, you know, the priority of these projects or these customers, could you maybe give us a more clear view on which new equipment or which customers that we are more confident in winning the orders or to see a more meaningful sales contribution in the near term based on the prepared remarks you mentioned about all these projects? Thank you.
Yeah. Okay. Well, obviously you can see we have our first tier customer, right? Obviously, you know, this moment, YMTC and Huawei, Hua Hong, SMIC, and SXMT. I also have another second tier jumping big one is Silan, right? IGBT customer in China. And also have a bunch of second-tier customer, right, in there. That's probably. Well, it's also, I can see they're growing, and they're building their pilot line and also their pilot production too. It's a lot of demand there. But as I mentioned that at the top of the five customers taking roughly probably 65% of our total revenue.
Okay. Great. Just to, you know, I just want to maybe to see if you could prioritize all the new projects you've just mentioned in your prepared remarks. You know, there are lots of names there, right? Like IDM companies, Asia-based customers, et cetera. Just a little bit distraction. Just want to see if you could kindly prioritize the importance of those projects or when exactly, maybe by the sales contribution time, timeframe, you know, ranked by the timeframe if you could.
Yeah. Well, as I mentioned, that top customer, I just mentioned already, right? This moment is too early for us to tell you who is number one, number two, because this is the only Q2 timeline. I will say by end of the year, we're gonna publish who will be the number one, number two, right? But probably will be changing can be the ranking, but the five top I already mentioned to you, right? As I said, SMIC, YMTC, Huawei, Hua Hong, and also SXMT and the Silan. That will be top. Maybe top five, top six may changing depend end of year. We have to give you the real number by probably end of this year, which is Q1 and the Q4 earnings conference.
Okay, great. Thank you, David. Thank you, Mark.
Thank you.
Thanks, Donnie.
One moment for our next question, please.
Thanks. Next question.
Our next question is from Edison Lee with Jefferies.
Hi. Thank you. Hey, David and Mark. Congrats on the great results. I have two questions. Number one is more about demand, particularly in light of the recent talk by the U.S. government to step up their export restrictions of SPE to China. What do you think is the impact if that step up is going to materialize, particularly on, for example, DUV, which could impact not just 40 nanometer or below, but potentially 28, 40, 55. So that's my first question.
Okay. Well, it's, I should say we're not just by public information, we heard that is, 40 nano and below, right? I didn't hear anybody talk about 28 nano this moment, right? You look in 28 nano, and for those caliber, you know, they're, they not use any EUV. They're not use any advanced, you know, tool there. I think, 20 nano is still viable technology and for a lot of application, right? If you pair it together with advanced packaging together, there's a lot of product can make. That's why I see a lot of fabs still built in China, and most of them is, 28 and also 45 above. That's our major revenue come from this moment.
Of course, we are also penetrate market outside within China. With that in mind, so we want our product either, you know, cleaning, copper plating, and also their furnace product. We're getting the more advanced application in the market outside China.
Mm-hmm. As far as you know, what do you think the Chinese customers, your Chinese customers have started doing in response to this risk of more difficulty in buying SPE from the US? Have you seen any change in your customer strategy? Are they accelerating procurement or expanding faster? What have you seen from your customers?
Well, you know, I mean, this is daily changing information. I really cannot comment customer right now. Maybe too early to say anything right now, right? Yeah, it's probably I have a real limited information to comment on my customer right now.
Okay, no problem. My second question is about rising cost of materials and components, because obviously, given logistics issues, inflation, we think that a lot of components and materials prices have been going up, and your gross margin in the second quarter actually is higher than the first quarter. We wonder if you have been able to pass on some of these material cost increases to your customers, or how does that work if the material and component costs suddenly shot up?
Gosh. Sorry, my sound here not clear. Can you repeat the question?
Yeah. It's about material cost increases and component cost increases, because we think that because of inflationary pressure and also because of logistical challenges, I think component costs are going up. We wonder whether you can pass on some of those cost increases to your customers, and how does the pricing work?
Great. Okay. We do see some parts increase price, right? Because they, you know, our suppliers say components, also their raw materials start changing. We do not, I should say, increase our pricing for the sale yet. Okay? But for a certain portion of their product, if it's really increased a lot, we'll talk to customer right now, right? Because the component increase pricing. This moment, I should say, our major components pricing is still no changing.
Mm-hmm.
You know, we import some parts from Japan, you know, depreciation of the Japanese yen is still not including too much pricing of their parts. We do see some parts from Europe and from U.S., get increased, right? Because of their strength and the dollar. Anyway, we see minor, I mean, it's still minor impact to us. It's not really much significant to our cost.
Yeah. Hey, David, if you don't mind, I'd add something here.
Sure.
Edison, David made a good point. You know, the renminbi weakened about 5% during Q2. You know, a lot of our tools are priced in dollars, so you don't see a big impact on revenue. On COGS, the supply is, you know, like as David noted, some of it's in yen, some of it comes from renminbi, and then we get, you know, the Western currency, you know, Europe and the US. There is an impact. Overall, you know, the weaker renminbi does help out on our operating expense, right? You know, that's certainly contributed a bit. You know, big picture, our Shanghai operation looks cheaper in US dollars, right?
Than it would if, you know, if the expense was in dollars.
Okay. In that case, can I follow up by asking what percentage of your revenue, for example, in 2Q, take 2Q as an example, is dollar based?
Yeah. It's the substantial majority. I don't think we'd break out the exact amount. Yeah. It's, I'd say, the substantial majority, but we're not gonna give a percentage. Yeah.
Basically, all your Chinese customers or the majority of your Chinese customers are basically buying things denominated in U.S. dollars from you guys.
Yeah, that's correct. Mm-hmm.
Okay. Okay. That's great. Yeah. Thanks a lot. Okay. Yeah, that's it for me.
Thank you. One moment for our next question, please. Comes from Chao Lien Tseng with Credit Suisse. Please go ahead.
Thank you. This is Chao Lien from Credit Suisse. I have one. First is a quick follow-up question to the question that Tommy asked. I'm curious, David, if in the case that if ACM has to change some equipment design, part of the design or the component, does it take more time for the customers to qualify than the usual case?
Hey, David, are you there? I think we might have lost David.
Oh. Oh, okay.
I see David there.
Please unmute it. Please unmute.
Chao Lien, give me one second. I'll try to call David on the WeChat just to see if he's.
Mm-hmm.
Is it better now?
Chao Lien, give me one second. I'll try to call David on the WeChat just to see if he's
Mm-hmm.
Is it better now?
It's better, David, yeah.
Okay. Great. Can you, Mark, repeat her question?
Go ahead, Chao Lien. Can you repeat your question? Yeah.
Yes. Because earlier I think when you answering, Donnie or someone's question, you mentioned that in some cases that the company may change a little bit of the equipment design or some components inside because of the component shortage. My question is, in this case, would that take or would the customer need to take more time to re-qualify your tools with the new design or component inside?
Yeah.
Can you repeat your question? Yeah.
Yes. Earlier I think when you answering, Donnie or someone's question, you mentioned that in some cases that the company may change a little bit of the equipment design or some components inside because of the component shortage. My question is, in this case, would that take or would the customer need to take more time to re-qualify your tools with the new design or component inside?
Yeah, good question. Actually, it depends on the components, what you're changing, right? If it's very sensitive components, you have to re-qualify. But for, say, example, some flow meter, you got different vendor, different manufacturer. If they're both real well-known manufacturers, you can change the, you know, flow meter to another kind of flow meter, right? It's not necessary you're changing every one. However, before you change it, you have to really talk to the customer. The customer has also their experience about the components or these parts we're gonna change. When we reach an agreement, you know, then we're gonna change it, right? That's the normal process we're doing.
Okay. Actually before we change, we need to get their kind of agreement. Got it.
Yes. We have to really talk to customer, right? We tell them, "Hey, if this component you wanted, it'll take more long time. Then if we give this component, now we give you a spec, all the, you know, detail, I call function, functionality or the, description." When we got permission from customer, then you can change it. Of course, we'll do some internal tests first too.
Thank you, David. My next question is, I'm quite curious that for the second quarter finished goods, about how much for that is clean furnace versus ECP IP?
You mean, the components in the cleaning or ECP? You talk about all the new.
For the inventory finished goods. For those-
Ah.
two customers already.
I see.
We have a program. I'm just curious about how much is for cleaning, furnace, ECP, then packaging?
I think most of our inventory or finished goods is still most of the cleaning tool, right? Almost close to percentage or revenue-wise, you know, probably, you know, close to 70% is cleaning product and also still 20% are ECP. Of course, they have a 10% of packaging, roughly like this. Of course, we have some other new product, which is furnace, right? We're not calculating the revenue yet. Some portion we're also, you know, into the finished goods inventory.
Mm-hmm. Yeah. David, yeah, my next question is on the furnace side, because that's something we've been quite looking forward to since late last year, early this year. First, would you mind sharing with us how many copper plating tools were shipped in the second quarter? For second half of this year, about how many furnace tools would you expect to book in our revenue?
Oh, man, I probably cannot give that detailed number right now. I tell you what, last year, 20 cleaning and 20 plating tools shipped, right? This year, I think, we'll project a total anywhere between 30, around the 30 number range.
Mm-hmm.
Total this year.
Oh. Okay. By now, I know there's the COVID lockdown impact in China, but I'm just curious that by now, because it's kind of early August already, do you feel the furnace progress with multiple customers are kind of on schedule within expectation, or do you feel there's kind of a little bit of a delay?
Hey, Mark, can you answer? I'm sorry. The sound is very not clear.
Yeah. Chao Lien, if I understood your question, we answered that on a couple of the other previous questions. You know, the demand is still. There's some catch-up for us, right? There's more demand that you know, customers. Really, we need to catch up relative to the customer demand. It's. We certainly didn't fully catch up in Q2. We've got more work to do.
Oh, yes, Mark, I understand that, but I'm just curious on the furnace side.
Oh, on the furnace side. Please go ahead and ask your question again, Chao Lien. Let me make sure we understand.
I'm just asking about furnace. For the furnace, qualification, testing, acceptance, whatever, with our memory or logic or foundry customer. I'm just curious for the furnace, do you think so far everything is on schedule, or do you feel there is a little bit of a delay with one or more customers?
I see. David, did you get the question? She's just asking if,
Oh, yeah. I think your voice here very weak. I don't know. Can you repeat the question?
Yes, I'll repeat. I'll repeat, if you can hear. Can you hear me, David?
I can hear you very well.
Yeah, what she asked, if the restriction caused any delays on our, you know, the qualification of our furnace tool.
You mean the restriction for the components?
No, no. The COVID-related Shanghai restrictions.
Actually, not very much because this moment our furnace and most portion was made in Korea and some portion made in China. And also volume not as good as big as Canadian tool, right? It's some impact, but not very much.
Maybe, David, I think really she was more asking about, like, just the evaluation. You know, our ability to have our services team and our customers at our customers, you know, to help them with the evaluation of the furnace.
You are saying how we evaluate the tool?
Yes. As I understand, she wanted to know if the restrictions during Shanghai interrupted our ability or our customer's ability.
Yeah. Okay.
to evaluate. Yeah.
You have your engineer is sent to the customer site, right? I call it the customer site. The customer and customer engineer cannot deliver on time to the customer. Also there are some components we cannot ship from Shanghai. That's something that our evaluation movement.
David, we lost your voice a little bit there. Sorry about that. Maybe, Dave, could you answer again?
Okay, now it's better.
That's better.
Yeah. Now clear. Can we continue?
I think that's it. David, maybe just answer her question one more time, 'cause your earlier answer didn't come through clearly.
Okay. I said during the COVID-19 restriction period and our process and the service engineer cannot freely travel, right? From Shanghai. Also some components we cannot ship from Shanghai. That's why it will impact some of our tool, our furnace evaluation in customer site.
Got it. Great. Okay. Yeah, that's clear. Operator, it looks like there's no more questions. Do you wanna poll one more time and...
Certainly. Ladies and gentlemen, as a reminder, to get in the queue, simply press star one one. We have one moment. We have people in the queue. One moment for our next question. We have a question from the line of Charlie Chan with Morgan Stanley. Your line is open.
Hi, David. Hey, Mark.
Hey, Charlie.
Hey, congrats for the strong recovery, not just the revenue, but also the stock price. My question is about your view about the future China CapEx sustainability. I know you have a very high backlog to digest, but does some, you know, memory fab or foundry fab start to cut their CapEx recently, right? Do you expect your new booking to slow down in the coming quarters? What would that mean for your maybe coming year growth? That's the first question.
Okay. Actually, we didn't see any impact this year, right? As I said, even some deals slipping for the Q1, Q2 next year. Even with that, we're still talking to their key customer in China and, you know, even the next year CEO. As I said, the key customer, our customer in China, they're still in a multi-year expansion. Probably they are not, I should say, they're in the middle, right? They cannot stop this way. Of course, they have to time their technology, make sure their yield and their technology advance to the certain point and expanding faster. That expansion trend, I should say, still not changing.
Mm.
We're saying there are obvious cycles, you know, coming, right?
Mm-hmm.
You talk about cycle probably, you know, next year or, you know, start to decline and. I should say, the probably cycle in China will be later than the world cycle.
Mm.
I have to say, you know, year two, I feel still pretty comfortable. Even three year from now, right?
Thanks, David. I kind of agree because it's a local sufficiency driven, right? Once that you know, capacity expansion plan gets completed, I think you know, the cycle impact will still be there. I agree with you, it would be one or two years later. My next question is maybe to Mark. It should be simpler. How soon can you be removed from the provision list from U.S. SEC? I know you have changed the accountants, but just want to make sure, has it to be the next 10-K, 20-F or you know, from the quarterly reporting you can be removed from the provision list?
Yeah. No, thanks for asking. So, as you know, we were put on the list, the conclusive list actually, following the filing of our 2021 10-K. We showed up on a list for the first time as a result of that.
Mm-hmm.
Now that we've appointed a U.S.-based auditor, PCAOB compliant.
Mm-hmm.
After they've, you know, we've completed our 10-K filing for 2022, and, you know, they're signed as the principal auditor. I guess the way it would work is we would not show up on the list again in 2022. We can't get removed from the list that we were put on in 2021, but we wouldn't show up on the list for a second time. That's-
Mm.
the way it would play out. We would not expect to be added to the list in for a second time. And
Mm.
Therefore, we don't expect our U.S. stock to be subject to the delisting that could occur if you're on the list for three consecutive times.
That event will happen maybe next April or May when you report that 10-K?
That's right. It would be more likely, I guess, you know, for us, accelerated filer. We would expect the 10-K to come out in March.
Mm.
The list would come out, you know, folks would show up as a second time on the list following that.
Mm.
We just simply wouldn't show up a second time on the list.
Okay. Maybe just one small follow-up about your new product line. Is that a post CMP cleaning? Is the so-called new product line or just a kind of appendix of your current cleaning tool?
Yeah. Actually, that's the tool where they put their data variable for their substrate manufacturer company, right? What they do is normally they have a CMP of the wafer.
Mm.
And however-
Mm.
Cleaning performance from their typical CMP machine does not satisfy customer requirements. What they do is they probably do just simple cleaning either in the dry or in the wet, and we connect it with a cleaning tool. Then further we clean the wafer, and then they dry it or leave it out. That's a process for the
Mm.
Yeah. Obviously, we're also designed for this 12-inch silicon substrate, and also silicon carbide substrate, right? 6-inch, 8-inch. That's our,
Mm.
product after, you know, any market.
It doesn't belongs to the two new product lines?
No, no. That's just a real expansion of our cleaning portfolio.
Okay. Great.
It's a simple cleaning product.
Yeah.
It's not CMP, only cleaning. We call the post-
Yeah.
CMP cleaning application. It belongs to cleaning product.
Yeah. Just to be really sure. I mean, management has been saying that in the second half, you'll announce that two new product lines. We're literally in the second half, so do you think the next quarter result, meaning three months later, you will announce them? Or in between, you probably will announce at least one of the new product lines?
Yeah. Well, I mean, we really have a lot of product development. I just make sure that I couldn't really tell you we announce it first.
Mm-hmm.
You know, we have about four products, right, on the line. One, let me go back again. One is a supercritical CO2 clean, right? That's the one critical for the DRAM, I mean, the capacitor cleaning process. Second one is really the ALD furnace, right? Vertical furnace ALD. Then we also have two new category as we, you know, we've not given name yet, but there's a, you know, market there, addressable market, $80 billion as a two-
Mm.
two complete new category product. That's what is all in the second half of this year.
Okay.
Yeah, it's a real, you know, exciting moment.
Okay. Yeah, we will be patient to that and also looking forward to the announcement. I will leave that some detail housekeeping stuff in, you know, a follow-up call. Thanks for
Okay.
Thank you for your time today. Thank you.
Thank you. Thank you.
Thank you. That would conclude Q&A for today. I will turn the call back to David Wang for final remarks.
Okay. Thank you, operator, and thank you all for participating on today's call and for your support.
With that, we conclude our conference. Thank you for participating, and you may now disconnect.