Ladies and gentlemen, thank you for standing by and welcome to the ACM Research third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone keypad. To withdraw your question, press the hash key. If you require technical support at any time, please press star zero. I would now like to hand the conference over to your first speaker today, Gary Dvorchak. Please go ahead.
Good day, everyone. Thank you for joining us on today's call to discuss third quarter 2021 results. We released results after the U.S. market closed yesterday. 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 will 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 that 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 a 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. With that, let me now turn the call over to Dr. Wang, who will begin with slide three. David?
Thanks, Gary. Good day, and welcome to this call. We had an excellent third quarter with strong financial results. We delivered record revenue and shipments with solid profitability. Third quarter results demonstrate the strength of our expanding customer base, our differentiated multi-product solution, strong product cycle for both front-end and back-end, and our growing production scale. Revenue grew to $67 million, up 41% year-over-year. Shipments were $99 million, up 68% from $59 million in the same period last year. We maintain a good balance of growth and profitability with a 44.5% gross margin and 19.5% operating margin. We are focused on profitable growth as we invest in R&D to drive innovation, broaden our product portfolio, and introduce new products.
On the bottom line, we report $0.56 of net income per diluted share compared to $0.42 in the same quarter last year. We ended the quarter with $65 million of cash. In addition, we had $30 million at quarter end from our holding of SMIC stock, marketable shares. I will now discuss recent operational highlight on slide three. First, our Q3 revenue growth was broad-based, driven by carryover and new products. Our wet cleaning and other front-end process tool grew 29% and represented 70% of total sales in Q3. The growth was driven by our flagship cleaning SAPS tool, good contribution from people cleaning tool, and our semi-critical cleaning tools. Advanced packaging, other process tools, services, and spare parts grew by 88% to 26% of sales.
The stronpg growth of this group was driven by AP tools, including ECP ap, wet etcher, stripper, and scrubber, together with an increase in our service and spare parts business. Second, we received good orders from three new major customers. Several weeks ago, we announced evaluation orders from two potential new customers. The first order is for SAPS cleaning tool from major global semiconductor manufacturer, and is scheduled to be installed in their China-based development fab in the first quarter of next year. The second order is for Ultra ECP map copper cleaning tool from major Asia-based semiconductor manufacturer, also for delivery early next year. Yesterday, we announced an order from leading global integrated device manufacturer or IDM. Orders are for two Ultra C pr wet stripping system to be used in a China-based advanced packaging facility.
We already delivered the first order in October and plan the second delivery in Q1 of 2022. ACM offers a full product line of WLP wet process tools, ranging from coater, developer, wet etcher, cleaning, and PR strippers to advanced copper plating tools. While our WLP wet process tools have gained wider acceptance with a number of China-based manufacturers. This order is ACM's first WLP tool win with a major global player. ACM's progress with three new major players is a testament to our technology leadership, regional support teams, and the production scale. We are confident that successful qualification of this tool can result in larger business opportunities. We continue to build our scale, our sales pipeline with a top-tier player. I want to thank our sales and technical support teams for their outstanding execution. China is among the largest and the fastest-growing markets for semiconductors.
Over the year, ACM has become a significant supplier of semiconductor equipment in China with our major domestic front-end customer. We believe ACM's differentiated technology and multi-product offering provide us an opportunity to capture significant market share on a global basis. Longer term, we are targeting half of our sales from countries and regions outside of mainland China. Third, our ECP product ramp is gaining momentum. We delivered multiple ECP tools in the first half of 2021, and even more in Q3. As noted in last quarter's call, we expect the ECP momentum to continue with the delivery of 20 ECP tools for the full year 2021. We expect the ECP product line to drive meaningful growth in 2022. We see good opportunity for ECP in both front-end and back-end or packaging applications.
In the front end, smaller geometry require advanced plating solutions. Our front-end ECP portfolio includes the ECP map for damascene copper interconnection and ECP TSV for through-silicon via. Meanwhile, back-end and advanced packaging has become more important as industry moves beyond Moore's Law. Manufacturers are looking for packaging innovation to drive higher performance. ACM ECP AP for advanced packaging addresses this back-end opportunity. We estimate that the total global market for ECP front-end and back-end application will triple from $500 million last year to up to $1.5 billion in the coming years. Fourth, we are seeing strong interest for our Ultra Fn Furnace dry process tool portfolio. So far in 2021, we delivered several first tools and evaluation tools, including doped and non-doped poly LPCVD. We expect to deliver additional units by year-end.
More recently, in October, we shipped furnace product with higher temperature oxidation and annealing capability. Building on this strong execution, the next major development in our furnace roadmap is a batch atomic layer deposition or ALD process. We view this as the most challenging and promising product for advanced manufacturing nodes for both memory and logic. We expect our furnace product cycle to ramp in 2022. Based on 2022 market data, we estimate our current products address a $5 billion total global market opportunity. We are committed to our goal to double our addressable market to $10 billion in the next several years. On that note, we are making steady progress with our R&D investment in two additional major new product categories.
These are long-term commitment to major adjacent market in which our customer are pushing us to invest in product roadmap that support their advanced nodes. We have accelerated our hiring to supporting this program. We are confident that we can deliver the first tool in each category in the first half and second half of 2022, respectively. We have a deep R&D program intended to address the next two product generations. By entering this category at leading-edge nodes, we are in a strong strategic position to leverage our local relationships with some of the most advanced semiconductor fabs in the world, where we can test drive and develop our most advanced technology. This will help driving most of our product line to the leading edge and competing on global basis. Next, I would like to recap ACM customer base on slide five.
Our first group includes our five major front-end customers that represent the foundry, 3D NAND, and DRAM manufacturers. For 2021, we expect a good growth from Hua Hong Group and YMTC, which we expect to remain as our top two customers. However, each may represent a lower % of total revenue as we anticipate meaningful growth from other customers. For 2021, we also expect a good contribution from our other three major front-end customers, but none are likely to be over 10% contributors. This includes SMIC, which contributed to our third quarter results and is anticipated, SK hynix and CXMT. Our second group includes a number of new China-based semiconductor customers who manufacture power, analog, CMOS, image sensor, compound semiconductors, and other devices.
This customer including four of five tier two player, a handful of new tier three and others, which each is relatively small. This group of new customer combined could contribute 10% of, or more to our 2021 revenue. As the newer customer are investing in new capacity to support the growth of 5G, IoT, EV, and AI, and other emerging technologies. ACM has good presence at this customers, supplying a broader range of tools, including SAPS, semi-critical cleaning, ECP, and furnace products. Our third group is advanced packaging and wafer manufacturing customer. Top customer here have including JCET, Tongfu, Nexperia, and Wafer Works. We've had good order momentum in this group this year, including orders from two new advanced packaging house in Q1, and yesterday announcement from the China-based packaging facility, a major global IDM.
We expect additional orders from more potential customers in this group by year-end. Collectively, we expect tremendous growth from this group. This should be driven by our increased industrial focus on advanced packaging and wafer manufacturing, penetration of new customers, and a strong product cycle for ACM ECP, AP tools. Looking ahead, we believe our current customer base represents a significant opportunity for ACM. Most of these customers are still in early or middle stage of multi-year capacity expansion. We are committed to further broadening our customer base as we believe every major semiconductor manufacturer can benefit from our technologies. Moving on. I would now like to discuss Q3 shipments and provide an update on our manufacturing facility. Please turn to slide six. We delivered record total shipments of $99 million in the third quarter.
Shipments were $32 million higher than revenue, the difference being first tools and evaluation tools net of customer acceptance for previously delivered first tools. This is a positive indicator as it reflects demand for new product and from new customer. To achieve this level of shipments, we must thank the production team in our Changzhou facility. We are ramping production capacity to meet the strong customer demand in a constrained supply chain environment. We started production in the second building of our Changzhou factory in Q3 as planned. We are on track with our capacity roadmap, which targets a full rate of $500 million of annualized production capacity by the end of this year, up from $350 million at the beginning of this year. We expect to further increase production capacity to $625 million by the end of 2022.
We are committed to our long-term strategic plan to build a production and R&D center in the Lingang region of Shanghai. The 1 million sq ft of floor space will enable us to increase our annual production capacity to $1.5 billion. The facility will also be used to support advanced R&D with a state-of-the-art clean room and testing equipment. We recently began initial construction, laying the groundwork towards our plan for initial production in the beginning of 2023. Before I provide our 2021 outlook, I want to provide an update on ACM Shanghai's stock market IPO. Yesterday, the Shanghai Stock Exchange announced the pricing of the stock market IPO for shares of ACM's operating subsidiary, ACM Shanghai. In the IPO, ACM Shanghai proposed to issue 43.4 million shares, which is 10% of the total shares outstanding following the IPO.
At the announced pricing of 85 RMB per share, this would represent gross proceeds of 3.685 billion RMB or approximately $575 million at the current exchange rate. If all goes according to plan, we tentatively expect ACM Shanghai stock to begin trading on November 18, 2021. Please keep in mind that the term timing and successful completion are subject to factors beyond ACM Shanghai's control. We are confident that the stock market listing of ACM Shanghai shares, combined with the Nasdaq listing of ACM Research Class A common share can provide a strong foundation to supporting our mission to become a major player in the global semiconductor equipment industry. Now, let's move to our 2021 outlook on slide eight. Our guidance reflects optimism about our growth opportunity for 2021.
We have tightened our revenue guidance to the range of $230 million-$240 million, representing 50% annual growth at the midpoint. Our outlook for 2021 is based on several key assumptions. First, stability regarding the global COVID-19 pandemic. Second, the stability in the U.S., China trade situation. Third, a range of spending scenarios for the production ramps of key customers. Fourth, management of ACM supply chain, and finally, a range of timing of customer acceptance of first tools. Our results and outlook demonstrate successful execution of our strategy. With strong strategy, our strong growth is supporting additional R&D spending on new products. We are building our global sales and marketing resource to penetrate the new customer in the region, and we are scaling production capacity to support our long-term growth plan.
We believe we are on track to achieve our mission to become a major equipment supplier to the global semiconductor industry. To conclude, I would like to thank our employees for their hard work and dedication. I also want to thank our customers, partners, and shareholders for their support and confidence in ACM Research. I will now turn the call over to Mark to discuss financial results in more detail. Mark, please.
Thank you, David. Good day, everyone. We delivered strong financial results in the third quarter. Unless I note otherwise, I will refer to non-GAAP financial measures, which exclude stock-based compensation and unrealized gains in trading securities. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Now, the third quarter, shown on slide nine. Revenue was $67.0 million, up 40.6%. Revenue for single wafer cleaning tools, which includes SAPS, TEBO, Tahoe, and semi-critical cleaning, was $49.5 million, up 29.0% from $38.3 million. Revenue for ECP, furnace, and other technologies was $8.2 million, up 69.1% from $4.9 million.
Revenue for advanced packaging, excluding ECP, services, and spares, was $9.4 million, up 109.5% from $4.5 million in 2020. Total shipments were $99 million versus $59 million in the third quarter of 2020, and $82 million in the second quarter of 2021. This includes deliveries for revenue in the quarter, deliveries of systems awaiting customer acceptance for potential revenue in future quarters, and deliveries of evaluation tools. This represents another quarter of record shipments, great accomplishment by our production team given industry-wide supply constraints. Gross margin was 44.5% versus 42.8%. This was at the upper end of our normal expected range of 40%-45% due to favorable product mix.
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 $16.7 million versus $10.1 million. The increase in operating expenses reflected higher R&D on new products, our expanded U.S. sales team, and other costs. R&D expenses grew by 82.2% to $7.6 million or 11.3% of sales, versus $4.2 million or 8.7% of sales last year. The increased R&D intensity reflects ACM's commitment to new products and innovation. We expect to increase R&D spending in 2022. Operating income was $13.1 million, up from $10.3 million. Operating margin was 19.5% versus 21.6%.
Unrealized loss on trading securities related to the change in market value for our SMIC investment was $1 million in the third quarter of 2021 versus an unrealized gain of $9 million in the year-ago quarter. Note that we exclude this non-cash item from our non-GAAP results. We had a tax benefit of $0.3 million versus a tax benefit of $1.7 million in the year-ago period. Net income attributable to ACM Research was $12.4 million versus $9.0 million in the year-ago period. Net income per diluted share was $0.56 compared to $0.42 in Q3 2020.
Tax items and the effects of foreign exchange fluctuations on operating results provided a net benefit of $1.7 million or $0.08 per share in the third quarter of 2021 versus a net benefit of $0.3 million or $0.02 per share in the third quarter of 2020. I will now review selected balance sheet items. Our cash balance was $65 million at the end of the third quarter versus $70.2 million at the end of the second quarter. In addition to the cash balance, we also had trading securities, $30.2 million related to our SMIC investment. This includes a significant unrealized gain from our original purchase price. Total inventory was $176.6 million at quarter end, up from $136.9 million at the end of last quarter.
$39.7 million quarter-to-quarter increase was driven by two items. First, finished goods inventory grew by $17.9 million to $81.9 million. This represents the balance of first tools that have been delivered to customers in evaluation and are carried at on our balance sheet at cost, pending a potential transfer of ownership. The second item is work in process and raw materials, which in total grew by $21.8 million from the prior quarter. This was due to purchases to support future shipment growth. At quarter end, short-term borrowings, including the current portion of a long-term debt, were $17.5 million, down from $24 million at the end of the second quarter. Non-current long-term borrowings were $23.1 million versus $18.7 million at the close of the second quarter.
Cash flow used by operations was approximately $4 million for the third quarter. For 2021, capital expansion is planned at approximately $10 million. This includes $5.5 million already spent through the first nine months of the year. Our 2021 investments will be primarily focused on capacity increase at our Chanta factories, investments to support our R&D programs, and initial spending on Lingang. In sum, we are successfully executing on our strategy. We are participating in the growth of major new IC fabs, we are ramping production, and we're developing and delivering new products to a growing list of customers. We're positive about 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. Now, let's open the call for any questions that you may have. Operator, please go ahead.
Thank you so much. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question from the line of Patrick Ho from Stifel. Your line is open.
Hi, thank you very much, and congratulations on the ninth quarter and outlook. Actually, Mark, maybe to start off first with you, the supply chain, based on your results, your outlook and the margin profile, looks like you guys managed it very well. Can you discuss what problems you may have seen and how you mitigated the situation, you know, given the results and outlook?
Yeah. Yeah. Hey, Patrick, maybe I'll let David start on that, and then I can add.
Yeah.
David?
Please go ahead.
Please start that there, Patrick, you know, then Mark add more. Actually, you know, you know all these constraints and the semiconductor equipment, they're spending double, right? Compared to last year. We see our component also hit the constraint. We have a, you know, I should say, some components we buy from U.S. and buy from Japan, and we also buy from Europe, right? There's a lead time getting longer and longer. I can give some example. Some normal, you know, parts we have are two months. Now, they're getting to four months. Even some special parts getting to six months. For that reason, delay, we're doing ahead of our forecast to our sales. Based on sales forecast, we're buying those long-lead item ahead of time.
That's the approach we're taking so far. When the rolling base and forecast next twelve months and what is the possible delay, what is the, you know, our vendors supply status. We require our vendor give us, you know, next four months and what it can provide to us, right? That's the approach we're taking, and hopefully we can have this supply security or we call supply on time to be improved. You know, you can see that their third quarter, we're doing a lot of good work. As compared with regular last year, our leading long-lead item, it's much, you know, taking more time. That's the status right now.
Hopefully, you know, we know some key suppliers start increasing hiring more people and also increase the manufacturing flow. We're hoping those situations can improve, you know, from the start of next year. Hey, Mark, anything you wanna add on that?
Yeah. No, thanks, David. I mean, the only thing I'd add, Patrick, is, you know, it's not new to deal with the supply chain. I mean, we've been dealing with the situations, you know, related to COVID and the global supply chain and then, of course, the big recovery, you know, where the industry is building back semi capacity pretty aggressive. You know, at our size as a company, I think, you know, we're demonstrated some scale. It's really important that our customers are confident that we can deliver. We're sending that message.
You know, I think our, you know, our manufacturing and supply chain team, you know, did a good job in Q3, and, you know, we anticipate that as well in Q4.
Great. Thank you. That was really helpful. As my follow-up question, maybe for David, in terms of the advanced packaging market, are you showing some really nice growth there? The marketplace itself is growing. Can you give a little more color on the type of applications you're seeing today, and how it may progress to, say, next generation techniques like heterogeneous integration? What are you seeing today, and what are some of the opportunities, say, over the next couple of years?
Okay. Patrick, actually, I should say we have laid down very good broad product portfolio, right? Therefore, the advanced packaging tool with a wet, you know, wet process cleaning and coater, developer, PR stripper, and also the most important, copper plating tool, right? We see the people in this growing area, you know, obviously pillar. We see the people in the fan-out. Also, you know, there are also people talking about this, you know, micro pillar, right? More than 300 microns of copper in the plating there. It's really high demand and for our copper plating tool, right?
Our copper plating has certain benefit, compared to our competitors, you know, including the edge control and the high plating rate with our special design of the plating chamber. We see they're very strong driving for our revenue growth or the shipment growth, you know, this year and next year. You know, we also, I should say we're also see the customer outside mainland China interest in our plating tool. We expecting those tool, you know, hopefully next year, will get into Taiwan market, and that's our planning too. That may be the in general way of the advanced packaging tool.
Plus, we also increase new customer in China, JCET and Tongfu is our, you know, traditional top two customer. We're seeing a few other emerging or I call the new starter company get into this application too. We have very good positive I call the forecast, right? For the advanced packaging tool growth.
Great. Thank you very much, and congrats again.
Thanks, Patrick.
Thank you.
Thank you so much. Your next question from Charlie Chan from Morgan Stanley. Your line is open.
Hey, Charlie.
Hi, David. Hey, Mark. Hey, long time no see. First of all, congratulations for your great result in China IPO, finally. Congrats. My first question is about it seems like, worrying about the component shortage, you can do more shipments, right? I'm not sure, this year is still deliver very strong growth, right? Next year, do you think, you can deliver a even stronger growth rate, for 2022? Any preliminary outlook?
Okay. Yeah. Actually, you're looking at our shipment, right? In Q2, almost double, right? I mean, 80%.
Mm-hmm.
Our Q3 shipment also 60% increased too. Our total shipment-
Mm-hmm.
You know, compared to last year, you know, it has been increased a lot, right? Probably end of this quarter, I can give you more detail how much percentage increase. It's much, much more than previous year. We'll say we think next year continue. We look strong, you know, in our forecast pipeline. In other words, we have to really increase more of the components and the buying from our supplier. In other words, we are really working closely with our key supplier. As I said, we give them a rolling, you know, 12 months forecast plan. They're gonna tell us, you know, what they can deliver and what the capacity they can build for us is. We're working on that. I really hope, you know, next year get better.
Again, you know, we're still very carefully watching the market and also, you know, working closely with supply chain. You know, it's ongoing process. We got to be carefully also, you know, manage this supply chain.
Okay, thanks. I'm not sure if you talk about this, but previously you mentioned you have two new products to launch, right? Can you update the status right now?
You're talking about new product or the existing product?
David, he's asking about the, yeah-
The new product.
the newer, the two new products. Yeah.
I see. I see.
Yeah.
Okay. Well, probably there, you know, let's put it this way. Two years ago, right? We're starting, you know, launching the two new product. Unfortunately, I still cannot tell you what the product, you know, name. However, we believe this two product represent the big market and the service market, you know, globally. The two new product and also have a, I call it a challenging, also need innovation for technology improvement. Now we're working closely with R&D and their team. I think probably one product will come out, first half next year. Also we do have our customer, you know, talk together, gather the two at the beta site, application test. Also our second product, we're targeting second half next year, right?
Okay.
With our team and working very dedicated, we're hoping those two will deliver, you know, in the timeline.
Okay. Thanks, I'm back. My next question is to Mark. Again, you know, lots of work on China IPO. I'm not sure if the pricing, what's the kind of valuation implication, implied P/E multiple, et cetera. What would that mean to your U.S. listing, market cap?
Yeah. Hey, Charlie. I think, you know, we put a lot of the details out on, you know, where it was priced and the number of shares, right? The proceeds, RMB 3.685 billion or $575 million. So we, in terms of the valuation, I think, you know, you can kind of look at our numbers and work that out. Of course, I don't know how that's gonna necessarily filter back into our U.S. market cap. After the offering, we mentioned that the U.S. we would own 82.5% of the subsidiary.
Okay, thanks. Yeah, I thought that it's a big catalyst, given it was kind of an overhang, right? Hopefully your market cap can continue to expand. Yep. That's all from me. Thank you.
Thanks, Charlie.
Thank you so much. Next question from Quinn Bolton from Needham & Company. Your line is open.
Thanks, David and Mark. I'll offer my congratulations on the STAR Market IPO, as well as the international customer expansion. I wanted to start with the international customer expansion. It sounds like the three customers you're working with or that you recently announced are all taking tools for delivery to their China manufacturing facilities, and wondering if you can give us your thoughts that as you first penetrate their China manufacturing facilities, what's the opportunity to begin to place and deliver tools to international-
Hey, Quinn, we lost your voice. Hey, Mark, can you hear Quinn?
Yeah, no, David, I heard Quinn okay.
Oh, okay.
I can repeat the question. Can you hear us, David?
Hey, Mark.
Yeah.
Are you there?
Yes, we are.
Oh.
Yeah, Mark, I can hear you. Am I coming through?
Yeah, you're coming through okay, Quinn. I don't hear David.
Hey, Mark.
Well, maybe.
Can you hear me?
David, we can hear you okay. I guess you cannot hear us.
I'll tell him.
Quinn, I can take that question while we wait for David to come back.
Okay.
I think your question was about the new customer announcements. I think, yeah, we mentioned that two of those were for deliveries to the China fab. Another one was an Asia-based one. Can you maybe, Quinn, just clarify your question again? Yeah.
Yeah. I guess maybe I misunderstood. I thought all three were deliveries, Mark, tool deliveries taking place in China and was asking what's the progression, the company's opportunity to first deliver tools to China facilities, but then to expand to other manufacturing facilities, you know, at those customers around the world.
Got it. Yeah. It's a great question for David. I think you know we've got a global sales force, and so you know these are the three that we announced here you know recently. You know we still feel pretty positive about our opportunity for customer deployments in outside of mainland China. You know I think as David noted you know our longer term goal is to have half of our business outside of mainland China. We've got activities that we think can result in that in the coming years.
Got it. Just to clarify, did you say that one of the customers was taking delivery outside of China, somewhere else in Asia?
Well, there were three, you know, we talked about a SAPS evaluation order from a global semi manufacturer with a China development fab. We talked about the two stripper orders, right, were to a global IDM's China packaging facility. Then the ECP evaluation order we just mentioned was from Asia, a regional semiconductor manufacturer, but we didn't say where that tool was going.
Got it. The second question David talked about, the growth in the advanced packaging business. Wondering if we might be able to get you to sort of give us your sense, how much of the business in 2022 might come from that broader advanced packaging
Yeah, you bet. Quinn, I guess, you know, we gave the mix right for Q3 and year to date. It was about 74% on the front-end products and 26% on the back-end. We gotta mute this. Sorry, guys, we're having some technical issues. I think the team in Shanghai is trying to get back into the call. Yeah, I think for now, Quinn, we would plan on a similar mix. I mean, it's hard to say, you know, for next year, where the growth will come from. We'll give more details on our Q4 call.
We don't anticipate a significant shift between those two groups.
Got it. That's helpful. Thank you, Mark.
Thanks, Quinn.
Thank you so much. Next question from Suji Desilva from Roth Capital. Your line is open.
Hi, Mark. I don't know if David's back on, but congrats on the progress here. I wanted to know that the TEBO products have been out there for a while since the IPO. I'm curious, you started talking about it more in this call. Is that ramp opportunity now potentially gonna inflect? What are the kind of puts and takes of the pace at which TEBO can grow versus SAPS?
Got it. Yeah. Great. Suji, we're trying to get
I got back now. Can you hear me okay?
Okay.
David, can you hear me?
That's great. Hey, David.
David, it's Suji. Can you hear me?
Yeah, very well. Please.
Oh, great. Oh, good, David. I'll repeat the question then. I said this call, you guys talked about the TEBO product more. You know, you'd had it since the IPO. I'm curious, is there an inflection ahead for the TEBO product? What's the opportunity there? What are the factors, the puts and takes of that growth versus SAPS, which has done very well, for the last few years?
Okay. Well, actually, you know, the TEBO, we made progress, right? We realized a TEBO will have a combination with a certain drying technology. A year ago, we started to develop with their advanced drying technology, and most of them are two types. One is a hot IPA, a multi-zone heating method. Next one is actually a supercritical CO2. These two new drying technologies, I think where one will come out probably Q1 next year, and another one will come out probably Q2 next year. With this drying technology, together with TEBO, will further give TEBO much wider application. Why? Because all their, you know, like 70 nm DRAM, their capacitive structure, you have to dry by CO2 because of key effect, right?
Certain, you know, 14, 10 nm of their, I call it a thin-film structure, also their, you know, high aspect ratio needs a IPA hot IPA dry technology. With this adding additional dry technology on TEBO product, and we'll see that their tool gets more possibility getting advanced application, both DRAM and also their logic and memory logic manufacturer.
Okay. All right. Thanks, David. Quinn just asked a question I wanna maybe rephrase and ask and make sure we get your answer.
Sure.
The new customers seem to be shipping primarily into China and the region with one maybe in Asia. You know, we're excited about the global customers. You talk about 50% of business coming from outside of China longer term. Can you talk about what it would take for these customers to start putting your tools in outside of China and why maybe the dominant initial push is in the China facilities? Just to understand that dynamic.
Yeah. Actually, no. Obviously, the tool we ship into their China facility or China fab, right? Their fab. It's good starting point. This way, our process data, process capability can validate at their fab in China, right? Also, it's obvious potential, I call their, you know, get into their fab outside mainland China, right? That's what we're looking for. I think it's really good sign and also good starting point, and those data come out there in China be a driving force for and sell to their mother fab or their facility outside mainland China.
Okay. That's very helpful color, David. Thank you. Congrats again.
Thank you.
Thanks, Suji.
Thank you so much. Once again, in order to ask a question, please press star one on your telephone keypad. Next question from Mark Miller from Benchmark. Your line is open.
Thank you for the question, and congratulations on the quarter. We're seeing margins jump around a lot, and I believe that's through the mix. I'm just, you said the mix looks like it's gonna be 75%-25% front-end, back-end. I'm just wondering for the next quarter, is it a similar mix to the third quarter?
Oh, yeah. David, do you wanna answer that, or should I? I can take that too.
Yes. I can give a little, you know, light there, right? This is a, you know, normally gross margin is a flat rate, you know, we said between 40%-45%. There's a high margin tool. I give it a single wafer, you know, stack tool normally give a high margin. And certain, I call the copper plating, and also, give margin for front-end. And then there's also low margin tool, right? And it's like wet bench. There's certain, I call it a wet process tool in advanced packaging side too. I mean, this is a good combination, and also depend on combination that margin we may be changing, right? I couldn't give you a precise number, and probably I think within that range, 40%-45%.
Okay. For the next quarter, does it look like a similar mix to the third quarter?
Oh, I said, you know, you know, I cannot give you a precise number, right? Combination by customer and the ship time, not on time. It's a new combination. You know, give you a precise maybe between. I would say we're confident, you know, 45%. Maybe I'll say maybe. Yeah.
Okay. You're breaking up at least on my side. Just wondering, you've been primarily in DRAM. NAND is supposed to come on stronger next year. Do you see opportunities, more opportunities for yourself in NAND?
Well,
Hey, David, you're breaking up a lot. Maybe I'll take the question, Mark, since David's breaking up.
Sure.
Yeah. Mark, just to be clear, you know, if you look at our customers and kind of the way we reflected. Our NAND business, as you know, YMTC is our big NAND customer, right? They were in the 30% range last year. I think kind of your premise, we have pretty good mix in NAND and then of course, SK hynix, CXMT are our DRAM customers. We continue to expect to get, you know, good content, you know, both in the 3D NAND and in the DRAM with our DRAM customers.
Thank you.
Yep, you got it.
Thank you so much. Next question from Emma Tian from Haitong Securities. Your line is open.
Hey, guys. Congrats, first of all, on a really great Q3. This is Emma from Haitong Securities. My questions are probably more for David as well, but Mark, you're welcome to share your thoughts. Not sure if David's back online. Probably not yet.
Yes. I'm still here. Can you hear me okay?
Oh, that's great. Hi. Yeah, I can hear you.
Thank you.
First, my first question is, it's probably related to Quinn's question as well. I just wanted to ask a bit more details about your future plans, probably in the long term about expanding the global markets. 'Cause we know that the three factories of ACMR are all based in Mainland China. They're actually all near Shanghai, if I remember correctly. Is there a particular reason for that? Like, do you have any plans to build any other factories, say, in Beijing or even outside of Mainland China or outside of Asia area?
Okay. Let me give you a little background. After we are finished up the STAR Market IPO, we have a more strong financial foundation, right? Can you hear me?
Sorry, David. You're still breaking up quite a lot. Or is it just me? I'm not sure.
Can you hear now better?
Yeah, this is much better.
Okay. I said, we already have a manufacturer R&D center in Korea, right? From now on, actually
Yeah.
To build it probably, you know, R&D center close to major customer in China and actually Beijing and also, Wuhan and, potentially, you know, Hong Kong, right? Those R&D small center will help in, close support for customers. But more than that is also we consider other region and also country, right? As, our business moving out of China, say, go, you know, Taiwan and go to U.S. and or even go to Europe. We do have a plan building R&D, supporting center. We believe the R&D close to the customer will give you best choice or best supporting capability. Meanwhile, also we consider, you know, if we found good talent people, good company, we can even M&A those company, you know, in their local region. That will further, enhance our R&D power in the local.
Our goal is really to get into the diversifying and global R&D in our roadmap. As I mentioned in the talk in the script, we said that we are going to have eventually 50% sales, right, from outside Mainland China and, you know, 50% is inside. That's our long-term strategy, right? With our dimension technology, I think will be, you know, much strong driving force our tool to be sold in global. Like we mentioned, TEBO, right? Or Tahoe, and also we're developing new technology also on the road. As our innovative product come out, we validate in the local market, China, and then we can start to push those verified product into a global market.
Meanwhile, we see also some fab in China also get advanced process going on. We have also our tool can evaluate those advanced technology nodes. In that sense, you know, we get the benefit of their technology being verified here. They'll help us get into their market outside China.
Thank you, David. That's awesome. Do you mind sharing a bit of a timeline for the factories outside of China? Or is it just it's like a more of a long-term plan and it depends on how the R&D's activities and other opportunities go?
Yeah. Actually, it really depends on how we penetrate the customer, right, and also how we see their opportunity in other M&A or a potential. I call their, you know, group come out. We're very keen dynamic, and as I said, you know, we're building Korean R&D center, you know, two or three years ago, and we'll definitely have our plan. Also according to our success, our penetration to their local customer outside China, then we'll speed up those R&D center build up, right? Or we found some good people and good product, right? We may be, you know, just M&A those group of people there too. That also can further enhance ourselves and supporting capability for that local region.
Great.
Cool. That's awesome. All the best for that.
Hey, Mark, anything you wanna add on that?
Yeah. No, nothing to add. I think we are kind of at the end of our call here, so I think we need to wrap up. Operator, if you can, please, wrap up the call. Thanks.
Thank you so much. That does conclude our conference for today. Thank you for participating.