BE Semiconductor Industries NV

AEX:BESI

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, good afternoon, ladies and gentlemen, and welcome to the Besi's quarterly conference call and audio webcast to discuss the company's 2021 first quarter results. You can log into the audio webcast via Besi's website, www.besi.com. Joining us today are Mr. Richard Blickman, Chief Executive Officer; and Mr. Hetwig van Kerkhof, Senior Vice President, Finance. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded and cannot be reproduced in whole or in part without written permission from the company. I would now like to turn the call over to Mr. Richard Blickman. Go ahead, please, sir.

[Richard W. Blickman, Chairman of Management Board & CEO]

Thank you. Thank you all for joining us today. We will begin by making a few comments in connection with the press release we issued earlier today and then take your questions. I would like to remind you that some of the comments made during this call and some of the answers in response to your questions by management may contain forward-looking statements. Such statements may involve uncertainties and risks as described in the earnings release and other reports filed with the AFM. For today's call, we'd like to review the key highlights for the first quarter ended March 31 this year and also update you on the market, our strategy and outlook. First, some overall thoughts on the first quarter. Besi's first quarter 2021, results highlighted the strength and resilience of our business as we scale production to meet strong demand for our advanced packaging equipment in a challenging environment. Revenue increased by 13.5% versus Q4 last year and by 56.8% versus the first quarter 2020 due to primarily a new smartphone cycle featuring enhanced 5G features and functionality as well as a recovery in sales for automotive applications. Revenue was at the lower end of guidance as some shipments scheduled for the first quarter were delivered in the early part of the second quarter due to certain supply chain and logistics constraints. The industry upturn, which started in the fourth quarter last year accelerated in the first quarter. Orders reached a record of EUR 327.1 million, an increase of EUR 208.5 million or 175.8% versus the first quarter last year and EUR 169.8 million or 107.9% versus the EUR 157.3 million recorded in the fourth quarter last year. For the 6-month period ending March 31, orders were EUR 484.4 million, more than double the comparable 6-month period comprising Q4 2019 and the first quarter 2020. Order strength in the first quarter '21 reflected a surge in demand across all Besi's product groups and [ end tiers ] of markets with particular strength in demand for high-end smartphones. In addition, there was significant order growth for automotive applications versus the fourth quarter last year and increased demand for high-end logic devices used in high-performance computing applications, such as artificial intelligence and data centers. Bookings during the quarter also included initial orders for Besi's hybrid pumping systems from industry-leading customers. Net income for the quarter was EUR 37.6 million, an increase of EUR 23.7 million or 117.5% versus the first quarter last year. Adjusted to exclude deferred tax benefits recognized in the fourth quarter and share-based compensation expense, net income reached EUR 47.4 million in the first quarter, an increase of 35.8% versus Q4 2020 and 140.6% versus the first quarter of last year. On such basis, net margins grew to 33.1% in the first quarter of this year versus 31.8% in the fourth quarter of last year and 21.6% in the first quarter of 2020. Strong profit growth was due primarily to significantly higher revenue levels, combined with disciplined overhead management, which has limited baseline-operating expenses to a narrow range of between approximately EUR 23 million and EUR 26 million in each of the past 11 quarters. Further baseline operating expenses as a percentage of revenue declined from 27.8% in the first quarter 2020 to 18.2% in the first quarter of '21, highlighting the significant operating leverage in our business model. Upward gross margin development in the first quarter '21 was limited by adverse Forex influences from a weaker dollar versus the euro and additional costs incurred to rapidly scale production capacity. Our liquidity position continued to expand in the first quarter with cash and deposits of, in total, EUR 605 million, growing 41.7% versus the first quarter of last year, despite a working capital investment of EUR 35.6 million necessary to finance the rapid expansion of our order book. Similarly, net cash of EUR 216.2 million increased by 45.8% versus the first quarter of last year. Favorable net cash development in the first quarter of '21 was also positively influenced by the conversion of $13.3 million, principal amount of basis convertible notes due 2023. An additional EUR 49.1 million were converted in April, resulting in a principal balance outstanding of EUR 47.6 million. As such, basic shares outstanding have increased from 72.9 million at December 31, 2020 to 75.5 million at April 30, 2021. Next, I'd like to speak a little bit about the current market environment and our strategy. The semiconductor equipment industry continues its strong upward growth trajectory, as can be seen by the most recent field ASIC climate index. Recent announcements of CapEx expansions -- expansion plans by the leading industry players as well as capacity constraints by equipment companies could extend the duration of the current upturn. Given continued market strength [indiscernible] recently revised its 2021 assembly equipment forecast upwards to 31% growth from 20% last quarter. In addition, they anticipate the assembly market to grow 49% between 2020 and 2022 to reach an aggregate of $5.2 billion, which is significantly above prior peaks of approximately $4 billion. The principal growth drivers include increased usage of artificial intelligence and 5G networks, datacenter expansions, and chip-scale packaging. At present, our strategic priorities focused primarily on ramping production to meet customer delivery dates and expanding development activities for Besi's wafer-level assembly efforts. The industry faces unique production challenges currently as demand accelerates, and supply chains are adversely affected by shortages of a variety of essential and nonessential components and transportation and logistics issues amidst the ongoing global pandemic. We have navigated these challenges well via our dual sourcing strategy and inventory stocking of critical parts in order to minimize potential bottlenecks. In addition, we successfully added 264 temporary Asian production personnel between year-end and the end of the first quarter to help meet the order surge. Similarly, we are expanding development activities for both our hybrid bonding efforts with Applied Materials and our below 10-nanometer advanced packaging portfolio, as customers seek to build leading-edge capacity for next-generation applications. Further, we are developing plans to expand our U.S. and Taiwanese development and service footprint in connection with the CapEx expansion plans announced by a number of our customers. Now, a few words about the second quarter guidance. For Q2 '21, we estimate that revenue will increase by 30% to 40% versus the first quarter of this year, with gross margin levels between 58% and 60%. Operating expenses are anticipated to decrease by approximately 0% to 5% versus the EUR 34.9 million realized in the first quarter. Industry analysts continued their positive outlook for assembly equipment sales in '21, based on the recently announced CapEx plans of leading industry customers. Besi's incoming order trend to date in Q2 remained favorable, including incremental orders for hybrid bonding systems, which supports a constructive outlook for this emerging process technology. That ends my prepared remarks. I would like to open the call for some questions. Operator.

[Operator]

[Operator Instructions] So the first question is from Mr. Peter Olofsen, Kepler Cheuvreux.

[Peter Olofsen, Analyst]

Yes. I have several related questions around bookings. First, could you give some indications of what your lead times currently are? And secondly, could you provide some color on the order intake that you're seeing so far in Q2? You did comment on this last goal. So hopefully, you will be able to provide some color at this time as well.And then lastly, as it seems that your clients might be ordering a bit further out than what they would usually do. What does that mean for your current visibility for the second half of the year? And then I have a follow-up.

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, thanks for your questions. The first is lead times. If you simply look at our order intake and also bear in mind, our revenue model of EUR 800 million divided by 4 is EUR 200 million. The quarter that simply explains how we are ramping from levels below EUR 100 million in Q3 to EUR 109 million in Q4 and in Q1, EUR 143 million.And if you take 30% to 40% guidance for Q2, that leads you to where we are heading. With the order intake, Q4 and Q1, and also the comment about the month of April, certainly, our lead times are expanding. So that gives us some more visibility like we usually have, which is about 1 quarter. And that is giving -- that is similar to what the industry expects for 2021. And growth trends, which we have also highlighted in the press release. But clearly, that is as much in detail as we can provide.

[Peter Olofsen, Analyst]

And if you look historically, there is clearly a seasonal pattern during the year where you have a very strong Q2 and then usually in the second half, a bit of a seasonal slowdown. Can you already comment on that? Or is that still too early?

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, again, simply at the order intake Q4, Q1 and a positive continuation in the first months of the quarter. And the revenue per quarter as just highlighted. And then the guidance for Q2, you don't need to be a mathematician to calculate that -- hello, sorry -- to calculate that this is simply also has a consequence already for the revenue in Q3.How much things will further continue? It's always hard to forecast. But as I mentioned earlier and in the press release, the independent analyst views remain still very positive.

[Peter Olofsen, Analyst]

Okay. That's helpful. Then maybe on the component shortages. We hear some companies talking about ongoing issues in Q2, but then expecting an improvement in the second half of the year. Would you share that view? Any thoughts on that?

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, you can be sure that everyone is increasing capacity. So at some point, certain shortages must be resolved. At the same time, you don't know how much double ordering, but let me do one step back. What is the reason for these shortages? One of the reasons -- well, there are 2, which I can mention. #1 is automotive; last year was at very low levels, never seen before. So there's a clear acceleration and you could say -up of production in the automotive sector. And that's a strong demand.At the same time, medical, medical -- and medical has priority and rightfully so. All medical equipment, which is required to fight this pandemic. The components used for that have simply priority. So that is causing a certain disruption where you could simply say shortages in certain components. But also those capacities are expanded. Hopefully, at some time, the medical equipment demand will stabilize. So there are certain factors, which may very well support the case that these shortages, yes, should be resolved in the second half of this year. At the same time, Besi has since many, many years, dual sourcing strategies for many of our modules, components, all kinds of, yes, critical components because we mentioned also in the past, we have 6 different cameras, to name an example. So we're not stuck immediately, but there are some difficulties, which we have resolved and which we are resolving further. Otherwise, we could not imagine to grow revenue again by 30% to 40% this next quarter. But you're very right. Shortages is, in the industry, broadly an issue at this moment. At the same time, an issue is logistics, transportation, not only the cost, but also timing is different than it was pre-COVID. So what we faced, for instance, a set of machines to be shipped to customers and on a condition to be delivered on the dock as opposed to shipment arriving on the 25th of March, that shipment only arrived on April 4, also due to import issues. So logistics, and this is one example, has also become more difficult. That should be sorted over time. So despite an excellent underlying growth and also an enormous order intake, there are some issues in supply chain and logistics, which may be resolved in the second half of this year, but that's the current situation.

[Peter Olofsen, Analyst]

Okay. And then my final question is, I saw in the press release that you mentioned expansion of your U.S. and Taiwanese development and service footprint. And I was wondering whether that is going to have a material impact on your OpEx and/or CapEx.

[Richard W. Blickman, Chairman of Management Board & CEO]

Number one, we should be extremely happy because why are we setting that up? To support an enormous potential and new business. So number one, hybrid bonding in Taiwan. Number two, hybrid bonding in the U.S., but also EMIB and other bonding processes simply require more onsite support to our key customers. So it's revenue driven. Revenue with good margins should also hopefully support our bottom line. But that's the reason why we are doing that.

[Peter Olofsen, Analyst]

So it's mostly people that you are adding?

[Richard W. Blickman, Chairman of Management Board & CEO]

Yes, yes. People, software, hardware. Already, we have support groups, but with the increasing business, and especially in the hybrid world, which is -- which we also mentioned, the orders which we received in Q1 and also in April is a very positive development.

[Operator]

The next question is from Nigel Van Putten with Kempen & Co.

[Nigel Van Putten, Analyst]

I had a follow-up question about lead times expanding. I think last time in the fourth quarter, we discussed that, I mean the environment was tough. It was difficult, but you had sufficiently double sourced. From what I'm hearing, that's still the case, but you're now sort of hitting your capacity to basically produce. I think that's sort of a soft seeding of about EUR 200 million per quarter.So does that to -- has that sort of changed the mindset of your customers? And has that maybe led to additional orders? And has that strength now also continued into sort of the second quarter? That's my first question.

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, first of all, if we would not have an EUR 800 million revenue model in place, we would never have booked EUR 327 million in orders in 1 quarter because customers first want to be certain that what they order, they get delivered.Number two, major expansion programs are never delivered on 1 day. So there's always a delivery schedule. And the larger the expansion, the longer it takes, because we are one element and sometimes a few elements in a total production line. So the customer needs to prepare those production facilities. And he also has to organize all the other parts of his expansion. So that's a longer process than a turnaround in a quarter. Number two, the supply chain issues, and we also mentioned that end of February, have developed over the past 4 months in an accelerated fashion. The industry has ramped since December enormously. And at the same time, more supply chain issues appeared. Some we have been able to resolve simply through anticipating on the ramp already in September, October last year by increasing our inventories. Some others, simply because of capacity constraints at those suppliers, which we have resolved, partly by second sourcing, third sourcing, qualifying other components, and that's in full swing. But it's easy to imagine that if a whole industry all of a sudden ramps significantly, you will have more capacity issues facing more broadly. So that picture has not changed since end of February. It has even become more difficult. And as a response to the earlier question, people do expect that because our suppliers are also ramping -- increasing their capacities, that at some point, the constraint should be more or less resolved. So that's the picture in general. But for us to reach the guided revenue for Q2 will be, again, an absolute record. We have never reached those levels.

[Nigel Van Putten, Analyst]

Yes. That's very true. You did prepare and enhance the EUR 800 million revenue model. Should I -- from your comment about the April order book development and extending the time, sort of infer that you expect the order book to come in higher than the revenue range you guided for in the second quarter? Is that sort of a logical way of thinking?

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, if you look at the momentum right now, it still is very strong. You can read that every day in all the comments. In all the comments, you can read that every day. But this industry is always hard to read the timing of an upcycle and the timing of simply digestion is hard to forecast. But with our current run rate and our capacity increases, it -- yes, it certainly looks like a somewhat longer visibility than 1 quarter.

[Nigel Van Putten, Analyst]

That's very helpful. My last question. As you are, like you said, in full swing, triple sourcing, et cetera. Do you think you'd be able to ship more than EUR 200 million in revenue, somewhere maybe third or fourth quarter if that's needed by then sort of with these processes you've put in place?

[Richard W. Blickman, Chairman of Management Board & CEO]

Theoretically, yes. Practically, and yes, both questions so far. The surprising issues everywhere are, yes, very, let's say, serious and in existence. So already reaching the levels we do is extremely positive. So to reach beyond that, well, if things become more relaxed, we certainly are able to ship faster.Also logistics, logistics in the world is pretty tough right now. And that has lengthened the delivery of machines to our customers. So booking, aircraft delivery at the customer, there's some uncertainty. Ex-Works, which is most of our conditions is not so much hit by that, but that sometimes has an effect on customers not ready to receive orders. So in every aspect, it's a wonderful challenge. But with a positive underlying market demand and also a very broad order spectrum, much broader than in our last peak 2017. Also the enormous progress in hybrid bonding. So despite these issues, we are extremely positive.

[Operator]

The next question is from Mr. Charles Shi from Needham -- I'm sorry, Mr. Marc Hesselink from the ING.

[Marc Hesselink, Research Analyst]

I was wondering on your comments on the capacity and to expand it, is there -- is this not a time to make a decision to structurally expand your capacity beyond the EUR 200 million for the medium term?

[Richard W. Blickman, Chairman of Management Board & CEO]

Yes. And the reason for that is very simple. In every generation, the high-end advanced packaging applications become more critical. In other words, the machines have to be more -- addressing more tighter specs. And these most advanced tools -- so with accuracies, one micron and below. And remember, for hybrids, they are around 125 nanometers. These machines are built in clean room condition. So that already takes up space in our current facilities. We built clean room facilities timely in Austria last year, also in Besi APAC. So ready to produce these machines.But our whole infrastructure, we have hired in Malaysia an additional factory of 2,500 square meters. We have expanded our footprint in China. So again, with the same explanation, we have to be able to demonstrate that we can do more revenue in the next cycle, whenever that comes. But these investments are already underway. As I mentioned, we started already with that last year. So they are not big CapEx requirements for this year and next year.

[Marc Hesselink, Research Analyst]

And is this a revenue number that you have in mind?

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, let's first reach our first model. But of course, if you look at the demand for hybrid tools, Taiwan clearly has mentioned a model of 50 machines over the next 2 years, also in the U.S., similar numbers. So those machines are between EUR 2 million and EUR 2.5 million apiece. And if you calculate that with a decent share of the wallet that already lifts your revenue above our current model.But anyway, one step at the time. Key is first to convince and demonstrate to customers that we have the best solutions and technology to progress, and that should bring further growth to our revenue model.

[Marc Hesselink, Research Analyst]

Then at the moment, it seems it has 2 strong drivers -- a cyclical driver and a secular driver. And I understand it's difficult to really take them apart. But how do you see that in the current stage? What does a catch-up from maybe under-investment of last year? And what's the secular growth that came on top?

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, what hasn't been said yet is, in our view, this pandemic has accelerated the technology road maps for digital society by at least 2 years. So simply working from home, the whole Internet shopping, everything, which is, let's say, forced upon society requires significantly higher demand of semiconductors.And we have seen that translated into growth last year, significant expected growth for the industry this year and some people even forecast until 2023. So it's an acceleration of the developments of the digital society. Catch up, maybe the industry has underinvested. There are many theories over the past 10 years already. Industry has been very disciplined in managing capacity expansion. But also, one should remember that from a technology point of view, in the assembly equipment, the first major disruptions are now bound to happen. So what we said in the total market for assembly equipment between EUR 3 billion and EUR 4 billion per year for the past 10 years. Now, it should grow because of the higher percentage of advanced packaging, also the first hybrid bonding tools towards EUR 4.5 billion and then to even above EUR 5 billion. So a significant growth due to technology next step. And at the same time, we have a GDP, which is expected to grow significantly. China, we haven't mentioned yet. China every year continues to invest strategically in expansion of capacity for assembly. We also benefit from that. So it's a broader picture than just one driver.

[Marc Hesselink, Research Analyst]

And finally, then as a follow-up on that, given the shortage that we see today for a lot of semiconductors, do you believe that some of the producers will build in some extra spare capacity for next cycles to cope with this in the future?

[Richard W. Blickman, Chairman of Management Board & CEO]

I doubt it because historically, this industry has always had an overcapacity. Yes, you could say, the boom and bust cycle. It was more disciplined in the past decade. Whether this is unique at this very moment? Well, there are many, many views. Our view is simply this industry remains conservative. And that is the basic model. Yes, there will be some extra capacity adds, which is wonderful. But at the same time, you can expect an overcapacity as a consequence of that.

[Operator]

The next question is from Mr. Charles Shi from Needham.

[Yu Shi, Associate]

Yes. This is Charles Shi from Needham. Richard, I really want to ask first about your hybrid-bonding forecast because you mentioned about potentially 50 systems over the next 2 years from TSMC and a similar amount from Intel, and you are investing the footprint in both Taiwan and in the U.S. to support that.When I look at your Analyst Day presentation last year, it looks like the numbers you provided seems to be tracking closer to the high case you provided about a year ago. I wonder whether that is sort of driven by the acceleration or faster adoption than expected of hybrid bonding by Intel? And could you give any color on that? And I have a follow-up on this hybrid bonding tracking.

[Richard W. Blickman, Chairman of Management Board & CEO]

Thanks, Charles. Faster adoption, that is the name of the game. Since early last year, we have seen more broadly, not only in the U.S. and Taiwan, but the adoption of hybrid bonding also in Korea at major Korean customers. Moving faster than you could say the expectation a year ago. Whether that continues is always the question in our industry. But at this moment, that gives us a significant opportunity with selling machines for early qualification of products, and that should lead to mainstream applications and that requires multiple machines. So yes, a faster adoption.

[Yu Shi, Associate]

So quickly a follow-up on that. I think a quarter ago, you mentioned initial interest indicated by memory manufacturers. I don't know whether you are referring to your -- the Korean customer of yours. I just wonder from a technical perspective, the interest in application hybrid bonding in memory is that more on the DRAM side, something like the next-generation high bandwidth memory? Or is there something else that I probably have missed?

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, it is not only Korea. It's also the U.S. memory customer. And it's a combination of certain tablet designs and at the same time, high-end DRAMs. It's hard to tell how much of this is development stage, but also there, the traction, the momentum, the pressure on us. So in the design center in Singapore, where we installed the machine in AMAT's advanced packaging lab where we jointly offer process development to the industry. We gain more and more traction to co-develop those processes.

[Yu Shi, Associate]

So maybe my next question is a little bit of follow-up on one of the questions on the second half versus half asked earlier. So when I look at your historical trend, in first quarter '17, you saw a very similar thing like in first quarter this year, that your order rate more than doubled, but your second quarter revenue did not really double. But your second quarter to third quarter decline, which typically could be in the teens or even 20-plus percentage was very small in 2017.So I was wondering, should we think about your second quarter to third quarter could potentially be like a low to mid-single-digit decline or even flat to up this year? Am I thinking in the right direction there?

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, that's a very good question. And there are 2 answers. #1 is, of course, the continuation of the broad-based industry ramp. And #2 is customers able to install the additional capacity. So as I answered to an earlier question, you see some issues at customers. I mean, they all have to install these equipment. And if you follow also other tools for the back end, which are sometimes in greater numbers. And it's simply because their capacity is lower. The whole infrastructure in the industry also has to be ready to set up those additional capacities.So that trend, and if you follow ASE's last comments about their demands for capacity increases, 2x to 3x compared to their current capacities. Yes. That -- if that is really the case, then you should see -- and that also fits into the peak, the next peak somewhere in 2023. So we know this industry for a few years. I'm more of 6 to 8 quarters up and in an exceptional case, 10 quarters, but we haven't seen that often. But it's hard to tell who had expected this enormous ramp where we're currently all involved in.But then if you look again at our order run rate, Q4, you did mention that we had record also in Q4, which we never had those volumes and a record in Q1. So the ramp is very steep. And our capacity is clearly ramping, but it's all physical machines. So -- and also our supply chain with all the issues as explained. So that's where we're currently working very hard to realize the capacity increases.

[Yu Shi, Associate]

So we hear from other -- I mean, more on the front-end equipment space that their customers, I mean, out of ordinary, sharing the multiyear outlook with already, I mean, we heard that from ASML who publicly talk about it. I wonder whether your customers, maybe a slightly different customer base from your front-end peers, are sharing a multiyear outlook with you guys. And obviously, we can't really say those are any of the order commitments there, but what's the directional color they are giving to you at this point?

[Peter Olofsen, Analyst]

Well, in a similar way because if you can add front-end capacity. But if you do not add interconnect, you can't sell those devices. So in a similar way, we also see major capacity increase plans, new factories being built. TSMC built 2 new advanced packaging facilities in Taiwan. Also others are building, constructing new facilities, and those are always the best indicators.

[Yu Shi, Associate]

So maybe if I can ask the last question on your near-term strength in smartphones. I understand you have a strong position in iOS supply chain, but you also have expanded your presence with the Chinese Android-based supply chains. But on the other hand, we don't really quite understand, in particular, this year, the semiconductor content in smartphones is going to have a huge increase relative to last year. According to some of the data cited by applied material, just a few weeks ago.So can you just unpack a little bit why you are seeing such a strong smartphone strength in the first quarter and help us better understand your demand out there?

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, first of all, a new set of certain features, next generations, 5G, camera modules, but also other components. So a new suite of, yes, newly designed, more advanced features. Also, on the wearables side, we've had for many years continued on wearables, whether it is smart watches or earplugs.So it's also a broad set of new generation ingredients of the next high-end smartphones. And we'll see when these products are introduced in September, October what it will mean.

[Yu Shi, Associate]

We'll definitely look forward to it. Thank you for answering my questions and congrats on the strong momentum you are seeing out there. And congrats on the nice results.

[Operator]

The next question is from Mr. Stephane Houri from ODDO.

[Stephane Houri, Research Analyst]

Actually, a lot of questions has been asked already. So I would probably focus on the gross margin, which is pretty high always. But rather in the low end because you have said that it was impacted by the U.S. dollar and some supply chain constraints.So could you tell us what kind of evolution you see for the second half, if we will be more in the high end of the guidance that you usually give, the 58% percent to 60%? And also a question on OpEx, as you have increased the hiring all in Asia. Can you give us some indications about the [ DOX ] evolutions going forward and maybe your guidance for the year?

[Richard W. Blickman, Chairman of Management Board & CEO]

Number one, gross margin. You mentioned 2 factors impacting gross margin. But it's more helpful to look at the total picture for gross margin. First of all, our margins range between, you could say low 50 and into the 70s. So the order mix is very important, determining the final margin for a quarter period.So the first part of this industry ramp was very much driven by shortages in, you could say, more general IC applications. And the margins in those areas are typically in the 50% range. For the new applications, new devices and new modules, the margins are always at the higher end of the spectrum. So when that mix is more into those applications, then you will see higher gross margins. The range 58% to 60% is a range which we have used for a long time and dependent upon the mix, sometimes we're above 60 like Q2 and Q3 last year because of the mix. And as you also picked up, the dollar and supply chain issues at this moment, that sort of -- you could say, but slightly, not strongly, but not a positive effect. Let me put it that way. At the same time, in the current environment, anyone can sell a machine. So pricing is not an issue. Even more so, if you can deliver faster, you can command certain premiums. So that all has a positive effect on the margin. So going forward, depending upon the mix, and depending upon other factors, the margin certainly could be at the higher end. And also the loading, and we're ramping our capacity. So -- and then you come to your second part, the increase in headcount is twofold to understand. Partly, the headcount is needed to build more machines. And the other part is to install more machines. So that's service related. The first part, so the capacity related, are in the gross margin cost. The installation service people are in the OpEx on the SG&A. But with the enormous revenue ramp up, the operating leverage remained significantly even though that OpEx we guided for this quarter, somewhat flat or slightly down, is all related to capacity increase. If you look at our presentation, we add headcount for this increase in demand, mostly on a flexible basis. So on top of our baseline OpEx between EUR 23 million and EUR 26 million, we have, for temporary production increases, additional cost, but that is related to certain specific programs. Did I answer your questions?

[Stephane Houri, Research Analyst]

Yes. But maybe take a look at the -- or ask us to forecast this for the full year because last year, it was about EUR 109 million, if I'm correct, the total OpEx. Should -- I understand there are some temporary effects. We see as a percentage of sales, an increase this year or not really?

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, you should see some increase also related to increased R&D expenses simply because of the ramp in -- or the progress in hybrid developments but also other applications. So this year, there will be an increase. We don't guide for a total year, but if you simply take the quarter and then you take out the expenses related to compensation, and you take the basic run rate that gives you an answer to projecting a model for the year.

[Stephane Houri, Research Analyst]

All right. And maybe last question, last follow-up about hybrid bonding. You've given numbers of 50 systems for TSMC 50 for Intel. So I guess it will not be in the same year. Do you have a view of how much of your total business hybrid bonding can become to all [ Besis ]?

[Richard W. Blickman, Chairman of Management Board & CEO]

Not yet. If you take the trajectory, 2022, '23, the first mainstream applications, but then there are projections, of course, for the next 5 years, which can, for us, be a major game changer. But again, it all has to materialize. And also from these 50 machines. Customers often mentioned numbers. It's always hard to forecast how much it will be in the end.But anyway, a significant growth for the next 3 to 5 years. And with a good start, let's put it that way.

[Operator]

Robert Sanders from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

Just again on hybrid bonding. I was just wondering if you could just give some sort of qualitative comparison between how customers in the HPC are looking at this opportunity and mobile. Is it that the HPC guys are the most enthusiastic on chiplets, while mobile customers are maybe okay for now with wafer-level concepts? Or is it that you're seeing similar levels of interest across HPC and mobile customers?

[Richard W. Blickman, Chairman of Management Board & CEO]

No. It's exactly how you stated it. Mobile is, in this generation, yes, let's say, focused on wafer level. And the interest is rightly put in the first category at this moment. But it could very well change. Or let's say, change in a sense that in the next generation, also mobile will move to hybrid.

[Robert Duncan Cobban Sanders, Director]

Got it. And just to be clear on -- assuming the HPC market becomes kind of all chiplet, let's say, by '25, '26, does that necessarily mean that they will use hybrid bonding if that technology is mature? Or are there other concepts they might consider? Or is it really just they will just go with hybrid bonding?

[Richard W. Blickman, Chairman of Management Board & CEO]

Hybrids and EMIB. Those are the 2 solutions, visions in these applications to date.

[Robert Duncan Cobban Sanders, Director]

But with EMIB kind of inferior and hybrid kind of a successor or you think they are kind of different schools of thought?

[Richard W. Blickman, Chairman of Management Board & CEO]

We're engaged in both. But I share your comments.

[Operator]

These were the questions. There's one more question. It's from Michael Roeg from Petercam.

[Michael Roeg, Analyst]

Yes. Well, after so many questions, I still have one left. You mentioned in the past that during upturns, you typically gain market share because you get your usual customers, but also some of these occasional customers that seek you out because their usual suppliers cannot provide. Is that also happening this time? Do you see all those occasional customers come back to you?

[Richard W. Blickman, Chairman of Management Board & CEO]

Yes. As we mentioned earlier, what's very interesting in the last 2017 ramp, early 2018, our market application was narrower than it is today, which is amazing and also bodes very well. So we have a much broader customer base, far more applications. And that, certainly, if we do our homework well, can lead to market share gains.

[Michael Roeg, Analyst]

But if today, you again have some of those occasional customers seeking you out because you can supply, while others can't, what can you do to make them stick? So that after the upturn, they don't leave you again, go back to their usual supplier.

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, that's -- first of all, it's all about the cost of ownership battle. We are not the last resort to qualified in those terms. But if you look at semiconductor land in broad perspective, you have all kinds of devices, very simple, older generations, they have the most advanced. And in between, you have thousands of different device types.And the ones you are referring to are a very small portion of our business. And certainly, not at this moment. We are very much more to the high end than we were in the last cycle.

[Michael Roeg, Analyst]

Then I do also have a question about hybrid bonding. The numbers you've mentioned are very promising. What should we think about gross margins? Initially a bit lower until you tackle the learning curve and then they expand towards the group effort, for instance?

[Richard W. Blickman, Chairman of Management Board & CEO]

That is a pattern which you see at many in the industry. So far, we have had, yes, less of those impacts. Maybe it's because we, yes, have more testing discipline before shipments. But usually, with new applications, there is a learning curve. But the margins for these products are higher-level margins simply because of the complexity.Yes, but those are general statements. It also, of course, is directly related to competitive position. At this moment, we have a pretty strong position. You never know how that develops over time because all of our competitors are also very much interested in the hybrid-bonding arena. But that's as much as I can say and it certainly helps the margin better.

[Michael Roeg, Analyst]

Well, that's already quite a lot, considering that a new product is not as, in high ASP end, good margins to start. That's it from my side.

[Operator]

Those were the last questions. So please continue, Mr. Blickman.

[Richard W. Blickman, Chairman of Management Board & CEO]

Well, thank you very much for your interest. And if you have any further questions, don't hesitate to contact us. Have a nice weekend. Bye-bye.