BE Semiconductor Industries NV

AEX:BESI

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, good afternoon, ladies and gentlemen, and welcome to Besi's Quarterly Conference Call and Audio Webcast to discuss the company's 2021 Third 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 Ms. 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 all or in part without written permission from the company. I would now like to turn the call over to Mr. Richard Blickman. Please go ahead, 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 third quarter and 9 months ended September 30 this year and also update you on the market, our strategy and the outlook. First, some overall thoughts on the third quarter. Besi reported strong results for both the third quarter and first 9 months of this year as we leveraged our leadership position in advanced packaging to expand revenue growth, executed strategic initiatives to drive profitability and refined our business model to take advantage of emerging opportunities in the wafer level arena. For the quarter, revenue of EUR 208.3 million and a net income of EUR 84.2 million increased by 92.3% and 147.6% versus the third quarter last year. Results were slightly ahead of the midpoint of guidance despite ongoing supply chain disruptions, which constrained the potential number of customer shipments. In addition, we maintained gross margins above 60% and limited operating expense development, that aided profitability and resulted in a net margin above 40% for the second consecutive quarter.Q3 '21 orders of EUR 209.2 million trended favorably relative to typical seasonal patterns, increasing by 4.5% sequentially versus Q2 of this year and by 120.4% versus Q3 last year. In general, order growth reflected continued strong customer demand for advanced packaging applications as customers increased their investment in artificial intelligence, 5G, data center, vehicle electrification and cloud infrastructure applications. Versus the second quarter this year, growth was primarily due to follow-on orders for hybrid bonding systems as well as increased demand for high-performance computing and automotive applications, continuing trends we saw in the second quarter of this year. Growth for such end user markets helped offset reduced demand by Asian subcontractors for mobile applications and incremental capacity ordered in the first half of this year was installed for new product introductions in the second half of this year.Results for the first 9 months were also strong -- very strong with revenue and orders reaching EUR 577.6 million and EUR 736.5 million, respectively, increases of 78.3% and 134% versus the prior year period. Year-to-date revenue and order growth resulted from significantly increased demand across all Besi's end-user markets, geographies and customers, with a particular focus in the first quarter on the high-end mobile applications, followed by strength in the second and third quarters for automotive and high-performance computing applications. Net income also rose strongly, increasing by 145.8% versus year-to-date last year to reach to EUR 115.3 million due to substantial revenue growth combined with tight controls of overhead and personnel costs. As a result, Besi's net margin expanded to 37.3% year-to-date '21 versus 27.1% year-to-date '20, highlighting the significant operating leverage in our business model.As seen in this next chart, Besi's financial performance has improved significantly versus the last cycle in 2017. Factoring in the midpoint of the fourth quarter 2021 guidance, we expect revenue of EUR 765 million and operating profit of EUR 333 million for the year 2021, up 29% and 59%, respectively, versus fiscal 2017, with operating margins climbing 8.2 points to reach 43.5%. We are very pleased to have achieved such milestones in a span of 4 years. Our liquidity position continued to grow with cash and deposits and net cash increasing by 15.5% and 39.2%, respectively, versus the second quarter this year due to strong cash flow generated from operations, post the significant working capital investment required in the first half of this year. In addition, our capital allocation policy continues to reward investors with total distributions of EUR 163.7 million in dividends and share repurchases year-to-date, highlighting our commitment to long-term value creation.Next, I'd like to speak a little bit about the current market environment and our strategy. As seen in this next chart, the semiconductor equipment industry continued its upward growth trajectory in the third quarter of this year. CapEx budgets of the major players have increased again since the second quarter, particularly for computing and automotive applications. Given continued market strengths, we have revised the 2021 assembly equipment forecast upwards to 52.8% in the third quarter versus 41.7% in the second quarter. As such, it appears Besi's gaming market share.VLSI still forecasts a total assembly market of USD 5.9 billion in 2022, representing 7.3% growth versus 2021, including incremental wafer-level assembly investments. At present, we are completing a strategic review for our 5-year plan with refinements to our organization and management planned for the next phase of Besi's development. As such, we hope to realize the potential of a new generation of below 7-nanometer chip to wafer assembly applications while maintaining the exciting growth opportunities of our existing advanced packaging portfolio.Towards this end, we will have increased development and service personnel by approximately 20% and 40%, respectively. By year-end, an increase -- and increased our presence in the U.S. and Thailand to help support new fabs planned by customers. In addition, we are in the process of significantly ramping Besi's hybrid bonding production capacity in alignment with customer roadmaps for 2022 to 2025. Over the past year, the Besi and Applied Materials teams have made excellent progress working together to process customer materials and accelerate development of advanced heterogeneous integration technologies.Now a few words about our fourth quarter guidance. Looking forward, we believe that the market drivers supporting the growth of the assembly equipment market in this upcycle remain intact based on updated industry research forecast and increased CapEx spending plans recently announced by our principal customers for mobile, automotive and computing end user markets. We also see a near-term incremental growth opportunities represented by hybrid bonding and other chip to wafer process technologies consistent with favorable order trends over the past 2 quarters.For the fourth quarter this year, we estimate that revenue will decline by between 5% and 15% versus the third quarter as new products are introduced by customers' capacity added in 2021 is deployed and typical second half year seasonal trends. However, revenue is anticipated to increase by 60% to 80% versus the fourth quarter last year, highlighting ongoing assembly market strength. In addition, we forecast gross margins between 59% and 61%, roughly equivalent to the third quarter of this year and for operating expenses to be flat, plus or minus 5% versus the EUR 30.4 million realized in the third quarter of this year.That ends our prepared remarks. I would like to open the call for some questions. Operator?

[Operator]

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

[Peter Olofsen, Analyst]

I have 2 questions. So the first is on hybrid bonding. I think you first started talking about the orders in Q1. And then you talked about following orders in both Q2 and the Q3 release. Could you maybe help us on how we should look at the shipment ramp of the volume production tools? Did you already ship some tools in Q3? And how will that develop in the coming quarters? And will that then the cluster tool combine with AMAT or will that come at a later stage?

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

Is that one question or 2?

[Peter Olofsen, Analyst]

Sorry. The second question is on the supply chain. We still put limited upside in Q3. How do you see that evolving going into Q4? It seems that the situation in Malaysia, which is an important area for you, is a bit improving. Do you see that also the pressure on the supply chain is easing a bit or is it still as difficult as it was in Q3?

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

Excellent. I'll explain a bit about that. But first, hybrid bonding. Well, in the course of this year, we have received in orders somewhere in the mid-teens or, let's say, the high teens, close to starting with a 2. Shipments, Q4, Q1, also already a few in Q2 and these are all individual systems for 2 major customers and certain development centers. So hybrid bonding is picking up strongly. Especially this last quarter, we received double-digit orders for production tools. The cluster tool is under development and as we mentioned in previous call and also the analyst update, we expect to be able to install the first tool somewhere towards the end of the first quarter. So a lot of work is being done at this moment and that then after successful insulation qualification should become the workhorse for this industry from second half last -- next year onwards and especially into 2023. So a very exciting ramp in adoption of hybrid bonding.Your second question, supply chain. Well, every day, we read about supply chain issues in every industry. Similarly, in our world, we have basically, since the beginning of this year, difficulties and unexpected difficulties sometimes in certain parts and especially critical ones are ICs and controllers and in -- yes, let's say, unique parts in machines. On the other hand, so far, we have been able to solve those issues one by one, sometimes a small delay, but mostly under control. And again, our supply chain model with not only multiple suppliers for every module, but also more and more a supply chain organized in the world in Southeast Asia, plus more and more an independent supply chain in China has helped us to overcome many of the constraints so far.You can also see that in our numbers, they wouldn't look as they are looking. So we are able to solve those issues. Going forward, one should expect at some point in time that the supply chains become, let's say, resolved in many ways because capacities are being built. Solutions are being organized or developed, however you want to call it. So over time, that should look more positive. There's another element is, of course, the impact of COVID in our whole supply chain. Many of our suppliers have had issues, also travel restrictions. And on top of that issues with logistics, in general, whether it's sea freight or air freight or increased cost for container and whatever shipments you can imagine. So supply chain remains a critical part of our business.The last comment, you can also see that a little bit in our inventory. We have made sure that certain critical components we have for an annual supply on stock. And that has increased our inventory by somewhere around EUR 7 million, EUR 8 million, so not to get stuck with certain critical components. So well under control in a world which today is, in that sense, very exciting. Does that answer your question?

[Peter Olofsen, Analyst]

Yes, that's very helpful. Maybe a quick follow-up on the hybrid bonding. As the shipments ramp and potentially hybrid bonding becomes a bigger portion of your revenues, is that something that would meaningfully affect your gross margins?

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

No, it shouldn't if we do our homework well, it should increase our gross margins because we have a unique product at this moment, which is ahead of the pack according to many of our customers. So that should help in expanding our merchant structures.

[Peter Olofsen, Analyst]

But is there any learning curve or volume ramp that you have to go through or could the margins already be quite strong from the start?

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

Well, of course, there are new territories. But since 4 years, we are already sampling our major customers or sampling with our systems. And -- but, of course, there's ongoing features being developed on those systems. We are -- simply for you to imagine, it's not one size chip which has to be bonded in, there are many different sizes, smaller ones, bigger ones, thinner ones, so different bond heads. But yes, how much that will be a learning curve is difficult to anticipate. But of course, in this technology, there are healthy margins.

[Operator]

And the next question is from Mr. Stephane Houri, ODDO.

[Stephane Houri, Research Analyst]

Yes. I have 2 questions actually, and I wanted to come back on the first one on the hybrid bonding opportunity because you have said in your press release that you were building the capacity in line with the plans of your customers. So can you please share with us what kind of capacity you are building at the moment, i.e., if you can update us on the size of the market that you see going forward and the kind of market share that you will grab? That's the first question. And the second question is to have your thoughts and your feeling about the current market evolution as there are some voices in the market or among investors who are fearing that this market can't be as good as it looks, meaning that there must be too much double ordering, and at some point, there will be a correction in the market. So can you share with us your view on 2022 visibility on that front?

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

First of all, what are we doing, anticipating the demand for hybrid bonding systems. Last year, we completed a first clean room facility in the development center in Austria, and then we started in May this year to build a major production facility clean room in Malaysia, which is near completion, by the end of November it should be ready. In the meantime, we have somewhat smaller capability to assemble these machines in clean room. But once the construction is ready, we should be able to build per month between 12 and 15 units. So on an annual basis, around 150 and that should satisfy the demand currently anticipated for the years '23, '24 and maybe we should expand further to be ready for the demand 2025. It all depends on the rate of adoption of hybrid bonding. That translates in a market size of somewhere around 100 million to 300 million based on current machine designs and also ASPs, average selling prices. Our market share -- and that's good news so far, we -- as I mentioned earlier, we have a head start in supplying already 3 years ago, the system capable to achieve 125 nanometers with a decent throughput, so units per hour, which is now around 1,500, which should go up to about 2,000. So that is all well prepared to translate into a successful market position going forward. Also, the orders received and especially the orders in the third quarter demonstrate a successful development of our position so far.On the overall market 2022, as we mentioned, so far, all independent market analysts expect a continued positive market demand for 2022. Of course, if you look at this industry for a few years, for me, it is over 10 years now, I think it's coming up to 38 years, upcycles last between 6 and 8 quarters and one can debate where we are. Did this upcycle start in Q4 '19 or did this upcycle start in Q4 '20? About a year ago, when we had the similar call, we were very cautious and all of a sudden, mid-November, the industry took off. So many argue that we are still in the early phases of an upturn. If you look at Besi, if you look at also the industry over time, it's very hard to predict these cycles. They are dependent upon global GDP in the first place, also the transition into next generation, which is fully happening right now.Also, COVID has accelerated the digital society in many ways, and we all benefit from that. And there are many views that, that could last the increased demand and shortages in semiconductors in every type and version also industries, simply to mention automotive. So many of the positive views predict the continued growth in demand for packaging, one with a few more gray hairs, would expect natural cycle terms. But then again, Besi is well prepared. We have -- as we have shared in many of the presentations, also the latest analyst meeting, our model shows that we can grow much faster than anyone in the industry, but at the same time, going into downturns, we maintain margin levels, and we enjoy very low breakeven levels. So the cyclical nature has helped us to gain share over cycles. But again, I don't see at this very moment, significant, let's say, signs that we are over the hill, but that could be next week different. So that's as much as I can comment.

[Stephane Houri, Research Analyst]

That's very clear. And let me just come back on the hybrid bonding answer, which was very comprehensive as well. When you say market size of 100 to 300, do we agree that it's per year?

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

Yes, yes, per year.

[Stephane Houri, Research Analyst]

Okay. Per year. Okay. And is it included in the -- already in the EUR 1 billion opportunity that you are targeting or could it come on the top of it?

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

Over time, it looks -- we mentioned also, we have just completed, again, a strategic review, and we have built models for the next 5 years. And anticipating further, let's say, adoption of hybrid bonding in line with the views of our major customers in those areas, both in logic and also in memory. For that, you can also compare what's happening in overall chip design. A nice example was the analyst update of ASML, where you could see a chiplet an AMD chiplet where we're also involved. So once that really becomes mainstream, that could be because of higher ASPs and because of many developments, which are possible using this hybrid bonding technology. So that could increase our total revenue development over 5 years -- well, beyond the SEK 1 billion. But our goals, and we mentioned the EUR 800 million after 2017. We mentioned that in '18, which we close -- will achieve this year, certainly in U.S. dollars. So our horizon is not 5 years, but mostly 3 years. But anyway, significant growth opportunities, if we continue to do our homework, right? And the development for the leaders in this industry with excellent partnerships and especially the partnership with AMAT has helped us so far tremendously, and will continue to help us. So that works well.

[Operator]

And the next question is coming from Mr. Marc Hesselink, ING.

[Marc Hesselink, Research Analyst]

Yes. My first question is actually on the strategic review. You already mentioned it includes the increase of some personnel and some capacity, but what is it exactly? Is this something that you align your ideas with your clients? And if so, is it new that you have such a close cooperation with your clients now on the technology roadmaps? And second question is on the order level, which was quite high seasonal. Was that mostly because of the hybrid bonding orders or are there also areas that are exceptionally strong compared to the normal seasonality that you have in your business?

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

Excellent. Let me start with alignment with customers. The only reason we are around today is because of the ongoing relationship with key customers in this industry for over 30 years. Recall that we picked the winners in mobile, in the computing space, in automotive and on an ongoing basis, we have always prepared ourselves for the next cycle. And once this cycle turns and a nice example in reaching this close to EUR 800 million this year, if we would not have had our homework prepared already starting in 2017, '18 to reach that level, remember, our revenue in '19 was EUR 356 million. It's all about understanding what is required in terms of technology. So a careful selection on an ongoing basis, what will be the mainstream applications and what will be required to serve those customers. And you're very right in every strategic review over 30 years plus, we use -- or we engage our customers simply to be prepared. And as time goes on, this hybrid bonding brings us much closer to the chip design ever closer and the stakes are higher, the development costs are higher, the development time is longer, and that requires an ever closer contact and understanding and commitment to be prepared on the one hand and to enjoy the largest share of wallet at the time of industry ramp. So simply to share with you that that is well prepared for the next round and the investments and commitments to be successful in both.So the existing world and also the new hybrid bonding world also requires to be prepared in the organization also, the organization structure. So that's in summary what's behind the comments on our strategic review. If we look at the orders for Q3, it's very simple. As we mentioned, first half year, and that's very typical, is always orders for next-generation high-end smartphones. And then introduction of new models in September timeframe and the strength in Q3 has come from the computing side, computer data centers, et cetera, so high employee, automotive, very strong and also initial double-digit orders for hybrid bonding systems. So a different mix, but at very positive levels.

[Marc Hesselink, Research Analyst]

Okay. Clear. And then how do we convert into revenues? And normally, there's a quite short lead time for you, but it seems to be a little bit longer. So is that -- when do you expect that to be delivered?

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

Well, as I mentioned, answer to an earlier question, the hybrid bonding systems is spread over Q4, Q1 and some early Q2. Some more orders expected either this quarter or certainly next quarter, they have a somewhat longer lead time because they are very complicated machines built in clean room. And there are other more, let's say, standard machines, which are shorter lead times and very much depends, and I haven't said that yet, we should have added that in the comments. A major let's say, positive effect could be China's next round. The question, there's also certain issues, which we haven't mentioned on electricity for certain regions in China, and that has an impact on this industry. So that has had an effect on Chinese subcontractors ordering systems, but once that is resolved, the power supplies, you can expect a catch-up, whether that happens in Q4 or Q1, you could say that's the wild card. Those are machines, which we turn around in 6 to 8 weeks, depends a bit on the configuration, some even a bit shorter. So there are many aspects on what could happen. Does that answer your question?

[Marc Hesselink, Research Analyst]

Yes, yes. It does.

[Operator]

And the next question is coming from Mr. Charles Shi, Needham.

[Yu Shi, Associate]

Richard, I want to start with the rev rec, revenue recognition of hybrid bonding. I understand that you already got the orders on the like high teens number of units. However, when I look at your Q4 guidance, if I assume hybrid bonding revenue could reach somewhere in the low double digits, that would imply your base business is going to have a greater decline than usual. So I was kind of thinking maybe I got a little bit ahead of myself and the rev rec in Q4, maybe somewhere in single-digit range in euro term. Can you provide a little bit comment on that rev recognition ramp in Q4 for hybrid bonding? That's my first question. And then I have a follow-up on your base business.

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

Excellent. Well, it's an excellent question. Since it's new technology, it requires certain criterias for IFRS to recognize certain revenue. At the same time, as I mentioned, the orders are not delivered in one quarter. They're spread out over 3 quarters, maybe 2, so Q4, Q1, or Q1 and early Q2. That also has to do with the infrastructure and the revenue recognition is simply according to the rules. And that's not new in that sense. We have delivered these machines starting already 3 years ago, 4 years ago, a test machine and then and qualifying machine thereafter. But it's mainly due as -- that it's not all delivered at once. And also, we have to test ourselves those machines. As I mentioned, the expansion of our clean room in Malaysia will be ready by the end of November and that also has an impact on the delivery schedules. And the schedules are, as I mentioned, some in Q4, some in -- most in Q1 and some in early Q2. I hope that answers your question.

[Yu Shi, Associate]

Yes, you did. That's very helpful. So I want to ask a second question on your base business. Maybe you partly answered this question by giving -- unpacking a little bit on the Q4 revenue guidance where the hybrid bonding rev rec will start and at what magnitude qualitatively. I want to ask you, in terms of your base business, you mentioned about China outage that could have had some effect on your Chinese subcontractors ordering behavior. That's one. The other is the Malaysia COVID shutdown in the last quarter, which may have impacted some of the subcontractors in Malaysia. And I think you sort of mentioned, if I understand correctly, if those demand, which sort of impacted because of those external factors, if they come back in Q4, Q1, that may represent upside to Q4 guidance. Is that the correct assessment or can you provide more color around that?

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

Well, there are 2 possibilities and one is, let's say, and that is based on a continued upcycle that you get a catch-up. And also the fact that there is so much IC shortage that Chinese subcontractors will definitely expand capacities as soon as that is again feasible with power issues resolved. A negative one could be that some read into this maybe an overcapacity. Well, it's hard to tell. If it comes, it is an upside, of course, and we are well prepared for that. If it doesn't, it doesn't come. It could also come in Q1. So that's in -- yes, let's say, as much as I can tell you.

[Yu Shi, Associate]

Got it. Richard, maybe my last question, hybrid bonding demand next year. I think last time you did mention you are expecting unit shipment somewhere in double digit. And in terms of revenue that could actually reach low triple-digit based on the double-digit unit shipment, have you changed your view on that -- or maintaining your view? That's my last question.

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

Well, with the progress on adoption of hybrid bonding with the -- yes, multitude of examples being shared with the market on an ongoing basis, one would expect that capacity built to happen in the way that it has been presented all along. So Taiwan expansion in the first, let's say, instance, so that is next year. The year following a U.S. major U.S. customer and with indicated 50 units, which could be more or maybe -- yes, it depends also on which devices are being built. You certainly know that these chiplets, if they can have 6 or 8 devices, which all need to be hybrid bonded individually, so that requires significantly more machines. But that's all to be developed, and we will share the progress every quarter on what's happening in that market. But so far, it looks positive. Certainly, as I mentioned earlier, we did not expect to receive double-digit orders in Q3 already. So that's a positive sign.

[Operator]

And the next question is coming from Mr. Robert Sanders, Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

I guess, the first question is just on the Taiwan client. The first thing is, obviously, they've had a technology delay on their side. I was just wondering if there's any interdependence between their delay on 3-nano and the hybrid bonding ramp that you expect? And I've got a couple of follow-ups.

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

No. We have no, let's say, confirmation of any -- it's more in the 7-nanometer space.

[Robert Duncan Cobban Sanders, Director]

Okay. Got it. And then, on hybrid bonding again, is there a kind of chunky 50-unit order that could be signed before March for shipment next year that you're kind of waiting for or is that why you're hesitating a bit on the scale of the business next year? Or is it kind of like a large-scale order that you're hanging on for before committing, is that how we should think about it?

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

Well, we anticipated all along that this will not be ordered in 1 chunk. It will be, let's say, 2 chunks or maybe even 3. It depends on the adoption rate. So in any technology, let's say, ramp, you have numbers changing week by week, same goes for high-end smartphones. Who knows whether this iPhone 13 will be an enormous success or there'll be less uptake of iPhone X, which was grossly overestimated. So it's difficult to tell, but the numbers are still out there sort of scheduled in infrastructure so that customer needs and every customer needs the infrastructure, they need the people, they need the other processes. So that's still continuing on track.

[Robert Duncan Cobban Sanders, Director]

Got it. And just to come back to the summer analyst session you did. You talked about EUR 1 billion plus, but I sort of get the sense that the plus is the hybrid bonding opportunity. So it's kind of the real number like 1.2 to 1.3 or something like that because the plus is hybrid bonding. Is that how I should be thinking about it? Because I get the sense that the long-range view is kind of slightly improved since June.

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

Well, there are several pluses. One of them is, of course, again, the adoption rate of hybrid bonding. But there are other new technologies, which are also to be let's say, under development in the next year, 2 years. And it is always difficult to forecast the ramping volumes required. Chip to wafer is one of them, bridge attach is another one. So there's a whole myriad of processes, which around the hybrid bonding, which can determine how much the plus is. At the same time, the plus in our existing products, how much market share is there to gain in the high end of those applications. So that's another side of the plus, which could also be a minus, if we make a wrong estimation.

[Operator]

And the last question is coming from Mr. Timm Schulze-Melander, Redburn.

[Timm Nikolaus Schulze-Melander]

I had 3 sort of just very quick ones, if I could sneak them in. The first one was to ask if you could talk about the sequential trends on the gross margin. Maybe just give us a little bit of sense of the bridge because the drop-through looks very, very high, about EUR 14 million of gross profit or an EUR 18 million variance in revenue. So -- and pretty stable headcount sequentially. So that was the first question. Would you let me to put all 3 questions on the table straight away or should I deliver them sequentially?

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

No, let's discuss the gross margin first. As you very well know, we have many different products. So we have 18 different platforms, maybe 19 now and they have different applications, and there are different margins. So the mix is always an important element in the overall margin. At the same time, this year, there are many impacts. One of them is currencies at U.S. dollar, in particular. We also highlighted that. But then as we also highlight, it's materials cost, logistics cost. So in an ideal non-COVID world, but probably the market would be different then, our margins could be substantially higher. But that's -- every year, there are issues, but fundamentally, and that's a statement, which I think is very fair to make, is that it is unique how we maintain this above 60% gross margins, given all these impacts.

[Timm Nikolaus Schulze-Melander]

That's fair. All right. That's super clear. The next one was just on the hybrid bonding opportunity. Have you given any performance guarantees to your customers? Is there any scope for contingent liabilities next year?

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

No. There's -- we sell hardware, and we don't sell process guarantees. On the downside, what could happen is that the adoption of hybrid bonding is not going as planned, but that is also in this industry, not new. We had many instances because it's not only our bonding tool we deliver, but there are other processes and materials, all impacting the adoption rate and the success of a new technology trend. But there are no, let's say, strings attached for Besi, other than that we have an order book and hopefully, we are allowed to deliver all of them and receive the cash.

[Timm Nikolaus Schulze-Melander]

I hope that process goes extremely smoothly. And then the last one was just in terms of sort of what you may be hearing from your sales teams on the ground? And I'm thinking particularly about any impact that they may be seeing from memory price volatility, recently?

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

As I responded to similar questions on where we are in this cycle, it is still fair to say that, overall, there's a supply and demand situation. It's a sellers' market. We have simple ICs and controllers, which the suppliers are major semiconductor companies who simply have increased the prices by a factor of 4 and with lead times going above even 90 weeks, can you imagine? And if you're willing to pay more, you can get it faster on, that tells you the overall situation in the market. There's some nervousness about memory, but that is not to the extent which we have seen in previous cycle terms, where there's a collapse of memory prices. It could be around the corner, who knows. What -- let's say, my view is if you have 2 years of double-digit growth in equipment, so capacity supply to an industry with an underlying single-digit growth over time, you're bound to end up in an overcapacity.

[Operator]

Mr. Blickman, is there space for a final question?

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

Of course.

[Operator]

And the last question is Mr. Trion Reid from Berenberg.

[Trion Merton Reid, Analyst]

I just had a question, which was actually away from hybrid bonding for one. Just on your -- the pattern of the order intake and how that's translating to revenue. Historically, we always talked about this kind of 1 quarter lead time, and we've got this pattern of order intake in one quarter kind of predicts the revenue in the next quarter plus/minus a few percent. And that started to break down at the end of last year as your order intake obviously increased hugely. Your revenues also increased a lot, but not quite by as much as the order intake. And now it feels like the revenues are still not quite keeping up with that very high order intake and obviously, you've had declining sequential revenues. And I understand the point about the seasonality and the capacity build that you mentioned. But I just wondered if -- is there anything else going on? Is it just the hybrid bonding having a much longer lead time or do you have much longer lead times for some other products, such that revenue will get recognized eventually or on the negative side, have you seen any kind of order cancellations or double ordering in there?

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

No. The last, certainly not, no cancellations, no double ordering. It's a very good question. We mentioned supply chain issues and let's say, times before those issues, we would turn around certain machines in 4 weeks, 6 weeks, 8 weeks. And now because of certain shortages, which simply take a few weeks longer, most shift was close to 4 weeks, but customers simply very much, let's say, wanting those machines to be delivered because of all the shortages. So it's a matter of, yes, supply chain issues, COVID, we have these shifts from shipping half machines from Malaysia to China because of these lockdowns in Malaysia. That also has delayed shipments, so that's an element which -- yes, let's say, has had an impact on delivery of all of our machines. But within, let's say, 2 weeks, maximum 4 weeks delay. But that is coming back gradually. Also the COVID situation in Malaysia is improving as we all know. Singapore is opening up for many countries in the next 2 weeks. So that affects lead times also -- but then again, the weakest link is -- can be one component, which holds up a shipment.

[Trion Merton Reid, Analyst]

So that sort of suggests that your order backlog is significantly higher than the expected revenue in Q4. And that in the future, we should expect that even if your order intake falls, that revenue can still remain high, at least for a quarter or 2 as you deal with this backlog. Is that a fair comment?

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

Yes. Yes, that's a fair comment. But there are also, let's say, the delivery or the manufacturing time for hybrid bonders is much longer than these, let's say, epoxy and soft solder bonders, which are 6 to 8 weeks, hybrid bonders is about 18 weeks. And in between, there are many other products, which simply have more or less customer-specific parts or application-specific parts. And I also mentioned to safeguard the delivery, we've taken on somewhat more inventory between EUR 7 million and EUR 8 million and that's in specialty components, ICs which are hard to predict and simply have them available.

[Operator]

There are no further questions. Please continue.

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

Okay. Then thanks, everyone, for attending the call and your questions. And if we can help you answer some more, always welcome. Bye-bye.

[Operator]

Ladies and gentlemen, this concludes the Besi's event call. You may now disconnect your line. Thank you.