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BE Semiconductor Industries NV
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Good morning, good afternoon, ladies and gentlemen, and welcome to Besi's quarterly conference call and audio webcast to discuss the company's 2020 fourth quarter and annual results. You can log in to 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 home 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.
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 fourth quarter and the full year 2020 and update you on the market, our strategy and the outlook. First, some overall thoughts on the quarter and full year results. Q4 '20 results exceeded expectations with revenue and net income reaching EUR 109.7 million and EUR 44.6 million, respectively, increases of 18.7% and 32.3% versus the fourth quarter of 2019. Revenue exceeded guidance as the industry upturn gained momentum and demand growth broadened across our end-users markets. Of note, Q4 '20 orders grew by 65.8% sequentially to reach EUR 157.3 million, a record level for a quarter, which is typically our weakest of the year. This growth was fueled primarily by strong demand for high-end and mid-range smartphones by Asian subcontractors, a resurgence of demand from European automotive IDMs and incremental capacity purchases for cloud infrastructure applications. Net income growth of EUR 10.9 million versus the fourth quarter 2019 primarily reflected higher gross margins as a result of increased labor efficiencies as well as a 7.5% reduction in operating expenses, both of which more than offset unfavorable headwinds from a weaker U.S. dollar versus the euro. As a result, net margins grew to 40.7% versus 36.5% in the fourth quarter of 2019. For the full year, Besi's results rebounded strongly with revenue increases by 21.7% to reach EUR 433.6 million and a net income rising by 62.7% to reach EUR 132.3 million. In addition, orders of EUR 472.1 million increased by 35.4% versus last year as an industry recovery to gold in the fourth quarter of 2019 and accelerated in the second half of 2020. Besi's results were even more impressive considering the multiple headwinds faced and organizational challenges posed by the global COVID-19 pandemic, increased trade tensions between the U.S. and China, decreased shipments to automotive end-user markets, and an approximate 8% decrease in the value of the U.S. dollar versus the euro in the second half of 2020. Besi's revenue and order growth benefited from improved industry conditions, increased shipments for mobile applications due to a new 5G smartphone product cycle and increased investments by Chinese customers. Profit growth was aided by higher revenue levels and a gross margin expansion of 3.8 points associated with Besi's strong advanced packaging market position and a more favorable product mix. It was also aided by relatively stable fixed production headcount levels, which helped drive labor efficiencies. Year-over-year, operating expenses grew by only 1.7% versus 2019 despite strong top line growth, due to continued structural cost reduction initiatives and reduced corporate revel and overhead associated with the pandemic and the shift to work at home economy. As a result, net margins grew to 30.5% versus 22.8% in 2019. Besi's profitability has increased significantly since the last industry downturn is measured by a comparison of the years immediately following cyclical trough levels reached in 2015 and 2019. In the chart presented, you can see that operating income in 2020 grew by 99.3% versus the comparable period of the prior cycle, while operating margins rose from 20-point -- 20% to 34.6%. The increased efficiency of Besi's business model positions as well for expanded profit growth in the current industry up-cycle. The cash flow productivity of Besi's model has also increased significantly over the past 5 years with the percent of revenue represented by cash flow from operations, rising from 26.3% in 2016 to 37.4% in 2020. Cash flow from operations in 2020 rose by 34.9% versus 2019. Besi's strong cash flow generation has supported our shareholder-friendly capital allocation plan. Remitted capital allocation of EUR 866.1 million to shareholders since 2011, representing almost 20% of cumulative revenue during such period, amazing. We ended the year with a solid liquidity base, consisting of cash and deposits, aggregating EUR 598.7 million or EUR 8.22 per basic share, which represents an increase of 46.6% versus year-end 2019. Further basis net cash of EUR 198.7 million increased by EUR 68.4 million or 52.5% versus year-end 2019, which includes a return of EUR 91.3 million in the form of dividends and share repurchases. Net cash in Q4 2020 also benefited from the conversion of EUR 8 million of the 2016 convertible notes, an additional EUR 13.1 million converted in January 2021, leaving a balance of EUR 96.9 million currently. Given profits earned in 2020, continued strong cash flow generation and our solid financial position, we proposed to pay a cash dividend of EUR 1.7 per share for the year 2020. Proposed distribution is the 11th consecutive annual dividend paid is 68.3% higher than over the fiscal year 2019 and reflects a payout ratio of 94%. We have also upped quarterly share repurchases to approximately EUR 10 million per quarter post the cancellation of 1.5 million treasury shares in October. Including the proposed dividend for 2020, we have distributed approximately EUR 866 million to shareholders since 2011, representing almost 20% of cumulative revenue during such period. Next, I'd like to speak a little bit about the current market environment and our strategy. Trajectory of the industry recovery, which began in the fourth quarter 2019, was significantly altered by the onset of the global pandemic. As you can see in VLSI's most recent climate index report, the dramatic decline experienced in the second quarter 2020 was followed by a replacement back to prepandemic levels and an acceleration in the second half of 2020. Principal question now, is the slope of the trajectory this year given the spread of new COVID-19 variants and the emergence of component shortages and transportation constraints within global supply chains. Given the upturn in the second half of 2020, VLSI has now revised the 2020 assembly equipment forecast, upwards to 20% growth. In addition, we revised upwards 2021 to also 20% and for cumulative growth of 36% through 2023, when the total market is expected to reach USD 5 billion. Besi's priorities for 2020 focused in part on addressing the COVID-19 pandemic and its impact on our global organization, supply chain and customer delivery dates. A variety of initiatives were developed to adjust our business model to the new economic and workplace realities caused by the pandemic. Cost reduction efforts primarily centered on the continued consolidation and reduction of Besi's European footprint. We also reorganized our R&D organization to better align it with customer road maps for the current investment phase. Gross R&D spending grew by roughly 8% as we developed a Class 10 clean room in Austria to further hybrid bonding development and higher traditional personnel for targeted customer R&D programs. In addition, we announced our ESG strategy in the context of our industry, culture and increased scale to focus on 3 strategic pillars: environmental impact, people well-being and responsible business. With these pillars, we identified key focus areas, including energy use, renewable energy, sustainable design, and diversity and inclusion. Short, medium, long-term goals were set to measure our progress in the decade to come. In 2021, we have 3 principal areas of focus, most immediate of which is to scale production to meet significantly increased customer demand. At present, we are working closely with our supply chains to overcome any parts or logistical bottlenecks so we can meet delivery schedules. Further, we have ramped up development activities for our hybrid bonding project, joint development projects as we continue progress towards our goal of system availability in the second half of 2021. Now a few words about our first quarter '21 guidance. Looking ahead, we estimate that the first quarter 2021 revenue will increase by 30% to 40% versus the fourth quarter 2020, with gross margins ranging between 58% and 60%. Baseline OpEx are anticipated to rise by 15% to 20% versus EUR 23.3 million realized in the fourth quarter last year, primarily due to higher variable sales related expenses and product development activity. Total operating expenses are expected to increase by approximately 50% to 55% versus the fourth quarter, primarily due to approximately EUR 10 million of noncash share-based compensation expense. We maintain a favorable outlook as we enter into 2021. Our positive stance is reinforced by our fourth quarter 2020 results and by the extended CapEx budgets of our principal customers. In addition, orders received to date in the first quarter '21 exceed total bookings for all of Q4 2020. This represents another signal that of the current strength in customer demand. Longer term, we are optimistic about Besi's prospects, given our strong performance during last industry downturn and the current pandemic and favorable secular growth drivers. That ends our prepared remarks. I would like to open the call for some questions. Operator?
[Operator Instructions] And the first question is from Mr. Peter Olofsen, Kepler.
My first question is on the outlook. Obviously, a very strong guidance for the first quarter. I was just curious what you see in terms of seasonality for the rest of the year. I mean, usually, we see a nice pickup in Q2 versus Q1 and then some seasonal slowdown in the second half of the year. Do you expect to see this kind of pattern also this year? Or could it be somewhat different?
Well, that's, of course, a very interesting question. If you take statistics, then typically, the first half is always stronger than the second half. The current environment and the pandemic now for the last 12 months may have some impact that would change or, let's say, could have an impact on this pattern. Nobody knows. So we always look ahead one quarter. This time, we can look a bit further with the current order intake levels. That's about it. So I'm sorry, I can't give you an answer which we would like to know.
No, no. Let's see how it develops then. But -- and then, may be on your lead times, you indicated that some of your priorities right now include scaling your production and also working with your supply chain on any component shortages. So when it comes to scaling production, is that mainly adding headcounts? Or does it also require additional CapEx? And to what extent have any component shortages resulted in extended lead times? Or are your lead time same as before?
In any upcycle, and if we look back 2017, but also further back, the key challenges to be prepared in time. And as we have shared our operating model, for many years is built on a simple concept that we are, let's say, minimal dependent upon specific suppliers. So for many modules, we have multiple suppliers. But in this COVID time, also the suppliers have difficulties. Some have more difficulties, others less difficulties. So just to share that in 2020, it won't be a surprise. And we also shared that after Q3 and Q2, it is a much more challenging exercise, but positive with increased demand to organize the whole supply chain. So far, so good. Of course, we need some more headcount. We need headcount because we build more machines. Also for installation, we need always to increase our headcount. And the typical concept we use is that these are temporary contracts. So benefiting from cyclicality, which is the nature of our industry. At this time, yes, life is more challenging in a positive sense. But our organization has shown that they can handle this in an excellent way.
Now because we have heard stories that from some of your clients that they are seeing extended lead times for some equipment. And I think wire bundles have been mentioned by some of your clients. But in your case, it's still -- yes, the lead times are still within that normal range, I should say.
They're a bit longer. I mean, it's, of course, when you have in every up-cycle, the lead time builds. But I think on a comparative basis, we are able to manage these up-cycles very well. Again, the weakest link determines whether you are able to complete and then ship a system after test. And that's pretty critical. We have meetings every Monday, Wednesday, Friday, to discuss those issues, what we can do to improve. And we always find solutions so far. But simply to share with you, today's world is a very interesting, challenging world.
Yes. There may be a question on the feel as I forecast that you shared. I know they can change quite a bit as time passes. But their forecast call for the industry to reach about $5 billion in size by 2023. In the past, you have talked about your ambition to grow your market share to 40% and to grow revenues to EUR 800 million, provided that the VLSI forecast proved accurate. Do you think that you can then reach your revenue ambition by 2023? Or might that take somewhat longer?
No. It's -- and you are saying that very well. This industry is very hard to forecast, and VLSI, since many, many years, is very closely engaged in the whole supply chain. And the fact that they have to change their forecast time and, again, only confirms the cyclicality, but also unpredictable in terms of technology, advancement and markets. So when I see those numbers, and I've seen them for a few years, I always take them with a certain caution. Key is that our model generates, in the first place, results, financial results, which are above the average of the industry. Otherwise, you can't finance technology company. EUR 800 million is a number, which we have used as a model simply to share with our customers that we are able to increase our delivery of systems above the previous peak of just short of EUR 600 million in 2017. And our infrastructure is in placed to be able to do that EUR 800 million. So that is the reason for the EUR 800 million because of the growth model of our customers. At the same time, advanced packaging, the very clear consistent choice on new product developments, new technologies and they deliver in the end the most sound growth over time. So those combined should allow us to grow our revenue and whether in 2023, it is EUR 800 million, or it is EUR 700 million, or it's EUR 900 million. The key is to be the #1 choice of the leaders in this industry. And what are those drivers, of course, ongoing technology from 10 nanometer design to down to 5 nanometers and that requires systems, which simply are more accurate in placing the dice into next. End products, we've come a long way in that. It also allows technology change into hybrid bonding. Those equipments, more accurate to have a higher ASP, average selling price. So that will also support increased revenue. So it's not like for like. The revenue mix in 2017 will be different, was different in 2020 and will be different in 2021 and certainly in '23.We also mentioned in the past, not only hybrid bonding but also flip chip for memory. We have now sold over 10 systems, so that's going very well. Hybrid bonding this year will be key for process qualification with an anticipated mainstream production ramp in 2022. If that materializes, our model simply is very close to what the industry should offer us as growth opportunities. Always with the uncertainty of technology advancement will hybrid bonding become mainstream? Will flip chip for memory become the next-generation? Or will they still be able to use certain wirebond applications. And at the same time, what we haven't discussed yet, new developments of features, in iPhones, new screens, micro LED, all technologies with very bright futures, but still a lot of development to be realized before it becomes mainstream applicable. So in a longer answer, I hope I gave you some more color on the revenue growth model.
Yes. It's a very comprehensive answer. My last question relates to automotive, which I think for most part of last year was quite weak, but I understand that in Q4, it contributed to the strong order intake. But to what extent is it in full recovery mode? Or is it still at a very early stage of a pickup? And is it still quite modest? Could you give some idea how strong the recovery there is?
It's picking up and it's picking up very positively. And you hear that from our customers who have released numbers, but also in general, the sentiment for automotive is very strong. CapEx, so expansion in infrastructure, typically kicks off when utilization rates are increasing, and we see that. So in the course of '21 and also the shortages, which are everywhere, let's say, publicly linked to also end customers, which are also our customers. So that bodes well. It's also extraordinary. We didn't mention that specifically in the comments, you mentioned it last year, automotive was very weak, which is very unusual. Usually, automotive represents about 15% to, in certain times, 20% of our revenue forever, and last year was below 5%, which is amazing. But that also always leads to an catch up or, let's say, an increase in demand, which is above the average. So anyway, in also a longer answer that should contribute again to our growth. And last year, didn't, so a 21% revenue growth was by increased high-end smartphones and also the computer infrastructure.
But with automotive down to such an extent, does it mean that mobile was there may be closer to half or what was then the share of mobile last year?
Well, both mobile and the computer infrastructure, so laptops and what have you, last data centers are big, both had a major share. We don't share specific numbers, as you know, more in general, but it's very well -- high-end smartphones was above the average.
The next question is from Mr. [indiscernible] KBC Securities.
The first one related to the strong demand for smartphones by agent subcontractors. It appears trends in Asia are impressively strong and you're also generating more than 80% of your sales in the region. Could you may be talk a bit about what you're seeing in Asia in terms of investment appetite and also related to 5G smartphones, supposedly shipments are about to be more than double in 2021 versus last year. So curious to hear a bit your take on where we are in the cycle today. And how long that may be one of the big drivers for Besi?
Well, if we look historically, smartphone cycles are typically 3 years. But due to the pandemic last year, smartphone was also a major driver. Because working from home, the whole different society, entertainment and all the restrictions of people and entertainment closed in many countries. That has probably helped an investment cycle very positively around the world. 5G has made its entry, and we are very strong in certain components of 5G for high-end smartphones, with also medium. So that, that certainly should continue in this year's models with, again, further increased capabilities. But it's hard -- for us to understand what is typically related to the pandemic? And what is more a natural pattern of next-generation high end phones. But it's probably a mix. And if you take all the publications, this year should look positive for next generation. Then typically, it should wait after that for some time, for again, a next generation. These are patterns, which have to do with GDP, our worldwide economy recover, the world is expecting a strong recovery, which is a usual pattern after a crisis, and that bodes well for those products also. And there's another school of thought, which is more cautious that it will take more time for the world to recover. But who knows.
Okay. And just the second question is to come back on flip chip. You talked about increased focus by memory manufacturers and then systems sold. I believe last call, you were quite positive on sort of the next-generation machines, which could deliver more output than conventional machines and that this could be sort of a great entry into the memory space. Yes, just curious whether you could talk a bit more about the opportunity, whether you may have become more confident or not since in October? And may be more broadly, what your views are on the memory market for 2021?
The first question, are we more positive? Yes. We have seen positive developments. We are not only qualified at one customer, but also another customer. And so our technology in our system is becoming very mainstream, capable and we also see increased confidence that this crossover point from wire bond to flip chip will occur. Also, if you look into the broader information about the memory forecast for '21, that should be a positive development. Although memory is usually more cyclical than logic. So one has to be even more careful. But we are looking at this very positively.
The next question is from Mr. Nigel Van Putten, Kempen.
I would just like to follow-up on the comment in your prepared remarks about the order book in the quarter to date. So yes, it's clearly a very different year than in the past. But am I correct to assume that, at least historically, you think we see a lot more activity after Chinese New Year, which was last week. So I'm just curious in terms of how this current situation would imply, maybe a lot more strength in the quarter? Or perhaps you've seen unusual activity at the start of the quarter? Any sort of context and color would be very helpful.
Well, again, what is usual is, let's say, proven different in the fourth quarter, where the fourth quarter is usually the lowest where we have seen a record booking level for the company. Q1, a very good start so far. Also with major programs announced by customers, increased spending for '21, as mentioned in the comments, also VLSI is confirming strong growth expected for '21. So yes, simply said that, that's a very good start. So far in the earnings season, we have not seen any disappointments yet. Sometimes that happens, but also to an earlier question, the first half year is usually a positive start. The key question is, of course, how long will this last? Will this continue through the second half? Or should we see a pattern, a strong first half followed by a somewhat more modest second half? I don't know. We all don't know. So far, the industry independent VLSI, but also major customers are very positive. When that occurs, after many, many years, I always become a bit more careful. If all lights are green, watch out, railway, who am I? But that's what it is, Nigel.
It's very helpful. My question about the order book. In terms of composition, do you see any different behavior? Are people -- or sorry, your customers putting in orders for multiple quarters where they might in the past have only done the quarter ahead. Is there any change from the past you're seeing?
No. The -- the word around the world is caution. This time, probably because of the nobody knows how the COVID will pan out. So you sense caution at all of your customers, and that's very positive because the overbooking, which is usual to our industry. Maybe this time, that is less of a risk. But needless to say, with growing -- with increasing lead times, it often results in customers making sure they have booked slots, and that may lead to overcapacity. As another phenomenon, we also have to bear in mind always, on average, this industry grows by may be 5%, 6%. And when you have years with double-digit growth, you are correcting may be a period of less investment, but you also could face some overcapacity. So in general terms, we're used to that, that's why we have an operating model, which can, with breakeven levels, which are very well known. At slightly above EUR 50 million per quarter. And also our whole supply chain model simply because cyclicality is the name of the game.
The next question is from is from Marc Hesselink, ING.
My first question is on hybrid bonding. Just like with memory expressed you mentioned in the press release, does it imply that also on this side, you made a big step-up in the customer involvement over there?
Yes. 2020 will be the year in the history book whenever of a major change in hybrid bonding applications. So the industry has embraced from technology solution to a mainstream technology on a broader scale, large IDMs and simply follow the publications all easily available through the Internet. Hybrid bonding is being developed from an early stage to a mainstream stage from 2022 onwards. So '21 will be the year of further process modification, systems tested also prepared for volume manufacturing. Partnerships like our partnership with AMAT has helped us tremendously in increasing our customer engagement in this phase of hybrid development expansion. So a major change in 2020 to the positive.
Clear. And my second question is on market share. It seems to do pretty well, is that mainly because of the mix that you are with the right clients and your clients did very well? Or did you also increase your share of wallet with the -- with your current client base?
Well, I mean, if you look at the numbers and you look at simply gross margins, net margins, something has to be right. So we probably, but that data is always, yes, available in May -- April, May timeframe so that you can't have a real sense of market share development. But the key is, are we at the right customers, as you are asking. And I think the answer is positive with what we have demonstrated. The share should also be positive because of the margins, but the key is, of course, who are the winners of the future. We have so far been very successful, but every new development is a new challenge, and we have strong competition. We have competitors in Asia, Asia Pacific. We also have Japanese competitors. We have others like K&S who want to enter into the advanced packaging space. So everyone understands in the advanced packaging is where the growth is and where the margins are. So a very interesting and a wonderful challenge for the years to come.
Okay. And final question is, the last time there, you benefited quite a lot, if I'm correct, from the crypto boom. And I was wondering, how did this today, given where those currencies are again?
Well, that's an interesting observation. Yes, there is certainly -- in that world, in Asia, we haven't calculated the percentage, but that is also contributing. Last time, it did last only very short in the second half of 2017. Anyway, that's a wildcard. Let's put it that way.
Okay. So far, it has not been very big yet.
Yes. It has helped in certain flip chip sales. So revenue also in the order intake, but as I said, as a percentage, I haven't calculated it. It's not like high-end smartphones or the computer space, but it's also an application.
The next question is from Mr. Robert Sanders, Deutsche Bank.
The first one was just -- I noticed that one of your complementary equipment company [indiscernible] has set up a factory in Taiwan with a big optimism around TSMC. Do you think that TSMC is getting much more clear about its timelines and when it's going to aggressively ramp, you said 2022 fiber bonding. So have they may be pulled in their schedule, like, I think, Intel pulled in like by a year? Is that something you see? Or is it too early to say?
No, you're very right. And it's also widely publicized. TSMC is building 2 fabs for advanced packaging. They're stepping up their commitment in many ways, and that is very positive for also hybrid bonding applications. The other one you mentioned, Intel is also widely publicized has pulled in, and that also offers unique opportunities for all of us.
Great. When -- if you ramp in -- let's assume both companies ramp in 2022, would you know today that you're -- the tool of record? Or is it still the decision yet to be made? You're just in a qualification phase, a trial phase at the moment?
Well, we're all in a trial phase, lower volume still. One should see orders in the second half of the year. If 2022 is going to be mainstream production volume, but it all looks, that that is what the schedules are. But they -- as always, can be impacted by other steps in that whole process flow. It can also be impacted by end market decisions. But you're very right in -- but that's also widely publicized. The schedule is 2021 further qualification and selection and '22 rollout in mass volume production.
Got it. And just my last question was just a follow-up to previous one. Your backlog today, as of February '19, how much is shippable, let's say, to June and how much is like after June? Is it almost entirely shippable before the end of June?
That's a good question. I would say 80% is first half year, 20% is already third quarter. For instance, plating lines have a lead time of 24 weeks. There are some programs which are spread over Q2 and Q3, preparing for product launches in Q3, Q4, but 80% is certainly first half.
The next question is from Mr. [indiscernible]
Yes. Also some follow-on questions. I know that you are primarily may be active with foundries and IDMs, but do you also see an increasing demand from your old thoughts where we hear, let's say, also fully booked.
Yes. And that's not unusual. If you understand a bit how the industry is structured, clearly, IDMs drive the development road maps. And at some point, subcontractors are used for capacity expansion. So in a cyclical downturn, when that ends for mainstream products from previous cycles, volumes are increased at subcontractors. So you usually see first ramp at the subcontractors of, let's say, existing products, new product launches will develop in the next cycle and will at some point be loaded also at subcontractors. So today, with a major ramp underway. Subcontractors are enjoying this industry upturn and also IDMs are starting to expand newly launched products and increasing capacities also at subcontractors.
So strong demand from all 3 parts of the market at the moment there.
Yes.
On the cycle at all, I think in previous calls, you said one or -- of the meetings we had, you said this cycle could or there will be larger because 5G is a really big driver because you have to package not only radiofrequency ships difference nearly everything because of the signal is very -- could easily may be disturbed. And on the other side, we have also -- a big move to artificial intelligence, cloud and EV, others in hotel, a lot of big drivers, which are all user -- maybe they eat a lot of semis. So for -- in general, without knowing how the strengths will redevelop over the quarters and the half years, but in general, this cycle seems will be a really big one. Nigel called it recently a major cycle, is that right?
Well, what you do not mention, but what is shared by many, is that due to this COVID, imagine working from home model, the online shopping which was, of course, on the road maps of many, but that has been accelerated. That has been pulled forward. And I dare to say thank you to this pandemic, although it's horrible for many people. But that has accelerated the technology road maps, which many people sort of predict that, that is the basis for a stronger cycle than usual. But again, here, a note of caution. We have heard all these theories many, many times.
This is somewhat different.
Of course, we all benefit and we have a business model, operating model that we can benefit, but we are all in a phase now that we try to explain why this time, it's more than last time.
But there are good arguments at the moment, let's say it this way.
Yes, certainly.
Another market we didn't mention. I don't know exactly how strong you are, but you always -- you also count LED as a potential market, and there seems to be a big upswing in LED due to micro-LED. Therefore -- mini-LED, first mini-LED has backlighting. Is it also something you could benefit going forward because Kulicke & Soffa in the recent call was extremely positive on this market.
Well, that's also very interesting. If you simply look at our industry, you have many technologies, and one of them has always been LEDs. And of course, there's a drive towards micro-LED, which could require or will require high placement accuracy. But then in this role, LED, over the years, it's a volume and lower technology application field with many risks. And we are certainly involved in the development of micro-LED applications. Still, it's the earliest 2023, '24, and many hurdles still to overcome. Also choices to be made, is it single? Is it multiple with a matrix? Is it what technology is used for placement? So as we have said many times, the new growth drivers for our equipment in sequence is for flip chip memory is the closest pie, hybrid shortly. Thereafter following, as we discussed in an answer to an earlier question, this year, further qualification, mainstream production 2022; and then micro-LED out further in '23, '24.
Okay. Maybe a follow-on on hybrid bonding. How big could be this market?
Well, it could be a very -- if you imagine that the high end processes today are placed on to substrates carriers. And if this will be replaced by wafer level, so hybrid bonding in many variations, also chipsets, chiplets, and that's why this market is expected to go beyond the EUR 4 billion, which was the maximum for the past 10, 20 years. We never passed EUR 4 billion. And now we should reach EUR 5 billion. The only reason for that is more complex technology, which leads to higher ASP solutions because of more complicated machines. So that answers your question. It is a higher CapEx. And in a similar way, it's easy to compare when the first steppers were sold in '85 or '86 ASML, they were $2 million lease, and everyone was saying, oh, that's a lot of money. And today, $150 million. So over those 35-plus years, technology increase has caused ASP increase. And the same will happen in ever either specs in placement of dice.
Also said back end most more important. And your -- for example, your cooperation with flight materials, is it the name of the game going forward because back end gets more important at front and then back and more closer together?
Yes. So because in a very simple way to explain that, in back end, as we have used many times interconnector, we place chips onto something which brings it to an end application. That placement technology is not available in front end. In front end, it is physical processes, chemistry, materials. So the combination of building chip structures with individual devices is the handshake between the front-end and the back-end.
Okay. Very clear. So really last question is a topic, which is very hot at the moment that all regions try to build their own semiconductor industry or build it up. So for the discussions in Europe, the discussions in the U.S., the discussions about new fabs of TSMC in the U.S., in Europe. You are have short lead times, you come later in the cycle. But do you believe there could be a next big wave investments coming for the whole industry also for you maybe in 2020 tools and follow-on because of this attempt to derisk the supply chain and get less dependent on Taiwan, which is also political, a little bit dangerous place looking to the ambitions of China.
Yes. Well, you have said it in the best way. And it's very clear that, that development will continue in the years to come. But the key question is what will be the impact on global GDP? We can all dream of building fabs here in the Netherlands or in Frankfurt. The question is our end markets grow. But that is definitely what we hear and see. So it also is very interesting that it's not only one way street to Asia that we will have, again, a more global infrastructure for semiconductor manufacturing.
Had you already contact with politicians on this topic? Or as the first talk with the front-end guys?
No, no, no, it's very interesting. You asked that question. Of course, we have been contacted, and they asked a simple question, what can we do to help this because they are interested in every country, the Netherlands, Switzerland, Austria. So that's very active also in the U.S., not to forget.
The next question is from Mr. Michael Roeg, Petercam.
I only have 2 questions left. The first one is on the strong recovery in automotive. Does that have any particular impact on your gross margins other than utilization?
Well, that's also a very good question. And the answer is which you may not like in that sense, depends. Let's say, for new products in the automotive, clearly, the margin potential is at our high-end levels. But there is a lot of power devices, which have been around for many, many years, which need additional capacity. And margins for those applications are a bit more at the medium end. So between, let's say, 50 and 70. So it's a range. It's not one product. But usually, automotive was a much more stable end market. So also in downturns, automotive had less impact than the high end logic and other applications. But that trend was broken last year, where automotive was very weak, which we have never seen before. At the end customer for many years, have been very solid customers. And why? Because automotive is more critical in terms of requirements for safety and security. So since a long time, every product needs to be attached with its history, far more critical than products for consumer end markets. In other words, if your phone doesn't work, it's less critical than your car doesn't stop. So anyway, mix of higher-margin and more medium margin.
Okay. But that also means that in the long term, say, 5 to 10 years, that the ongoing electrification will basically benefit you and all the other players because the share of power chips and other stuff will become more important.
Yes, yes, yes. Certainly, certainly. And also the environmental requirements. Don't forget the amount of waste in semiconductor applications is under a lot of pressure, and that requires new developments and new developments are always offering the potential of higher margins.
Good. No. Then my second question. Last year, you had 22% sales growth, but your working capital was flat. Do you think you can keep it that way?
Isn't that amazing?
Yes. It is.
Again, it has to do with our ramping capabilities. We did increase our inventory a bit because of the risks of COVID. So what we now typically do is reorganize our inventory for next quarter sales at the early part of the quarter. So to minimize the risk of not having components available in time. I forgot to answer that to an earlier question, you can also see that our inventory is about 10% higher because of that decision. But if you look at the cash turns in our company, it's amazing.
Yes. And you mentioned just like on previous occasions, you have multiple sourcing, so there's not really a risk that there is something that you can't get? What's your biggest worry from that viewpoint now?
Well, there are 2 typical risks. One is unpredictable, whether suppliers in any country, are facing a lockdown due -- or temporary lockdown usually10 days because of a small COVID explosion. We've had that with several suppliers. But that has then been resolved and it doesn't last longer than 10 days. But there's another risk of the shortage of components. In every up-cycle, we've had certain issues with critical bearings, guide rails, certain camera modules. So far, so good, as I mentioned to earlier questions. But -- so to answer your question, there are -- in the past, you could say, well, you did not have the first risk of an explosion of positive test in a supplier, but you always have the risk of the availability of components.
Okay. That's -- yes, so far, it seems to be manageable.
[Operator Instructions] No further questions at this time, sir.
Well, then I thank everyone for joining us in this call. And if you have any further questions, don't hesitate to contact us, stay safe, stay healthy and have a nice weekend. Thank you all.
Ladies and gentlemen, this concludes the Besi's results call. Thank you for attending. You may now disconnect your lines. Have a nice day.