ASM Pacific Technology Ltd

HKEX:522

Earnings Call Transcript 2018-Q1

[Operator]

Good morning, ladies and gentlemen. Welcome to the conference call. Leonard, please begin the call, and I'll be standing by. Thank you.

[Leonard Lee, executive]

Thank you. Good morning, ladies and gentlemen. Welcome to the ASM Pacific Technology 2018 First Quarter Results Announcement Investor Conference Call.

Before we proceed, I would like to note that during this conference call, there may be certain forward-looking statements with respect to ASM Pacific Technology's business and financial conditions. Such forward-looking statements may involve known and unknown uncertainties and risks that could cause actual results, performance and events to differ interiorly from those expressed or implied during this conference call.

For your reference, the IR presentation related to our Q1 results can be downloaded from our website, asmpacific.com.

With us this morning are Mr. WK Lee, CEO of ASM Pacific Technology; and Mr. Robin Ng, CFO of ASM Pacific Technology. We will start with a brief discussion about our 2018 first quarter results, followed by a Q&A session.

Without further ado, let me hand this over to Mr. WK Lee. Mr. Lee?

[Wai Kwong Lee, executive]

Thank you, Leonard. Good morning, and good evening, ladies and gentlemen. We appreciate you joining us for our 2018 first quarter results conference call. I will first provide you with a summary of our first quarter results and followed by the Q&A session.

We are very pleased to report that we received a record booking of USD 754.2 million in Q1 this year. The booking was much stronger than what we have anticipated at the beginning of the year. Booking of the Back-end Equipment Segment was particularly strong, which surged 82% quarter-on-quarter to a level that exceeded USD 400 million. It's the highest booking that this segment has ever received in the first quarter of a year. All 3 pillars of our Back-end Equipment Segment, namely the IC/Discrete, optoelectronics and CIS, registered a strong booking rebound quarter-on-quarter.

The strong booking for active alignment equipment reaffirms our belief that customers will continue to add new capacities for the active alignment of new cameras and 3D sensing modules for the smartphone.

Booking of the SMT Solutions Segment, which attained a new record in Q1, was unexpectedly high in spite of the absence of the big order relating to the smartphone upgrade cycle. Booking increased strongly by 32.4% quarter-on-quarter and 40% year-on-year, respectively. The industrial electronics and automotive market continued to drive booking of our SMT Solutions Segment to a high level.

Booking of our Materials Segment grew 11.4% quarter-on-quarter. However, it contracted 16.7% year-on-year. The year-on-year contraction came no surprise since booking of the Materials Segment in Q1 last year was at an exceptionally high level.

Our strong booking momentum in Q1 this year reaffirmed our belief that the semiconductor industry has entered into a different range. For the past 10 years, the industry was mainly driven by the growth of smartphones. Now the industry is driven by multiple growth drivers such as IoT, industry automation, robotics, smart factory, power management applications, automotive, smart city, cloud computing, data center, artificial intelligence, big data analysis and smartphone. Together with 5G mobile network, these diversified applications will spur up demand for semiconductor devices and our products.

Group billing in Q1 this year amounted to USD 551 million, assuming if there's no change to the accounting standard. It represents improvement of 14.6% and 1.9% against the same period last year -- last quarter -- Q4 last year. It's the highest Q1 billing that the group has ever achieved. In fact, all 3 business segment of the group achieved the highest Q1 billing in their history. Book-to-bill ratio for the group was 1.36.

Gross margin of the group was 37.6% in Q1 this year, representing reductions of 234 basis points and 176 -- 167 basis points over the same period last year and the preceding quarter, respectively. The reduction was mainly related to product mix. Gross margin is expected to bounce back to a higher level in the coming quarters.

While the strong booking -- with the strong booking on hand, we expect group billing in Q2 to be in the range of USD 650 million to USD 710 million. For Q2 we expect group booking to achieve a single-digit percentage year-on-year growth. Supported by this high turnover, we expect gross margin of the group to improve over Q1 this year. Riding on the big wave, the group is executing strategies to invest in new growth areas.

With the recent acquisition of TEL NEXX, we further expanded our offerings in the advanced packaging market. We believe that going forward, more greater effort in semiconductor devices will shift from wafer fabrication to advanced packaging. When the industry moves to wafer nodes of 10 nanometer and below TCB or RDL, we will become the only viable interconnect technologies. Our unique product portfolio will enable ASMPT to capture the growth opportunity.

On the other hand, Silicon Photonics is the key technology to facilitate ultra high-speed data transfer within data centers. Our acquisitions of AMICRA immediately positioned ASMPT in the leading position in the Silicon Photonics market. According to forecast, Silicon Photonics transceiver market will reach USD 1 billion in about 2 years' time and will grow to be a multibillion dollars market by 2025.

The semiconductor industry is experiencing a super cycle driven by broad-based drivers. We believe we have well prepared ASMPT to capture the opportunities. Our leading market position in the CIS, LED, power management, automotive and industrial electronics market will fuel ASMPT's short to medium-term growth while our investments in advanced packaging, Silicon Photonics, memory and the mini and micro LED markets will enable ASMPT to achieve sustainable medium- to long-term growth.

With this, I thank you for your attention in our results announcement. We are now ready to take your questions.

[Operator]

[Operator Instructions] Our first question comes from Steven Pelayo from HSBC.

[Steven Pelayo, analyst]

Congratulations on the very strong bookings in the first quarter. That's actually what I'd like to ask you a little bit more about. It looks like your guidance for the second quarter is actually suggesting that these bookings cannot sustain at a very high level. Can you comment on bookings going into the second quarter here, where it's likely to come from? Do you expect bookings to be up in all the segments or is there one area of relative strength? Just any thoughts on the sustainability of the bookings guidance going into the second quarter?

[Wai Kwong Lee, executive]

Okay. Yes. Thank you, Steven. Well actually, as you know, booking forecast is really something difficult to make -- to be very accurate. But however, we -- judging from the projects we have with various customers, our prediction -- our projection is that the momentum for CIS and LED will continue. Likely, booking for these 2 segments will be even higher in Q2 than in Q1. I see this thing will sustain at a high level. It may or may not exceed Q1. This materials booking are -- different booking probably sustain. These SMT booking probably will continue to be at high level. It may or may not exceed the very high level in Q1. So overall, based on summing up all those forecasts we have, we are still seeing a good opportunity the booking in Q2 will achieve a single digit percentage in year-on-year growth but will be difficult to predict -- have an accurate comparing it to Q1 this year.

[Steven Pelayo, analyst]

Yes, I understand. One more question just on the competitive landscape. And I'd love for you to talk about from 3 different areas. You're talking about making some inroads into the memory area. So could you talk a little bit about memory, the contribution, kind of first half versus second half or all of 2018 how you're doing in the memory area? And then also the competitive landscape in areas like LED and advanced packaging, obviously, the competition's making a lot of noise there as well. So I'm curious to hear your thoughts in really those 3 areas, memory, LED and advanced packaging.

[Wai Kwong Lee, executive]

Well, for the memory, we still put it into the category driving our medium to long-term growth. So to be honest, I will say the contribution from memory at this point in time is still small, okay? So -- however, we are having various programs to address it. So we are looking forward to some these programs will result into significant opportunities for us to drive our medium-term growth. For the advanced packaging, we are really making very good progress. I think customers -- this one important customer, actually, immediately welcome our move to acquire AMICRA, okay? As we shared, AMICRA is very strong in this Silicon Photonics market. But AMICRA is also -- the company being recognized very capable to supply sub-micron high accuracy die-placement machine. However, in the past, AMICRA was a very small entity, so large customers were concerned to work with such a small company for some of their big programs. So this time, with the acquisition by ASMPT, we totally changed AMICRA's position. And also immediately put ASMPT into such a position that this customer want to work with us. While I will not try to guide you, it will immediately a significant upside potential for us in 2018, but it will pave the path for us to work with some major companies in advanced packaging to tackle some of those very high accuracy area. So besides that, in our Q4 results announcement we already shared with you, actually in the advanced packaging business, we are working with 20-over even customers or their factories. Some of the cases will be multiple factories with the same customer. But basically, we have the various programs working with 20-over customers or 20-over factories in the world. So this -- all this will become very important in our long-term growth. And we're also seeing some very good momentum of our TCB application. It seems to be our TCB solution is taking more and more momentum. Many more customers want to evaluate our TCB technology for some very solid applications. Although they are still at the qualification stage, but we are really expecting some of them will turn into this commercial success. So I think overall, we believe in this advanced packaging, we are in a very good position. Now in this CIS, and actually, well, remember last year, some of you guys were concerned after the very strong result for CIS, "Will your customer continue to buy active alignment machine?" I can tell you, based on the Q1 booking momentum, it is -- and also customers are giving us an even stronger booking indication for Q2. But however, I think everybody knows the market dynamics of the smartphone -- the assembly supply chain in the smartphone shows weakness. Everybody knows this situation. But despite this global supply chain situation, we still have a very strong booking momentum in CIS and actually, we -- today, we are really stumbling to satisfy customers' delivery requirement in Q2. So we feel very comfortable. And actually, we also have been working with varied customers in a lot of new camera configurations. This will be introduced to the market, in our opinion, in the next 2 to 4 years' time. So we are excited about that. Now the other area will be LED. LED, we see -- as I have shared with many of you, we expect the LED market would rebound, it does, and bolder LED general lighting and LED display panel continue to drive the market. To a lesser extent will be the mini LED for the -- for these backlight applications, but this is for a smaller extent. So basically, these are the drivers, and we see the LED will continue to be strong for a period of time.

[Operator]

Our next question comes from Kyna Wong from Credit Suisse.

[Kyna Wong, analyst]

So I want to chat with you on the gross margin in the first quarter and the coming quarters because the first quarter, the weakness is due to the product mix. But can you tell us, like, what kind of product that you see the impact -- is actually causing the majority impact, is that the LED product? Or -- and in the coming quarter, what do you see the recovery in the gross margin? That's the first questions. And the second one is actually your view on the likely trade war that we'll see. ASM is in a position to benefit like the accelerations of Chinese semiconductor equipment industry, et cetera?

[Wai Kwong Lee, executive]

Well, for the gross margin, as I mentioned earlier, it's really -- for the mix, it is not easy to identify to, say, LED. Yes, in general, LED has a slightly lower gross margin, but actually, our customers also are buying more and more high-end LED equipment from us as the size of LED is getting smaller. So customer also is looking for fine pitch LEDs. So -- but in general, LED do have a -- LED equipment do have a lower gross margin. Let me also -- we also see, it could be related to exchange rate, we are still in the process of really making a detailed analysis on the extent of the effect. As you can see, if I put it this way, for the SMT gross margin, I would say probably the exchange rate appreciation [indiscernible] has a stronger contribution to the deterioration of the gross margin. So there's a combination of this. However, we're looking at the shipment portfolio in Q2, there will be more equipment relating to CIS, advanced packaging will be shipped in Q2, so that will help the gross margin also. On trade war, the effect of trade war is difficult to predict at this point in time. If we're looking at our portfolio, our shipment to U.S.A., we don't see a significant potential direct impact on us. Our SMT machines are mainly shipping out from Europe, some machines are shipping out from Singapore. So from that perspective, we are not really facing a direct threat of the tier-1 list. However, we also noticed that the tier-1 list has also identified a lot of semiconductor devices and also, you see now the recent happening between ZTE, the NXP, QUALCOMM, all these. So we are not able to really evaluate what will be our indirect -- what will be the indirect impact to ASMPT's business. In the longer term, will the trade war benefit ASMPT because it will accelerate ASMPT's -- accelerate China's semiconductor industry development? Yes, I think that's possible. It may also make more companies be thinking about their global footprint in the manufacturing bases. So I think in the longer term, I expect, in general, capital equipment company will benefit, but in short term, in my opinion, everybody will suffer.

[Operator]

Our next question comes from Mr. Bill Lu from UBS.

[William Lu, analyst]

So

[Audio Gap]

now at the USD 650 million to USD 750 million level. Can you talk about your capacity? How you are positioned? And what does this mean for additional CapEx and expansion plans?

[Wai Kwong Lee, executive]

Okay. We're actually in the process of building expansion to our Malaysian factory at this point in time. It was started last year already, due to be -- the building due to be complete by end of this year. So this will help us to expand our capacity in both back-end equipment, SMT as well as materials. So that will be one of the area we are working on. For the past few years, the company has been aggressively going for the direction of outsourcing, external manufacturing. It really helps us in terms of flexibility and even, as I was saying, in terms of supporting our cause. So this will continue. However, today, our biggest challenge in meeting the high expectations of the customers is the [ components ] quite high. It seems to be there is a worldwide shortage of some of the critical mechanical components such as bearings, linear sliders, linear guides, even stepping motors. Suppliers are quoting 9 to 12 months' time of delivery time. So this is a challenge, I would say, the whole world is facing. So it could mean both opportunity and threat to companies like ASMPT. The threat is we are really facing this high challenge to meet customers' delivery expectation. On a positive side, probably more factories need to be built by many other people that will drive up the demand for semiconductor, the demand for automation, the demand for ASMPT's equipment. So it's a mix of effect at this point in time.

[William Lu, analyst]

Got it. Related to that is, with this new higher revenue level, now I understand the business is different now in doing more outsourcing than before and there's also a mix issue. But with this new run rate, what should we expect for gross margins kind of structurally? Is there a new guidance given that the drop-through should be pretty good?

[Wai Kwong Lee, executive]

No. Excluding the short-term effect, we will expect one way is to structurally show us to improve our gross margin and improve our profitability due to this economy of scale. However, short-term impact would be, as I mentioned earlier, with the worldwide shortage of critical components, we may have to stock up our inventory, we may have to pay a little bit higher price, for certain cases, to secure supply. So I would not expect, short term, we will benefit too much from this higher scale, but on a longer term, it will definitely help us.

[William Lu, analyst]

No. I totally understand. But let's say in a year's time revenue is still at, say, USD 650 million to USD 750 million, what should we expect for gross margin?

[Wai Kwong Lee, executive]

I don't have a quantitative number to share with you. But certainly, we expect it to improve. I would not be surprised if you tell us to [ jack up ] the gross margin to -- 1% to 2% just because of this factory overhead is lower on a per dollar sales basis. Some of those scale of economy will help us, but I do not have a quantitative number really to share with you.

[Operator]

Our next question comes from Mr. Arthur Lai from Citigroup in Hong Kong.

[Arthur Lai, analyst]

This is Arthur Lai and congrats ASMPT to be recognized as a Top 100 Global Tech Leader. I have 3 questions. Number one is on the advanced packaging. So TSMC yesterday just guided the increased capacity in EUV in 7-nanometer. And also, WK just mentioned that going to a 7-nanometer, then TCB and RDL will become the must. Can you elaborate in this future technology who is your major competitor? And also, in that demand environment, what equipment ASP or the contribution to our company? That's my first question.

[Wai Kwong Lee, executive]

Okay. Thank you, Arthur. Well, for the TCB, actually, there are not too many competitors. They have 2 Japanese company over there, but actually one of them is an early participant in the TCB market. The other is a newcomer. Then there is a -- 1 U.S.-based company, but I don't think they have really opened up their penetration to the TCB market yet. Then there is another European company. They do, I would say, a bit of both. One a memory maker. So however, today, we see the interest in our TCB bonder by many potential customers. This are really -- the logic seems to be Artificial Intelligence are really driving up the demand for high-performance computing, and more and more customers start to recognize that a combination of TCB, and maybe also fan-out, using RDL, may be a solution to really package high-performance computing chips together. So this is very unique because when the nodes are so small, these low mold flip chip bonding will no longer be sufficient. You need a very high accuracy bonder and also for the low mold flip chip bonder, after you put the chip over there, you go into an oven for this solder before. But during this solder before process, the chip actually, once the solder melt, before the solder solidify again, they'll be solidified again, actually the whole chip moves. So you can imagine with chips, they have maybe tens of thousands of I/O, one of the I/O have a poor connection already caused you loss and these chips are very expensive. So that's why one of our customer, a leading customer, came with the idea of TCB bonding. So the TCB bonding, the major difference is 2. One is the accuracy of the placement. The second is that we don't need to go for a solder before. The solder before is actually a bond on the TCB bonder itself. So the bonder will ensure the solder melted and we solidify so ensure a very good connection over there. So that's why, from our customers' experience, our TCB seems to be really the solution for this kind of high-performance computing interconnection. So today, the people moving to 7-nanometer and we understand certain end customers are pushing really hard to -- for this 5-nanometer solution. So it is in our opinion, when people move on to these kind of applications, TCB really is the solution. And then the [ out-year ], we'll be the one for them to really package the size of the processor itself, memory chips, other passive components together. So this combination of TCB and this RDL, in our opinion, is a must. The low mold flip chip bonder will no longer -- will not to serve the market.

[Arthur Lai, analyst]

Okay, very detailed. And can you also, on the regional breakdown, we noticed that Malaysia this quarter has about USD 315 million and also Korea also is at USD 180 million, quite a significant jump from last quarter. Can you elaborate what's the application inside of this regional increase? And also, we also noticed that the company from this quarter no longer provide others regions. Is that the common practice will continue in the future? That's for our modeling purpose.

[Wai Kwong Lee, executive]

Well, I do look at the detailed breakdown here for the Malaysia and Korea. I think nothing we did stress more for -- reflecting the general market are very strong. The Korea market, partly also due to some -- a very small part of it due to some -- we had to follow the accounting standard. But this is not a big part of it. But I don't really have anything special to share with you here.

[Arthur Lai, analyst]

Okay, okay. So going forward, it's only -- the company will only disclose the 5 region instead of 9 or 10, right?

[Wai Kwong Lee, executive]

No. For the half year result -- at the full year result, we will provide a more detailed account.

[Arthur Lai, analyst]

Okay, okay. We appreciate it more in detail. And lastly is on the laser grooving and the dicing. I think last quarter you especially mentioned in this product line you have seen some significant breakthrough. Can you talk about the application and also the competitive dynamics? Last time I visit the SEMICON Shanghai and I also learned from like this driver IC for the full screen to use a lot of laser grooving and dicing machine. I want to -- I am keen to know your view.

[Wai Kwong Lee, executive]

Well, this business do -- developing very positively as we have shared with you. It was a record booking for us for this business so we're busy in making a delivery. And booking momentum for the laser business in the first quarter of this year come to be very positive. Today, we are still very much focused on semiconductor applications. These are various applications. I think today, driving our business for these driver ICs, those type grooving applications. However, we have a higher number of projects with different customers, especially in the preparation for the memory of thin wafer -- thin memory wafers, I think. So these are one of the potential interesting applications going forward.

[Operator]

Our next question comes from Mr. Michael Chou from Deutsche.

[Michael Chou, analyst]

Just 2 questions. You mentioned the TCB potential market. Do you have any color for the potential TAM over the next couple of years? Because, as you know, TCB is mainly used by CPU applications. So if any new application which can have a very big volume of CPU in the future. You mentioned HPC. Would that be a big enough such stimulus feature in the future? What is the potential TAM for your business going forward?

[Wai Kwong Lee, executive]

Well, Michael, it's actually we -- it's still a bit difficult to really come over a reliable estimation for the TAM. But as I mentioned earlier, we really see the trend of AI driving the high-performance computing. Now this time, the AI is not really talking about [ omni-servers ]. People are talking about AI capability and the end product, the end terminal. So the high-performance computing no longer only talking about the server chips. So I can't share with you the customer name. If I can, you will see the excitement over that, but I can't share with you. So we see customers are really taking this now very seriously. If this process has proven to be applicable in the application of future AI processors, will be -- these are advanced -- this TCB technology, that will be the interesting part. So a lot of it could be -- it could be a big market.

[Michael Chou, analyst]

One follow-up for this question is, would that kind of application also consider TSMC's CoWoS rather than TCP?

[Wai Kwong Lee, executive]

Again, as I mentioned, I can't name the customer there, okay? But if you follow the market and analyze who are the chip makers really advocating driving for AI processors, you may have a clue.

[Michael Chou, analyst]

Sure, sure. Okay. Second question is regarding your fan-out solution. Do you have any color for your fan-out growth outlook over the next couple of years, given that you continue to make some progress in improving your product profile? So what will be the outlook over the next couple of years there?

[Wai Kwong Lee, executive]

For the -- some of those customers, we are working with them on the panel-level fan-out. We do expect them to take off soon. Some of these customers are giving us an indication that they are expecting to ramp-up their production within this year. So of course, we can't judge beyond what we are being told. So we do expect some of them will take off. That will be one of the case. We also see more customers investing in this area. We do see a newer generation of fan-out design coming out that seems to be more cost-effective now. So as I mentioned earlier, then, the industry really has to go to 10-nanometer and below, actually. There's no other choice. There's no other choice for that. So I think a better way to track this potential will be to track the estimation of -- in the next few years, the number of wafers will come out -- coming out under this new technology [ lots ]. That would be a good indicator of the potential of this market.

[Michael Chou, analyst]

Your fan-out solution, regarding the panel and the wafer level, which one will have a higher revenue chance for you in terms of product profile?

[Wai Kwong Lee, executive]

Well, actually it could be both, because different customer has a different approach. Some customers they are more, I would say, focused a bit more on wafer label kind of applications, although they call it wafer, but actually you can call it small fan-out. But other customer, they come straight to large panel. So in our opinion, both will take off.

[Michael Chou, analyst]

Can we say the panel-level fan-out will be still a niche market over the next 24 months? Or you do see some big-volume products coming out over the next 12 to 24 months?

[Wai Kwong Lee, executive]

The increase -- if I cite an industry well-known application, the TSMC InFO, I do not know whether you want to classify it as a niche or mainstream.

[Operator]

Our next question comes from Kevin Zhang from JPMorgan.

[Yashen Zhang, analyst]

I have 2 questions. First one is related to ZTE. So what's your exposure to ZTE? And your outlook of the business at this time? And the second question is about ASMI's holdings. As we are approaching the end of their lock-up period, are there any colors about their future plan on ASMPT shares?

[Wai Kwong Lee, executive]

Well, for the -- you said ZTE. We -- there is definitely a -- they are an electronic system maker. So you can imagine they-- well, they are one of our customers mainly for this SMT equipment. So there could be a direct impact if their business be affected. At this point in time, it's really too early to know anything. However, they are already in a direct basis. But if there's any impact, even indirect impact will be far bigger than the direct impact. Now I'm also reading from the news media. I understand, actually, according to the news media 20% to 30% of ZTE's components are purchased from U.S. companies. These U.S. companies are really not able to supply ZTE for these components. Then naturally, the ZTE may have to look for alternate sources. So with that, actually, this 30%, 35% components supplied by this U.S. company could be ASMPT's customer at the moment. So how this U.S. company will react to this, we really don't know. So I will say, if there's any impact to ASMPT, it's more on this indirect impact. But on the other hand, I'm not too concerned about this indirect impact, because if this really develop into that picture, this is a much bigger thing already. And if you'll focus on that, people are sensitive enough to avoid that kind of large scale tremor. So hopefully my mostly speaking is correct. So that's the scenario. But we will continue to monitor it and provide investors up-to-date on information if there's any significant impact to ASMPT. On ASMI part, we will not be able to provide you any color because ASMI is one of our shareholder. They have no obligation to inform ASMPT in advance what they want to do. At this point in time, I think, what I can share with you is that I really know nothing about their plan, their development in this particular area.

[Operator]

Our next question comes from Mr. Simon Woo from BoA Merrill Lynch.

[Simon Woo, analyst]

First question should be CIS. This seems to be growing very strongly in the past couple of years. But the question is, as you pointed out, China smartphone demand now is strong. Yesterday, TSMC also mentioned that the near-term momentum looked good. But how do you feel the overall CIS, the related equipment demand outlook given the fact in the past couple of years, I think your customers already installed a lot of the machines for the CIS model? That's the first question.

[Wai Kwong Lee, executive]

Well, if I read the announcement of TSMC correctly, they have yet been affected by the smartphone market. But at the same time, they pointed out the China smartphone actually is picking up, okay? We see the benefit. We see the benefit. So for the first quarter booking of -- or even for the first half activity, we feel the China smartphone are catching up, whereas the first-tier smartphone are taking a back seat this time. So that's also normal. Typically, the first-tier smartphone makers are the technology leaders, the market leaders. They are setting the technology trend. And then after that, the rest of the phone makers start to follow. So we see more and more people start to work on and tend to use new generation smartphones come equipped with all these new generation camera modules. So that's why I think we still continue to see strong booking for our active alignment machine. People are working on various solutions for the new generation of camera. So this will, in our opinion, will continue, yes. On the other hand, we also expect the first-tier smartphone makers are probably making an adjustment only because we're expecting more newer generation smartphone will have got the latest technology. So I think in our opinion, smartphone market -- the CIS market will continue to be strong for a couple of years.

[Simon Woo, analyst]

Okay. So lastly, the question is you mentioned that the advanced packaging-related business was strong. So may I ask, it's more related to the AP chip-related or maybe some different area, maybe memory or some special chips? So the question is, what kind of the chips for the advanced packaging area for your machines?

[Wai Kwong Lee, executive]

Now, well, I think the development for advanced packaging for us is really encouraging. We are very excited about those progress we have. However, in terms of revenue contribution, it's too small. So that's why, in my conference call earlier, I also put it into particularly of driving medium- to long-term growth more than the short term. But we see definitely AP is one of the area. I mentioned about a AI processor is another area we are seeing customers are gradually working on it. We also agree customers are driving to use the panel-level packaging for PMIC, the power management ICs. We know in the road map there are plan to adopt this kind of advancement for memories. So well, they are a combination. And also, we see for the last 2 years actually, SIP is really having a very strong momentum. It benefits not only our Back-end Equipment Business but also our SMT business. So at this point in time, these are the -- certainly, the server CPUs are one of the major [ attributes there ]. And then another area many customers are really putting in a lot of effort to work on is the high-bandwidth memory. So at this point of time, these are the few end applications being identified by our customers.

[Operator]

Our next question comes from Donnie Teng from Nomura.

[Donnie Teng, analyst]

My first question is regarding the outlook for different business segments. Could you elaborate more on the year-over-year growth momentum by different segments like LED, CIS, IC and SMT in the first half?

[Wai Kwong Lee, executive]

Well, SMT, we already provide those detailed breakdown. So it's relatively a strong year-on-year booking growth momentum for SMT year-on-year, especially, it was 40% growth. So for the back-end equipment, it was also a 25.3% growth in booking year-on-year. So only materials has a 16.7% year-on-year projection. But as I mentioned in the conference call earlier, this year-on-year projection was expected because booking for Q1 last year was at exceptionally high level. So we are not concerned about that. But in terms of a more detailed breakdown, so in the SMT, as we mentioned, it's really the industrial electronics and automotive driving the market. In the back-end equipment area, the IC/Discrete is very strong. LED also very strong. For this, CIS has strong Q-on-Q demand. However, on a year-on-year basis, it's a small part, it's a contraction. However, with the strong booking indication customers given to us for Q2, so we do expect, on a 6-month basis, there would be not a very significant difference between -- for the CIS booking between this year and last year.

[Donnie Teng, analyst]

Okay. So can we say that in back-end business, so LED and IC/Discrete should have more meaningful year-over-year growth momentum this year compared with CIS. Is that correct?

[Wai Kwong Lee, executive]

Yes, yes, yes.

[Donnie Teng, analyst]

Okay. And my second question is regarding to the -- your structural growth businesses. I mean, is it possible that you can quantify how many sales percentage from structural growth business -- I mean, such as advanced packaging size business for 3D sensing and automotive, et cetera? I would like to have more colors on how big the structural growth business account for the total sales right now and your outlook in the future.

[Wai Kwong Lee, executive]

I'm not able to provide you this kind of complicated analysis at the moment. Well, let's see. We'll see how we can provide investors some color in this way. We'll take your request into consideration, see how we can come up with some numbers maybe in the next quarter.

[Donnie Teng, analyst]

My last question is regarding to China's National IC Fund. I think they will soon have a Phase 2 of the IC fund to invest in some new semiconductor companies, and they probably will focus more on material and equipment companies in the future as China now is lacking of these kind of good companies. So I'm wondering if we have any discussion or if we are viewed as domestic equipment vendors in China and whether we can have more opportunities to find some new investment from China government.

[Wai Kwong Lee, executive]

Well, we understand we are certainly not being considered as a domestic company at this point in time. Probably we are still a foreign-owned company. China is a big market for us. Actually, we have -- we account for around 40% to 50% of the market. So we have good relationship with many customers in China. We support many of their development program in terms of -- including the [ inter-company ] development program. We certainly continue to look for opportunity to further expand our market position in China. So I think that's what we can share with you at this point in time.

[Operator]

Our next question comes from Jean-Louis from Haitong in Hong Kong.

[Jean-Louis Lafayeedney, analyst]

Just a couple of quick ones. First one, considering this year is shaping up to be very nice, what can we expect on the dividend? Have you got an outlook for us there, please.

[Wai Kwong Lee, executive]

Okay. As you're probably aware, we have adopted a new dividend policy of a sustainable and gradually increasing dividend policy. We believe we will stick to this one, so we would not have a significant deviation from this policy. And people also have been asking us about the buyback, the convertible bond. So as we have communicated, our hope then is that for the $300 million convertible bond, we -- our intent will be to spend an increasing amount of money on share buyback. If there will be any remaining cash, then we will be -- we will consider some kind of special dividend. However, the CB will only expire by March next year, so I don't think the board will make any decision of any special dividend before that. So in the meantime, probably we will continue our share buyback program.

[Jean-Louis Lafayeedney, analyst]

Yes, okay. That's clear. Just one last question. Just in case we get, let's say, a crash in demand for crypto-related spending this year, what kind of impact would that have on your business, do you think?

[Wai Kwong Lee, executive]

Well, actually it has been happening. But its impact on the assembly equipment is not very big, okay? Actually, it generates some demand on, for example, flip chip bonders. There's typically the assembly technologies using flip chip. But most of our customer actually trying not to buy new equipment for these applications. I think everybody know there's always a certain risk factor associated with this part of business development. TSMC highlight this part. So when we talk to our customer, we feel something. So customer, the first policy will be trying to allocate their existing capacity to satisfy this demand. However, as a whole, the assembly equipment industry [indiscernible] but the impact is small.

[Operator]

Our next question comes from Stefan Chang from Maybank in Taiwan.

[Stefan Chang, analyst]

Just 2 quick questions here. The first question is still about the gross margin. I understand you mentioned several factors already in the call, but I just recall that at a luncheon after the last quarter results, you did indicate that last year gross margin could be a good reference for us when we are doing our model. But now Q1 is already lower. So considering all the factors we are seeing now, do you think that comment is still valid for us to do our model?

[Wai Kwong Lee, executive]

I will say probably what really changed a little bit is the exchange rate impact. The mix is not a concern -- too much a concern for us because quarter-on-quarter, there is this lateral mix variation. So it will self-correct as we develop in the year. However, this currency is part of the factor, being a bit more from what we anticipated in the beginning of the year. So you have to adjust your model. I think you probably can factor this into [ conversation ] in adjusting your model.

[Stefan Chang, analyst]

Very clear. And also, just a quick follow-up on the previous question. So you mentioned about the advanced technology and also CIS. So if I don't get it wrong, I think you indicated like for the first half this year, after a strong Q2, CIS may not necessarily be high on a year-over-year basis. But what about the full year?

[Wai Kwong Lee, executive]

Well, full year is really difficult to predict. You know that. The semicon industry really doesn't have that kind of visibility. Furthermore, I think everybody [ would be closest to more ] with how this trade will develop between China and U.S.A. So I will say what happened may come more uncertainty for the second half of this year.

[Stefan Chang, analyst]

Okay. Understood. And sorry, just one very last final one. So for the U.S. and China, the trade dispute, I think one of the item that already listed is LED. But you also mentioned your LED booking now is still very strong. Do you see any impacts from the trade dispute, particularly for the LED?

[Wai Kwong Lee, executive]

We don't know yet. We really don't know. So far, we understand U.S.A. is not the largest LED market. However, it's still a sizable market. So we are not able to ascertain at this point in time how much it will affect our customers' business. It will not affect ASMPT's business directly. We don't really have, I would say, a big LED customer in U.S.A. Even the LED customer in U.S.A., their production facilities are outside U.S.A. So the direct impact to ASMPT will be small. But the indirect impact, we cannot ignore. But at this point in time, we are not able to really gauge how much will be this indirect impact at this point in time.

[Operator]

Our next question comes from Mr. Chris Yim from BOCOM International in Hong Kong.

[Seeching Yim, analyst]

I just have one quick follow-up on the bookings. If I look at your historical bookings, say, 2016, '17, it looks like 2Q is always bigger than 1Q. But this year, it seems to be the other way around based on your guidance. I was wondering if you're seeing any orders being put in because you mentioned component shortage and basically strong demand, right? So are you seeing customers putting in, making their orders earlier? And can you give us the booking outlook for the second half?

[Wai Kwong Lee, executive]

Well, to be honest, the question you asked is also the question we ourselves ask. Whenever we come across our booking, we're also very careful to check whether they are double booking, triple booking. But so far based on our checking, we don't really feel the booking for Q1, they are obvious double booking, triple booking over there. We don't really feel that. It seems to be customers are still very rational. Not even in our material -- booking for our materials. But certainly, this is an area we continue to monitor. On the second half booking outlook, it's really difficult to predict. As I mentioned earlier, I believe all our customers are really closely monitoring this trade war development, closely monitoring each other, how people react. You can imagine if suddenly -- really, if [indiscernible] Have no other choices but hold back their production. They're not only affecting the 20%, 30% component from the U.S. company, but they will also affect the balance, 70% to 80% of component they buy from the non-U.S. companies. So that could trigger many things in the world because the world is closely connected with each other. So I think at this point in time, everybody just have to closely monitor it. Well, as I've mentioned, I'm personally still of optimistic view that people will be rational enough to avoid this, but you really don't know. So I can't provide you a clear outlook about the second half at this point in time.

[Operator]

Our next question comes from Leping Huang from CICC.

[Leping Huang, analyst]

So I think the dynamic CapEx flow, can you comment in China first on demand side? Because the -- now you mentioned policies, right, you localized a lot of the process, both the back end and the front end. And also, I think there's a question before where you said the Phase 2 of the China's National IC Fund. It seems to be with some especially local equipment manufacturers. Do you see any potential competitors in the local market on the equipment side?

[Wai Kwong Lee, executive]

Well, in my opinion, not in the short term. The local Chinese equipment maker has been there for quite some time. I would say they are comparatively much stronger in the LED compared to the IC and Discrete market. I'm not saying they are very strong in the LED, but I'm talking about if I compare those makers, they focus in the LED market. And the makers, they are focusing on the IC/Discrete market. The IC/Discrete market players are very big. The LED market makers -- players, still you can make some penetration into the market. So in the short term, we don't -- we did too much for -- in our area. Of course, in the long term, we do not ignore any one of them. So we take every one of them seriously. We always say internally that you look back 30, 40 years ago, ASMPT was also a very small company. So we can't rule out any one of them can repeat the success of ASMPT. So that's why take every one of them very seriously. On the Chinese demand side, we believe China semiconductor industry will continue to develop. We are aware there's many fabs construction in the pipeline. When these fabs are put into production, it would generate a lot more demand for packaging. So a lot more potential demand for our type of equipment. So we're fully aware and we continue to strengthen our position in the China market.

[Operator]

Our next question -- we have a follow-on question coming from Kyna Wong.

[Kyna Wong, analyst]

I just wanted to ask because you have like first quarter booking and second quarter booking directions. And so far, we probably may see the alignment in revenue outlook this year. Do you see this year will be another strong year? Or do you expect there will be a moderate growth here? Because probably third quarter, we'll see some other -- based on the high base last year, third quarter will be -- not likely to grow strongly but fourth quarter may come with some corrections. So do you see like maybe some kind of first half versus second half deviation of revenue such as last year, some indications?

[Wai Kwong Lee, executive]

Well, with the booking momentum in Q1 and also in Q2, we [ think is exciting ]. So yes, you are definitely correct. With that, actually, we are kind of setting the tone for the 9 months of $1 billion for the book. However, what is happening in the global economy is really something, pose a lot of uncertainty, pose a lot of challenges ahead. In our market, from our experience, people can also make correction very quickly. If suddenly they find they are not able to deliver all those chips, and you can imagine, as I mentioned, it's not only the ZTE, when the ZTE has been [indiscernible] This to many other companies, many other industries. So if this is really the case, many of our customer or their own customer start to react. That is something we can't predict at this point in time. But let's put this aside. Then I will say yes, based on today's momentum, it seems to be our billing for the first alignment of this year will be pretty interesting. A bit too early to predict Q4, but anyway, we do not model -- 2018 will be, overall, on a year-on-year basis. We'll be ending the year on a full year basis, showing a very high growth. We do not model that. We are more -- if there's a goal with more modeling, that kind of situation. Because the industry already have a very strong performance for 2016 and 2017 already.

[Operator]

Our next follow-on question comes from Mr. Michael Chou from Deutsche.

[Michael Chou, analyst]

WK, so one question is, what's your view for your organic growth momentum over the next couple of years? Do you have any idea when you do some internal forecast what is your view for your growth outlook over the next couple of years?

[Wai Kwong Lee, executive]

Well, in this industry, it's challenging to really make a long-term forecast, long-term outlook. However, as I shared on qualitative, we feel we are addressing some interesting market applications. As I mentioned, CIS, we're still holding to our view there. In the next couple of years, because of technology innovation, the CIS market demand continue to be there, okay, despite the [ more order ] for smartphone may slow down further. But the technology innovation will drive the CIS market. And we are in the market. We have a very good position. All the lead customers engage ASMPT for the next few years innovation development. In the LED market, we continue to see -- yes, LED market may have up and down but overall, the trends continue up. The number of LED will continue to increase. So this trend actually also put ASMPT in a very good position because we have a very strong position in this market. So in also already 2 years in a row, almost 3 years in a row, we see the power management market, very, very strong. And we believe this will continue, especially when 5G comes in, when more automotive applications, fast charging, wireless charging, all of this demand comes in. So power management will continue to be strong. And ASMPT also has a very strong position in this power management market. Automotive is another strong market for ASMPT, and we also believe automotive market will continue. The electronic content, electric car will continue to -- autonomous driving will continue to grow. And ASMPT share this market in both the semiconductor and the packaged equipment area. So another important area, we really see, for the last 2 -- 1.5 years already, industrial automation seems to be very strong, okay? Actually, today we are more inclined to interpret the stock [ price ] shortage in the mechanical components I mentioned earlier is due to the industrial automation robotics. Many customers, many companies are deploying the Industry 4.0 solutions. That drives the demand. So once again, ASMPT is strong in this area, from both the semiconductor and the SMT market. So from an organic point of view, these few application market are really driving ASMPT. And actually, we also see this as the difference between ASMPT and our peers. For the past few years, we started to change the company to have more market focus, focusing on the growth potential -- the high growth potential markets and trying to serve the market very well. So, so far, this strategy, very successful. So even the market will be having a short term up and down, short-term cycles. But I think just out of the few applications I mentioned, we will continue to drive the near to medium term of the industry. So these are the organic area -- organic growth area ASMPT will benefit from.

[Operator]

Our next question comes from Simon Woo from BoA Merrill Lynch.

[Simon Woo, analyst]

Very quickly, Mr. Lee, how do you feel the overall micro LED or mini LED business opportunities? Are you ready to deliver any additional [ bigger ] machines for these areas?

[Wai Kwong Lee, executive]

We believe the mini LED will come earlier than the micro LED. Actually, in our opinion they share [ a piece ] of market. The micro LED will be for smaller displays. Probably the largest display application for the micro LED will be the smartphone -- screen of the smartphone. But we think it's more applicable, more usable for AI, [ real-time ] application, those goggles and wearable electronics. I think we believe these are more suitable candidates for micro LED space. For the LED, we see big potentials because it could be the solution for high-accuracy, high-grain solution, large display panels, either indoor and outdoor. So we see this as 2 different applications. ASMPT today are looking at various customers on the mini LED solutions, an interesting conquest for us. Still, I would say a distance away from significantly commercializing all those. But this will be very interesting. Of course, when it comes to mini LED, we have 2 different solutions. One is the traditional die and wire bonding, a packaged LED, a smaller LED. Well that actually ASMPT has participated already at this point in time, but there are also other packaging methodology for these mini LED. So this is the area I mentioned about ASMPT is looking with customer to develop the solution. Micro LED will take a little bit longer time. Today, I would say overall, the whole industry, people are still finding a very effective solution for the mass transfer of a huge number of LED. So I'm sure people find the effective and reliable solution for this. It's not easy for the micro LED to take off in a big way. Cost is the major consideration.

[Simon Woo, analyst]

Yes. Great. And lastly, any update for the TEL-related business acquisition? What's the expected roughly the revenue or your payment to acquire TEL NEXX, if you don't mind?

[Wai Kwong Lee, executive]

We already fully disclosed this in our announcement. We paid 90 million as a base price but a potential earn-out up to 8 million in 2 years' time. So for the revenue, the strategy are less than 100 million at the moment but with the potential going to beyond that, yes.

[Simon Woo, analyst]

You mean the 90 million plus an 8 million in terms of the U.S. dollars is roughly $100 million total?

[Wai Kwong Lee, executive]

Yes, yes, post acquisition, yes.

[Operator]

Our next question comes from Laura Chen from BNP.

[Laura Chen, analyst]

Like you mentioned that before, there are some different key component shortage overall in the supply chain. I'm just wondering that how that impacts our other outlook in our observation. Our customers have some like early pull-in? Or how they behave to react to that overall supply chain shortage? Yes, that's my first question.

[Wai Kwong Lee, executive]

Well, those shortage are more affecting equipment suppliers like us than our customer directly. When we cannot satisfy their demand of a pull-in delivery or short delivery time, that will directly affect our customers. Well, it's not an easy answer is the question because those are pretty high precision components. For those supplier we have -- in order for them to actually increase their capacity, they have to build new plants, they have to train new people. So today, I think the suppliers are mobilizing all the short-term efforts to increase their capacity. These people also start to look into really building a long-term solution to address this problem, including building new plants. I think on our side, in certain cases, we may have to pay a higher price for some of the components, although that has not been significant at this point in time. I would say it's definitely not a significant factor affecting our gross margin deterioration for Q1 because of peer-to-peer higher price for component at this point in time yet. But we do see, if this shortage continue, that may be a challenge for us also.

[Laura Chen, analyst]

Okay. And my second question is also related to mini LED. You already explained quite a lot. I was just wondering what's ASM Pacific's position now in mini LED or even micro LED for the longer term, yes? And what's our [ preparation ] already this year?

[Wai Kwong Lee, executive]

For the mini LED, actually, customers see ASMPT as the technology leader in this area. So we are working with various customers on the solutions they are ticking off. Well, we predict not all the solutions will take off at the end, but we're also [ prioritizing ] it and investing to getting some of these people. So I believe in the long run this will be an exciting area. But on the other hand, on the micro LED, we're also working with some of the key players in this area. But as I mentioned, I think there is still huge technology challenge the industry as a whole has to overcome. The micro LED is still at a very early stage, infancy stage, in my opinion, waiting for some major technology breakthrough [indiscernible] redesign. What I highlighted for the assemblies, the reliable method of mass transfer of huge number of LEDs in whatever time, yes.

[Operator]

Our last question comes from Mr. Steven Pelayo from HSBC.

[Steven Pelayo, analyst]

Just 2 follow-up questions. First one, how big is the LED bonder market? And given that Kulicke & Soffa have been making a lot of noise. They introduced, I think, some new products at SEMICON China last month. And they're talking about gaining a lot of market share last year and even this year. Are you seeing any increased pressure from Kulicke & Soffa specifically? That's my first question. And one more follow-up after that.

[Wai Kwong Lee, executive]

Well, I think in order to do your base of comparison, when somebody has a very small base of comparison and if they make really some progress, it could be a fantastical rate. At least ASMPT has such a huge market share in this particular area. So we won't be able to deliver 100%, 200% [ either way ]. So that's actually the difference. However, I think looking at the LED market, actually the LED market, on a supply base basis, actually there's been a lot of consolidation in our customers' base. ASMPT actually has continued to work with those key LED players in the market, and we have a very good market share with these key players. We do not lose these market shares to our competitors -- these customers. However, we do recognize that people try to attack this market. But that's natural, especially when everybody believe the advanced packaging development, technology development in the IC/Discrete market will be threatening the overall wire bonder market growth in the long term. So it's natural for our company to put in a lot more resources in this particular area. However, I don't really see our competitor making solid progress yet. While, of course, we don't ignore them, we don't take them lightly. So this is a survival battle for them. So they have to open up their revenue source. However, we believe this is a market we know the customer much better. We understand the application. We understand what -- the technology road map of this industry. And also, we have the infrastructure to work with this customer. This is a market very much different from IC/Discrete. You cannot just put -- use your experience in the IC/Discrete market and replicate it in the LED market. You need different expertise to even set up to serve the market. So ASMPT enjoys such a market position in LED not because of the last 1 or 2 years. It's the [ tech ] case or the investment in this particular area. So as a result, we don't worry too much. But on the other hand, we take them seriously.

[Steven Pelayo, analyst]

Okay. My last final follow-up question was 90 days ago, I think you said the SMT market or the SMT business for ASM Pacific, given the tough comparison from last year, may be balanced slightly this year. However, it appears that you were surprised in the last 90 days with the booking strength in Europe in auto, industrial and [indiscernible] infrastructure. What do you think now as you look at 2018 for SMT? Does it look like it's going to be a growth segment for [ PC ] this year?

[Wai Kwong Lee, executive]

Well to be honest, Steven, we are not able to answer the question at this point in time. Well, as you see, a few months back, we also expect this to be lightly down for SMT this year because this year, we do not expect major orders to come in similar to last year. However, along the past few months, actually, we have been revising up our internal forecast for the SMT booking a few times already. So the market is really strong. It's really strong. So it really took us by surprise. However, I would say that we do not dare to make an assumption. Q2, Q3 will continue to be [ volatile ]. So at this point in time, I can only say probably this should be -- rather than what we expect a few months back, whether it will be sufficient to totally offset these and make these to be another growth year for SMT, we are not able to have a reliable prediction at this moment in time.

[Operator]

There seems to no more further questions at this point in time, sir.

[Leonard Lee, executive]

Well, I think we've had a very good discussion this morning with very good questions. But I'm afraid we have to conclude the conference call now in the interest of time. Thank you very much for joining our conference call today, and we'll talk to you again next time. Thank you. Bye-bye.

[Wai Kwong Lee, executive]

Thank you. Bye-bye.

[Operator]

Thank you for your participation. This concludes the conference. Thank you.