ASM Pacific Technology Ltd

HKEX:522

Earnings Call Transcript 2021-Q1

[Unknown Attendee]

Good morning, and good evening, ladies and gentlemen. My name is [ Rommel ]. I am the IR consultant for the company, and I will be the operator for today's call.

On behalf of the management of ASM Pacific Technology, I would like to welcome all of you to ASM Pacific Technology's First Quarter FY 2021 Investor Conference Call. We would like to thank you all for your interest and continued support in ASM Pacific Technology.

Before we begin with the presentation, let me highlight some housekeeping rules. To facilitate the identification process, please kindly provide your company name and your name as your display name, if you haven't done so. [Operator Instructions] We will start the Q&A only after the management has gone through the entire presentation. We endeavor to answer all questions during the Q&A session, but due to time constraints, if we are unable to answer your question during the call, we will follow up with you through e-mails later, or please feel free to e-mail us with your question, and we will attend to those.

Before we proceed, let's go through the standard disclaimer. Do note that during this conference call, there may be forward-looking statements with respect to ASM Pacific Technology's business and financial conditions. Such forward-looking statements would involve known and unknown uncertainties and risks that could cause actual results, performance and events to differ materially from those expressed or implied during this conference. For your reference, the IR presentation related to our 2021 Q1 results can be downloaded from our website, www.asmpacific.com.

With us this morning are Mr. Robin Ng, our Group Chief Executive Officer; and Ms. Patricia Chou, the group's Chief Financial Officer. Robin will begin with a brief discussion about the group's key highlights in quarter 1, followed by Patricia giving some color to our financial performance, and then Robin will provide the outlook for the business. Thereafter, there will be the Q&A session.

So without further ado, let me hand over the time to Robin. Thank you.

[Cher Ng, executive]

Thank you, [ Rommel ]. Good morning, everyone, and thank you for joining us today. Before we proceed to the details of our performance for the first quarter of 2021, I hope that everyone is keeping safe, healthy and well as we continue to cope up with the effects of pandemic.

Let me begin by giving some key highlights of our business in the first quarter of 2021. Before I proceed, let me emphasize that from this quarter, our reported performance excludes contributions from our former Materials segment, which produces liquids. Thus, ASMPT's continuing operations will, henceforth, comprise only the SEMI segment or, SEMI, and the SMT Solutions segment, or SMT.

Now let me highlight some key developments for quarter 1. Firstly, our revenue and bookings surpassed guidance. Patricia will get into that in more details on the financial highlights, but I will say that both the SEMI and the SMT bookings level for the quarter were at record levels, indicating continued [indiscernible] in the space of improving market conditions.

Next, we saw sharp margin improvement. The performance of both segments contributed to the strong year-on-year and Q-on-Q growth in our group gross margins. We have also benefited from the overall automotive recovery and automotive electrification trends, which will continue to be a longer-term growth driver for business across both SEMI and SMT segments. We demonstrated superior execution amidst supply chain challenges as well as key markets rebounded from the pandemic after 30 August 2020, and with generally greater optimism about improving global macroeconomic conditions. This translated to the group experiencing a surge in customer demand for this quarter. The operational and field teams executed well to fulfill delivery commitments to our customers.

Here, please do note that we were recently awarded a distinguished 2020 Supplier Achievement Award for our COVID-19 response by Intel Corporation. This is a special recognition for ensuring uninterrupted supply to them through the pandemic period. This exemplifies our ethos of unwavering commitment.

Last, but certainly not least, there's a broadening customer base for advanced packaging solutions. We have been building up the industry's most comprehensive product portfolio of advanced packaging solutions, and I believe we have the broadest and the most compelling set of interconnect solutions for the whole spectrum of customer needs. This range from mainstream to the most complex interconnects for system in package, or SIP solutions. For example, our clear leadership in Thermo Compression Bonding, or TCB, is a testament to customer receptivity towards this approach, which we have carefully cultivated. We achieved a significant milestone with the delivery of 250th TCB tool to customers in February this year.

Another significant area is hybrid bonding, which we are diligently working on with key partners to realize its potential. Hybrid bonding solution is on track for delivery later this year, and we believe that we are in an excellent position to drive greater adoption for this advanced technology in time to come. Similarly, our other advanced packaging solutions are experiencing a broadening of their customer bases led by the confluence of end-user market demands in high-end CPU, GPU and XPU applications.

I will now pass the time to Patricia to run through the financials.

[Peifen Chou, executive]

Thank you, Robin. Good morning, everyone. Let me give some highlights of our first quarter 2021 performance. I'm pleased that we share that the group has delivered a strong first quarter 2021 group financial results.

This chart summarizes some of the key metrics for performance for this quarter. Group revenue of USD 559 million surpassed the guidance, while [ bookings ] of USD 1.01 billion were at an all-time high. Significantly, our gross margins of 39.6% represented a sharp improvement compared to the previous quarter, while profit of HKD 528 million followed a strong gross profit performance this quarter. Finally, our total cash and bank deposits at the end of the quarter continued to strengthen to HKD 4.6 billion.

Let me now go into a bit more detail about our group performance followed by each of our 2 segments performance. To begin, the key takeaway from the group's financial performance for this quarter was the record group bookings affected by broad-based customer demand.

Now let's dive deeper. As you can see here, in the first quarter this year, both group revenue and bookings surpassed the guidance. The group's first quarter revenue of USD 559 million represented a strong 45.6% growth year-on-year. [ Notably ], the quarter's revenue was still as strong as the last quarters, which was unusually strong and exceeded the top end of our guidance as well.

Our first quarter revenue performance was underpinned by the move towards semiconductor self-sufficiency, secular growth trends such as the accelerated digital transformation, the continued general recovery, automotive electrification and global 5G rollout.

Booking momentum was even greater. This was [indiscernible] high bookings level for us to the tune of USD 1.01 billion, significantly exceeding the USD 700 million bookings guidance. This is a phenomenal year-on-year 73.4% and quarter-on-quarter growth of 86.4%. The group's gross margin this quarter of 39.6% is a quarter-on-quarter improvement of about 412 bps. And both the SEMI and SMT segment registered the improvement in this area. Significantly, our strong group's gross margin performance helped drive our group net profit to HKD 528 million, a substantial [ 52.9% ] Q-on-Q improvement over an already strong previous quarter and nearly 20x improvement a year. This figure includes the share of results from our joint venture, AAMI. We ended this quarter with a record backlog of USD 1.21 billion and a high book-to-bill ratio of 1.8, in part due to the surge in this quarter's bookings.

Next, let's look at our SEMI segment first quarter performance. The most noteworthy effect of this segment this quarter were its record bookings and a strong rebound in gross margin. This segment delivered a strong revenue of $349 million, representing robust growth of 78.7% year-on-year and 13.8% Q-on-Q.

Let me give a bit more detail. For its IC/Discrete business units, demand across a broad range of applications, including mobile and personal computing devices, [ high-performance ] computing, 5G infrastructure and the devices, particularly in China, and both discrete and power management applications related to general automotive, industrial and automotive electrification.

The Optoelectronics business unit recorded a strong demand from conventional fine-pitch display and general lighting customers, and an encouraging increase in the number of mini-LED customers taking delivery for high-volume manufacturing activity. The segment recorded a strong year-on-year and Q-on-Q bookings growth. In particular, the record bookings were dominated by its die and wire bonder products. The IC/Discrete business union saw record bookings. The Optoelectronics business recorded a strong demand for its mini-LED tools, and the CIS business unit to register a strong Q-on-Q increase in bookings.

Next, as mentioned at the start of this slide, the segment's gross margin rebounded significantly to 44%, which represent a Q-on-Q 503 bps improvement. This can be attributed to a combination of higher volume and capacity utilization, increased productivity with a leaner workforce and also some positive effects from the rollout of the group's strategic initiatives.

Moving into the SMT segment's first quarter 2021 performance. The key highlights was its record bookings that were driven by broad-based demand across end markets. The segment delivered revenue of USD 210.6 million this quarter, accounting for 37.7% of the group revenue. This represented a year-on-year growth of 11.4%. While the segments at mainstream placement and the printing tools were still its largest revenue contributor, there was continued growth in its advanced packaging tools, which are high-accuracy SMT systems for SiP application particularly for wearables and 5G-related devices. Further, the segment's equipment services and spare parts business also returned to healthy pre-pandemic levels, indicating a normalizing of manufacturing activity levels among its European and Americas-based customers. Gross margin showed a Q-on-Q improvement, mainly due to the relatively higher mix of advanced tools and smart manufacturing solutions despite this being a seasonally lower quarter for revenue.

As you can see, we have a well-diversified revenue stream. The top 5 markets that contributed to group revenue were: China, including Hong Kong; Europe; the Americas; Taiwan; and Korea. We also saw increased contribution this quarter from Taiwan, Korea and Thailand. Among our customers, our top 5 accounted for less than 17% of our quarterly revenue, reflecting a high degree of customer diversity.

I will now hand the time back to Robin to share about our expectation trends and our outlook for the business.

[Cher Ng, executive]

Thank you, Patricia. Let me share some insights into this quarter's record bookings from the end market perspective. The key takeaway was a strong increase in demand for our tools, especially for automotive and industrial applications. In automotive, the continued rebound has been driven by the general automotive recovery momentum we begin seeing in the later part of 2020, which has continued into this quarter. This was intended with a growth in automotive electrification applications, which increased demand for discrete and power management applications from the SEMI segment.

For industrial applications, there's a growing demand for power management solutions, such as EV charging stations, and the rising adoption of efficient energy management for smart grid, smart industrial and automation solutions.

As for the broader computers, communication and consumer category, there are a variety of trends. First, demand for high-performance computing, wearables, gaming consoles, smartphones and appliances continue to drive both advanced packaging and SMT tool growth.

Next, the multiyear global 5G rollout continues to benefit SEMI and SMT at both device and infrastructure levels as customers increase their investments to address the higher volume of electronic content in 5G components versus 4G, plus greater complexity requirements for advanced node chips and radio frequency modules.

And for our Optoelectronic business, we have seen increased adoption of high-volume manufacturing tools for mini LED, while momentum continues for its conventional fine-pitch display and general lighting tools.

Let me now give you some context behind our outlook. We believe that the current data-centric computing year we're in, along with the long-term secular trends such as 5G, automotive electrification, autonomous driving, AIoT, or artificial intelligence of things, and advanced packaging is compelling industry to transform in order to prepare for the future. We believe this will drive significantly higher nondiscretionary silicon consumption and investment in capital expenditure to meet these new needs. We also believe that world is in an early [indiscernible] of a multiyear data-centric era and its potential for sustained growth.

Here is the outlook for our business in the near term. Global semiconductor chip supply constraint continue to pose a challenge for the group as it does for other market participants. Based on current market expectations and supported by our strong backlog and of course, barring unforeseen circumstances, we expect to achieve quarterly revenue for the second quarter of 2021 of between USD 600 million to USD 650 million. We also expect that the second half of the year 2021 revenue performance to remain strong.

Thank you, and we are now ready for Q&A.

[Unknown Attendee]

Thank you, Robin. We will officially start the Q&A session. [Operator Instructions] We have the first round of questions from Citi, Arthur. Arthur, you can unmute yourself and ask your question, please?

[Arthur Lai, analyst]

Congratulations, Robin and Patricia and also the management team. This is Arthur Lai from Citi. So I have 2 questions. Number one is on the margin, and number two is on the EV. So on the margin side, I want to ask Robin. What have you done in the recent quarter to drive this margin up about 10%? And the second question is on the EV. So we just mentioned that there is a secular trend and quite the product offering from us.

[Peifen Chou, executive]

Arthur, this is Patricia. I would like to answer your question regarding our Q1 gross margin. First of all, in our previous [ quarterly ] call, we mentioned that the gross margin impact be consolidating the Materials segment and some margin accretive effect from our product portfolio implication [indiscernible] will help improve our gross margin by between 300 bps to 400 bps. So with that in mind, the Q4 2020 group gross margin, excluding the Material segment and the one-off inventory provision, would be around 37%.

The impact in our Q1 gross margin performance achieved more than what have been shared last quarter. So in Q1 2021, group gross margin is now 39.6%. As a result of the favorable segment revenue mix contribution and the volume effect, also improved the productivity with a leaner workforce and also some margin accretive effect from the strategic initiatives, such as the product portfolio simplification, better internal resources utilization after cutting down long-tail products and some procurement cost of savings.

[Unknown Attendee]

Thank you, Patricia. For the second question, I would request Robin to answer. This is more on the EV side product offering.

[Cher Ng, executive]

Yes, Arthur. We believe we have a really comprehensive offering of tools to address the EV market. This mainly, in our opinion right now, is the mainstream tools, the wire bonders, the die bonders, [ phones ] and also the tech center, for example. Now we have a lot of -- we have a good offering of a solution to cover spectrum of packaging and application needs such as IC packaging, power discrete modules, SiP control units, power modules. And of course, we are now also addressing the terminal modules in cars as well for EVs as well as the general automotive.

[Unknown Attendee]

Thanks, Robin. Next round of questions will be from [ Leping ]. After that, will be [indiscernible] and after again. [ Leping ], you can unmute yourself, please?

[Unknown Analyst]

Can you hear me?

[Unknown Attendee]

Yes, please go ahead.

[Unknown Analyst]

This is [ Leping ] from Huatai. So I have 2 questions. The first question is based on -- it's the first time I saw that your BB ratio reached 1.8. And Robin, based on your operation, I mean, you run the company for many years. So what's the historical pattern on the BB ratio? How sustainable of this such BB ratio is so high? And because also I see your second quarter revenue is only $600 million to $650 million, so -- versus your booking is so high. So are you facing some capacity constraint now when to deliver your customers' requirements?

[Cher Ng, executive]

Yes. Indeed, I think the B-to-B ratio is probably one of the highest, I think, in the history. Now as to your question, what's driving this booking high, right? Now let me give you some -- a little bit of color in terms of the bookings. We -- as you look at [ exit ] lines for our announcement, we are experiencing a very broad-based kind of demand for our bookings. And we also mentioned an announcement that really we're looking at the underlying long-term secular growth trends really driving this growth in terms of demand. We have mentioned many times before for many quarters, the accelerated digital transformation is definitely in the play. Also, many countries are now seeking semiconductor self-sufficiency. So that also drive a lot of demand in those areas. Improve automotive and industrial markets, we see in this quarter, especially, very active demand coming from automotive and industrial markets.

Now you also mentioned about our current forecast for Q2 is around $600 million to $650 million, whether we are facing any capacity constraint. I think, certainly, as we also mentioned in the announcement, the supply chain constraint is still a prevailing concern for us. So we are actively managing this and bringing in components, not just for ourselves, but also helping our EM, or external manufacturing, as far as we can to also bring in the necessary components for EM to build our tools. So certainly, supply chain will remain a constraint, but we are trying our best to make sure that this can be mitigated in the next 3 quarters to come.

[Unknown Attendee]

Thank you, Robin. For next round of questions, can I request Kyna to unmute yourself and ask your questions?

[Kyna Wong, analyst]

Actually, I wanted to ask about the outlook that -- the outlook, more color into the second quarter because we see upward-based demand. And also, you adjust CIS is also seeing a Q-on-Q pickup in the booking. And at the end, what should we expect about the business mix in terms of the growth rate that we could expect? Which one is higher in the second quarter from like SEMI, I mean, general SEMI or optoelectronic or like SMT that eventually that will also affect the directions of the gross margin improvement?

[Cher Ng, executive]

Yes. So Kyna, if I can give you a little bit more color into our Q1 booking, so that might help. So Q1 booking, I mentioned earlier, supported by those trends. A little bit more color into kind of tools that we are seeing. So at the kind of volume, obviously, the mainstream tools for SEMI and for SMT will have to feature [ component ]. So these are basically tools for capacity expansion.

Now in terms of advanced packaging, we also see advanced packaging tools for ourselves are pretty strong compared to the previous quarter. So in fact, bookings grew Q-on-Q and also year-on-year in [indiscernible] for advanced packaging. So we are happy that our advanced packaging tools are, in fact, gaining traction in the market.

Now besides advanced packaging tools, notably, we also mentioned in the announcement that we see mini-LED tools are probably reaching an inflection point. We see more customers taking delivery for mini-LED tools for high-volume production. And AA tools, active alignment tools, this quarter was also pretty strong, and the demand has increased [ Q-on-Q ]. So I hope this will give you some color as to what will come in a couple of quarters.

[Kyna Wong, analyst]

And then I have a follow-up question on advanced packaging. We see like [indiscernible] said that they have received the initial order for hybrid bonder. Does ASM Pacific actually expect the launch of products in the second half? So what's been going on here because I think ASM has been leading in these advanced packaging? And with like more cutting-edge hybrid bonder to launch, that is the market expectation as well, so could you let us know more about like the difference or like the progress in that area? And what should we expect the contribution from these like [indiscernible] hybrid bonder eventually or in the future?

[Cher Ng, executive]

When we look at news like this, in fact, on the contrary, we think it's good news. I mean it's the sign that the industry is coming to accept the hybrid bonding. So I think we -- in the -- for the industry, for a certain application of technology in the industry to flourish, we need a critical mass. So that's a good news. Of course, we can't comment on the progress made by our competitor. We can only focus on ourselves.

Now as far as hybrid bonding is concerned, we have been giving indications that we are engaging a broad spectrum of key customers in this particular area, both on the logic side as well on the memory side. So we are working hard in order to deliver our hybrid bonding tool in the later part of this year or sometime low-volume manufacturing. And we believe that the high-volume manufacturing activities will come maybe 1 or 2 years later.

Now let's not forget that the hybrid bonding space is still a very nascent space. So we're not going to see high-volume activities in this short period of time, probably will take at least 2 to 3 years before high volume will kick in. So my assessment of the market, and getting hybrid bonding technology to gain wider market share, wider market adoption will take a bit more time. And we are really focused on enabling this to happen in time.

[Unknown Attendee]

Thanks, Kyna. The next 3 in the queue are Arthur from Citi; KGI, Laura; and [ Dylan ] from Morgan Stanley. Can I request Arthur to please unmute yourself and ask your question?

[Arthur Lai, analyst]

It's me again. So I have a really simple question. For modeling purpose, can you share the seasonality on billings of this year?

[Cher Ng, executive]

Okay. Now if you look at our strong bookings in Q1 already, so strong. We believe Q2 bookings will have to moderate because $1 billion is really as such in terms of demand. But however, looking at longer term, I think there are a lot of news recently from research houses that they are very bullish about the semiconductor market, including the -- our own market, the packaging and assembly market. In fact, one research house has been upgrading the outlook in a couple of months. So based on this sentiment, we believe going forward, although Q2 booking will likely to moderate from Q1, but we believe that the demand going forward will be at elevated level.

So now in terms of seasonality, Q2, as I said, bookings will probably moderate. In terms of billing, we are already guiding higher than Q1 at this point in time, yes.

[Arthur Lai, analyst]

Yes. So the second half could be a better of the first half, right?

[Cher Ng, executive]

Well, looking at the strong backlog that we have and we believe that the second half as in our outlook will continue to be strong.

[Unknown Attendee]

Thanks, Arthur. Can I address Laura to unmute herself and ask your questions?

[Laura Chen, analyst]

Can you hear me?

[Unknown Attendee]

Yes. Loud and clear, go ahead. Thank you.

[Laura Chen, analyst]

My first question is about the gross margin outlook. Because it looks like packaging order visibility is even stronger than SMT. So can we expect continued gross margin expansion into second half? That's my first question.

[Peifen Chou, executive]

Laura, thank you so much for your question regarding the outlook of our gross margin. First of all, as you know, we do not give immediate-term gross margin guidance. However, we can probably provide some color in the mid- to longer-term trend of our gross margin. The near-term gross margin improvement will maintain based on our good performance in Q1. But we all know that it's also influenced by volume and mix. And with that in mind, we expect the Q2 billings [indiscernible] higher than Q1 billings, and the favorable segment sales contribution will sustain. And for the longer term, the strategic initiatives are intended for our gross margin accretive effect. So with that -- the above, it should be a strong background for our longer-term gross margin improvement.

[Laura Chen, analyst]

And also on the growth outlook in various applications, we know that the demand outlook seems to be quite stronger [ gross vol ]. But that would be very helpful if you can give us more details about your view on various applications, particularly like advanced packaging and hybrid bonder. I think you discussed that -- Kyna asked that earlier, but that will be very appreciated if you can give us more outlook about the CIS, the mini LED and the various applications growth outlook probably in the near term and the longer term.

[Cher Ng, executive]

Okay. I take this question. Now I think I can give you some very general outlook. Now looking at the demand across the few quarters, we -- when the pandemic hit, we see computing was -- the demand was strong. It started with computing demand, and then for my communications, to enable all these computing devices to be connected and so forth. And then lately, since the last Q4 to Q1, we see automotive and, in general, automotive and the automotive electrification trend demand seem to be picking up fairly strongly. And we believe with the general economic recovery of the world in time -- in time to come, consumers' demand will also start to pick up.

So for example, I mean, we have been talking about 5G smartphones. So we believe that this year, as predicted by many research houses, 5G smartphones demand will continue to grow. And this will bode well for our [ CIS ], not just for our mainstream IC/D tools, but also for CIS business as well.

Now for mini LED, I've already mentioned just now, maybe worth repeating here. We see an inflection point for mini LED. We see customers are now willing to take more volume LED delivery for their high-volume activities. So LED is -- mini-LED trend is very encouraging for us.

Now in terms of hybrid bonding, I already mentioned about it when Kyna asked just now. So I hope I answered all your questions, Laura.

[Unknown Attendee]

Thanks, Laura. The next 2 on the list will be Morgan Stanley, [ Dylan ], and from HSBC, Frank. So can I please request [ Dylan ] to unmute and ask your questions?

[Unknown Analyst]

And congrats on the strong performance. So my first question would be for the capacity expansion, you mentioned we're going to expand our mainstream tools capacity for SEMI solutions and SMT. May I ask when do we expect this kind of capacity expansion to complete? Is it in the coming quarters? Or any timing -- any color on the timing would be helpful.

[Cher Ng, executive]

Okay. Yes, certainly. I mean looking at the strong demand, we would definitely have to pace our capacity expansion in line with the demand signal. So we are looking, of course, also increasing our outsourcing activities because we are not going to rely solely on internal. So external outsourcing, increasing our capacity is probably the healthy way of expanding our capacity. So we are looking into that. Internally, we will also debottleneck some of our internal capacity to strike a more balanced capacity workbook between internal and external.

Now for internal, we believe by -- we could add headcount pretty easily. So in the short time, we could add headcount to increase our capacity in the assembly area. If we have to add some tools for fabrication in-house, then that will take a little bit longer because the work -- I mean, when we talk about supply chain constraints, it's not just affecting the semiconductor industry, it's also affecting the general industry worldwide. So tool supplier for our production are also facing supply chain constraints. So that's how we'll deliver it. So we are placing our capacity in line with the demand signal.

[Unknown Attendee]

Thanks, Robin. Can I please request Frank to unmute himself and ask your questions?

[Frank Lee, analyst]

So I wanted to just follow up a bit something on your presentation, which is, you talked about your businesses picking up from different regions. And particularly, I think you talked about business picking up from Taiwan, Korea and Thailand, the contribution. Can you talk a little bit about the China portion because it is the largest part of your revenue? Is that expected to increase in line with the growth we're seeing from other regions?

[Cher Ng, executive]

Yes, certainly, Frank. Without a doubt, with this kind of strong demand, the demand coming from China has to be the largest contribution. What we are trying to give you guys some color is that this time around, the demand are not just coming from China in a big way, but also in other regions as well, like Taiwan, Korea, Thailand, and this is a healthy development. So we are not just dependent on 1 particular region for the demand. But now we are -- the demand are coming more widespread, more broad-based, from Taiwan, Korea and Thailand.

[Frank Lee, analyst]

Okay. Sorry. So just to clarify, does that mean that the growth rate for Taiwan, Korea and Thailand is currently above what we're seeing out of China? Or is China still growing...

[Cher Ng, executive]

You can say so, yes, Frank. You can say so. That's why we are calling it out. In terms of percentage increase, they are bigger, yes.

[Frank Lee, analyst]

Okay. Sorry. And just one last question I have is on an ASP. I mean we talked about demand being very strong. Unit has been very strong. We've seen the entire semiconductor supply chain see price hikes across the board from foundry guys to IT designers. From an equipment point of view, what -- are we seeing the ability for pricing to go up as well?

[Cher Ng, executive]

Certainly, certainly. But we will increase prices where it makes sense because increasing -- I mean, pricing is a very sensitive topic for customers. So whenever it makes sense for us to increase prices, we will do so.

[Unknown Attendee]

Thank you, Frank. Next will be [ Dylan ]. [ Dylan ], you can unmute yourself and ask your questions. After this, the queue is empty. So you guys can queue up again. Thank you.

[Unknown Analyst]

Okay. Yes, just some follow-up on the capacity expansion. So probably, let me put it this way. Do we have any expectations of the -- the removal of supply bottleneck from our end? Maybe it's due to supply chain improvement or maybe it's due to -- or capacity expansion.

[Cher Ng, executive]

Yes. [ Dylan ], as I said earlier, we are doing what we can to really ease the supply chain there. But there's a limit in what we can do. So what we are doing is we -- because some of these components that we need are coming from our customers. So we are also working very closely with our customers to tell them if you want our equipment, or your production, you also have to help us because we need some components, especially electric components. So we are in the current relationship right now talking to customers, helping -- asking them to expedite delivery of certain components to us so that we can also expedite the delivery of such component to them as well -- I mean our equipment to them. So this is how we are trying to manage the supply chain constraint on our end.

[Unknown Analyst]

Okay. Got it. And my second question is to actually follow up Frank's question. Because you mentioned a healthier pricing environment, probably it's due to the current, I don't know, semiconductor shortage. And I would like to know if the current gross margin level is also helped by this healthy pricing environment. And if this healthy pricing environment kind of mitigate in the future, can we still sustain our current gross margin levels?

[Cher Ng, executive]

Yes. I would say the current margin improvement, as Patricia has mentioned, is really coming more from the volume effect. And the fact that this time around, we have a much more productive workforce compared to many years ago. So as you can imagine, we have been managing our workforce in a very tight fashion, and yet, we are able to deliver the kind of performance. So productivity is the key. So as a result, we see improvement in terms of the gross margin.

Now for ASP, as I say, it's a -- it's something that we will do only when it makes sense. So the impact at this moment is not material.

[Unknown Attendee]

Thanks, [ Dylan ]. Next, can I request Frank to ask his questions. And after Frank, we'll be Kyna. Frank, please go ahead.

[Frank Lee, analyst]

Okay. Just wanted to follow up on this book-to-billing ratio. It ended at 1.8 in the first quarter. Is that kind of a historical high-level peak compared to what you've seen historically? Or what was the previous peak level that we've seen?

[Cher Ng, executive]

Frank, I don't have the exact number, but certainly, this 1.8, if it's not the peak, will be very close to historical peak, yes.

[Frank Lee, analyst]

Okay. And based on the guidance you gave us a bit more moderate, should we imply then that the book-to-bill ratio would be lower in the second quarter?

[Cher Ng, executive]

I can't really tell you at this point in time. But let me give you a little bit of color so far into our Q2 booking so far. So for the first 2 weeks, we see the -- as I mentioned earlier, we see momentum still very healthy, although we believe it will moderate from the Q1 number. But as I said, the long-term outlook for the semiconductor is still very bullish. So we believe going forward that the booking will be still at an elevated level.

[Frank Lee, analyst]

Okay. And sorry, just a follow-up. Just in terms of this, as we go into the overall trend of the bookings, if the current situation remains as tight as it is and the outlook is as positive as it is, but you guys are expecting a more moderate booking ratio, is this more of a function that your customers are also trending a little bit more moderately? Or is this more on your view that there's a potential sustainability of this kind of book-to-bill ratio maybe difficult and therefore, you guys are taking a more conservative approach? I'm just trying to understand, I guess, the -- if the overall moderate orders, is it more of from your end customer? Or is it more the management's view that this current state might be tough to sustain?

[Cher Ng, executive]

Well, we always talk in comparison with Q1. As I said, Q1 was really a very high quarter in terms of booking. So we believe that this is -- this will moderate in Q2. So I couldn't really tell you in terms of book-to-bill ratio at this point going forward. But I would like to reiterate again that the booking level we see going forward will be at an elevated level compared to maybe previous quarter because of the very bullish outlook everyone is saying about the semicon industry.

[Unknown Attendee]

Thank you, Frank. Next will be Kyna from Credit Suisse. And after that will be Arthur from Citi. Kyna, can you please ask your question?

[Kyna Wong, analyst]

So I just wanted to ask like because usually the booking will be shipped in the next quarter, but due to supply constraint, we -- how will this like $1 billion booking, I mean, will be shipped in the coming quarters, I mean, in terms of their allocation of the shipment? And because these kind of booking could be customer -- could be for customer to reserve the capacity in the second half. So just wanted to have idea, the sales deliveries [ pouring ] in the coming quarters and -- or coming months? And the second question is about the wide bonder, how long is the lead time for now? And yes, I also have one question on SMT, so yes.

[Cher Ng, executive]

Yes. Kyna, thanks for your question. Now on the backlog, so if you look at our Q2 guidance, around 50% will be fulfilled in Q2. So we believe that our backlog majority will be fulfilled within 2 quarters.

So in terms of what we call the wire bond lead time, I think in general, we are seeing those mainstream tools, including die bond, wire bond. The lead time has been around 5 to -- 5 to 6 months and medium lead time. So that's kind of the lead time that we are looking at. And I think despite this kind of lead time, customers are still very anxious about their delivery. They go on calling of sales guys, when are you going to ship the -- our tools to them? So from that perspective, the customers are still very bullish about taking delivery of our equipment.

[Kyna Wong, analyst]

Got you. So also, SMTs in like low 30s, still below the older -- the historical range that well -- with good performance. So is that still a mix issue? And could -- and how could [ weigh ] this when the auto and industrial get that up or like other strategy or your -- from your strategy -- strategic initiative will help the SMT to drive your long-term target of like 40% cycle?

[Cher Ng, executive]

Yes. Yes, Kyna, I know what you mean. So yes, for SMT, I mean, we have been saying that we have been diversifying our manufacturing base to more Asian base. That has been ongoing for a couple of years. And right now, we are also looking more intensively into diversifying our supplier base, not just on manufacturing base, but our supplier base from more of the European-centric base to more Asian-based. This will progressively also improve the SMT margin.

Of course, we also mentioned, you rightfully pointed out, we have a strategic initiative to improve the SMT gross margin going forward. But this would take a couple more years because we are talking number product simplification, kind of exercise product enhancement and exercise -- this kind of exercise will take time in order to realize its full potential. So we are hopeful that in the couple of years to come, you will see SMT margin progressively improve over time.

[Unknown Attendee]

Thanks for your questions, Kyna. Can I request Arthur to ask his questions?

[Arthur Lai, analyst]

Yes. Yes, it's me again. Thank you. So some investors want me to give this feedback. Let's say, since we are not easy to travel to SEMICON in China, can the company host a virtual analyst day to understand the company's product and strengths?

[Cher Ng, executive]

Yes. Certainly, this is certainly at the back of mind. Yes, certainly, I think this will be very useful for analysts and our shareholders to really understand ASMPT much better. We have not done this before, I believe. So really, rest assured, this is really in our mind. We will let you know when we will do it in time to come.

[Unknown Attendee]

Can I request Frank to ask his questions? Thank you.

[Frank Lee, analyst]

Yes. Just I had a follow-up question on the mini-LED market. I think a couple of quarters ago, this was a big focus for investors, and the management had talked quite a bit about expectations for mini LED. We just had Apple's product launch overnight with iPad Pro. Can you give us a bit more color in terms of how in -- the potential TAM of mini LED? Has it generally been in line with what you expected? Any changes so far from -- in terms of the market expectation?

[Cher Ng, executive]

Yes. Frank, I think if you have been following us, we have been saying that we started this journey, mini-LED journey, much earlier than anyone in the market. So our customers are key -- we are engaging key customers across regions. So as I mentioned earlier, we are seeing perhaps really an inflection point for mini LED to take off this year. So Q1, in terms of Q1 booking, Q1 shipment, very, very encouraging. So now customers are really taking delivery for high-volume production.

[Frank Lee, analyst]

Okay. But I guess -- sorry, just in terms of -- this is supposed to be a very important figure year, not only for Apple, but for non-Apple potentially customers to ramp up. Is that still the plan? Or has there been -- because there has been some -- a little bit of delay from Apple. I'm just wondering, from your own perspective, is -- has there been any change in that expectation? Or it's very much in line with what you had expected previously?

[Cher Ng, executive]

As far as customers that we are serving, they are pretty much in line with what we are expecting. So this is really an inflection point for us.

[Unknown Attendee]

Thank you. Can I request Laura to ask her questions?

Thanks.

[Laura Chen, analyst]

Yes. I just got a question about the company's view on the geopolitical risk. We see there are more like a technology transfer from the U.S. Although it seems not really impact on the OSAT industry and mostly on the foundry or wafer side. Since our business has about 50% revenue from China, and what's our view, how should we diversify the geopolitical risk here?

[Cher Ng, executive]

Laura, if you attend our business model, we have been already pretty much very diversified in terms of manufacturing base. So of course, the -- our big manufacturing base is still in China. But besides that, we have manufacturing base in Malaysia, assembly in Singapore, in Hong Kong. And also, we have -- in terms of true acquisitions over the year, okay, we also have manufacturing bases in Europe, for example, in Munich, in Weymouth, in The Netherlands, in Regensburg. And also in Boston, of course. So we are already pretty much in good shape in terms of diversifying our manufacturing bases.

[Laura Chen, analyst]

Yes, understood. But when you talk to your customers in the OSAT's sectors, when you discussed about that the potential impact from the upstream and foundry space, would that indirectly have some impact on the business outlook from your customer perspective in China?

[Cher Ng, executive]

Sorry. No, I don't quite understand your question. Can you rephrase it?

[Laura Chen, analyst]

Yes. I mean although the technology constraint or the U.S. tension seems more in the foundry space, but since -- from the supply chain perspective, a lot of packaging customers are still Chinese customers, will they get some like indirect impact if there are some like -- from the foundry side goes to the downstream, would there be some like potential impact looking forward from your business engagement perspective or when you talk to your OSAT customers at this moment?

[Cher Ng, executive]

I still don't quite understand your question, but maybe I'll give you a general answer, I hope that helps. Now if you're talking about ultimately self-sufficiency kind of drive among all the customers, I think, in general, self-sufficiency kind of activities or priorities by our customers are actually, actually have a beneficial impact for equipments applying to us. Because we are neutral as far as we can supply equipment to this customer wherever they are, this actually bodes well for our customers. I hope I'm giving you a general answer because I don't really know exactly where you're coming but I hope that helps. Thank you.

[Unknown Attendee]

Thanks, Laura. The next 2 on the call will be Sunny from UBS, and Simon from BofA. Can I request Sunny to please ask her question?

[Sunny Lin, analyst]

Sure. Can you hear me?

[Unknown Attendee]

Yes. Loud and clear. Please go ahead.

[Sunny Lin, analyst]

Congrats on the good results. I have a few follow-ups on my side. So first one on booking for Q2. Why is that the booking will be more moderate? May I clarify what you -- do you mean growth will be slower or the absolute amount for booking will decline?

[Cher Ng, executive]

As I said earlier, in the Q1 booking is at $1 billion, so we believe Q2 booking will have to moderate down from that number. Of course, in the end, by Q2 report, it's another $1 billion. I think that will be a very good news. But we don't think so at this point in time. It has to moderate from a very high level.

[Sunny Lin, analyst]

Got it. That's helpful. My second follow-up is, if we look at your revenue for SEMI and SMT, pretty clearly, SEMI is approaching historical record high. But I think SMT, there's still a bit of gap versus historical record in 2018. And I'm not sure if that's a good indication for your utilization rate for SMT. Meaning, if we think about next few quarters, would it be fair to assume that there may be more upside coming from SMT since you would have a bit of room for further loading rate?

[Cher Ng, executive]

Yes. Yes, Sunny, yes. If you -- I mean, if you have been following our business model, right, we have been saying intuitively, it makes a lot of sense because SMT is actually -- if you look at the whole supply chain, we have to start with SEMI first before the chip -- before the chips can be -- based on the PCB, right? So when you -- when we start to see such strong demand on the SEMI side, ultimately, we believe it has to flow down to the SMT. I think this is very intuitive. So it's a matter of time. In fact, we've probably already seen some kind of shift already because Q1 booking for SMT already a record quarter. So I think SMT going forward will benefit from this trend.

[Sunny Lin, analyst]

Got it. Well, maybe a more detailed follow-up is because I'm trying to understand how much upside can you achieve for these 2 divisions? And I think you have mentioned that for SEMIs, you are already running at very high loading. But I will assume for SMT, perhaps comparatively, the utilization rate will be slightly lower. And so with a broader recovery in SMT as well, should I assume stronger demand for SMT for Q2 and also into second half?

[Cher Ng, executive]

As I said, looking at the supply chain dynamics, we're really seeing some strong demand in the SEMI side. So I think SMT, the industry SMT as a whole, I think we stand to see the demand flowing into SMT in time to come. Now as for ourself, we are preparing for that. So SMT are also poised to pace the capacity expansion in line with the demand signal.

[Sunny Lin, analyst]

Got it. My last question is on your manufacturing for back end. I think you mentioned you use both internal production and then also outsourcing. Could you give us some idea around the -- what -- just trying to understand if you try to increase the outsourcing, how much upside could you achieve in terms of the supply?

[Cher Ng, executive]

I can give you some color. Now at the moment, you can imagine with the kind of high level of billing and also the forecast going forward, we are already extensively using external manufacturing, outsourced partner basically, to complement the internal capacity and this will succeed. We'll continue and we will keep pace of adding capacity both inwards -- both outwards and both external and internal in line with what we see from the market.

[Unknown Attendee]

Thank you, Sunny. Next, can I please request Simon to ask their questions?

[Simon Woo, analyst]

Yes, can you hear me?

[Unknown Attendee]

You are breaking a little bit, but yes, please go ahead.

[Simon Woo, analyst]

Okay. Yes. Great, yes. So number one, starting back to some geopolitical-related question. Any rough idea, the percentage of the -- your U.S. relates the patent or IPs, particularly the semiconductor solution? For example, in the wire bonders, die bonders, what percentage of your -- the sources or patents belong to the U.S. related? Or you can say very minimal given the fact mostly their Europe-based or Hong Kong-based, so could you share the color on this?

[Cher Ng, executive]

Yes. You're right. I think for the mainstream tools, the wire bonder, we have been developing this in Asia for decades already. So you can imagine, these are all developed from the Asian bases.

[Simon Woo, analyst]

Yes. Yes. And then secondly, given the fact -- the Q1, the bookings for the SEMIs kind over 100% up year-on-year and also the revenue growing strongly. So what are your current capacity utilization ratio? And also how to meet such a strong time line growth with your -- almost fully utilized capacity there?

[Cher Ng, executive]

Yes. I think as far as the internal capacity is concerned, we already have a very high utilization. So that's why there's still some operating leverage over there. So that's why when Patricia mentioned our portfolio, in fact, we still have some operating leverage on the [indiscernible] side.

Now as for external question, as I mentioned earlier, Simon, we are actively expanding, looking for expansion rather for external manufacturing capacity. So this, as I see, will have to be done carefully in tandem with what we see from a market in terms of the demand signal. As I always been saying a few times already in this call, we will pace our capacity in line with our demand signal.

[Simon Woo, analyst]

Yes, yes. And then lastly, very quickly, given the fact TSMC and Samsung is the world's large standards for the SEMI areas and also, they are very strong in the logic chip or memory. But when we look at your revenue breakdown by region or country, we do see a very minimal exposure to Korea or Taiwan, and you don't have any direct business for TSMC or Samsung. What kind of the wafer level packaging or SiP or -- because TSMC, Samsung continuously expanding advanced back-end solutions. So we wonder why your exposure quite small for Korea, particularly.

[Cher Ng, executive]

So Simon, you have to look back a few more quarters because as I mentioned earlier, to one of the questions posted by the -- one of you, we see Taiwan, we see Korea, we see Thailand increasing. So you can imagine, in this world of AP, basically, it reside in a few regions, China, Taiwan, Korea, Europe, America at this point in time. And we have been saying as far as our AP solution is concerned, we are perhaps the most comprehensive and we are engaging a broad range of customers in this AP space. So unfortunately, Simon, I cannot comment directly on whether we are dealing with certain companies, but this is the color I can give to you.

[Simon Woo, analyst]

So you are saying, the integrated Asia, like Asia Pacific region, is collectively kind of the one big play area?

[Cher Ng, executive]

The AP activities that we are seeing strong is really in China, in Korea, in Japan, I forgot Japan, I'm so sorry. In [indiscernible] and this is just the Asian AP activity area. And of course, outside Asia will be Europe and the U.S.

[Simon Woo, analyst]

Yes. Yes. Yes, very clear, sir. And congratulations on the great results.

[Cher Ng, executive]

Thank you, Simon.

[Unknown Attendee]

Thanks, Simon. Can I next request the person from CICC to ask questions?

[Unknown Analyst]

This is [ Xiao Jing ] from CICC. So actually, I have 2 questions. The first one is that, can you share more color on your product mix on the IC and Discrete side? Since last time, I think you mentioned that the wire bonders actually carries lower margin, right? But in the first quarter, I see your gross margin in the SEMI side continued to improve. So I just wonder if the wire bonder is still the main driver of the SEMI segment.

[Cher Ng, executive]

Yes, [ Xiao Jing ], if you look at the kind of demand, obviously, it has the mainstream tools like die bond and wire bond will have to be -- that will form the largest mix in the demand. There's no doubt about it. But that doesn't mean the rest like AP or mini LED or CIS are slow. We are only talking about relative terms. But with $1 billion of demand, you can imagine the majority will have to come from the mainstream tools.

Now as to your question, yes, we see a strong wire bond demand. But however, Patricia has already mentioned, our gross margin is also a function of volume. So when we have the volume, there will be operating leverages. So that will compensate somewhat the relatively lower wire bond margin compared to the rest of the portfolio.

And also, as I said, mainstream, too, and not just wire bond, but also die bond. So typically, die bond has a relatively higher gross margin compared to -- or margin compared to the wire bond. So it is a mixture of all this. You just can't say that because wire bond is up, then the margin will be -- it is not as simple as that, unfortunately.

[Unknown Attendee]

Do you have another question, yes?

[Unknown Analyst]

Yes. I have one follow-up. And the next question is about the CIS outlook. So do you expect that the camera module -- I mean, the camera module suppliers still project to have a large scale of capacity expansion this year? So -- and what's the main driver behind this? Is it still mainly related to the smartphone side? Or is the automotive side?

[Cher Ng, executive]

Yes. I think we mentioned earlier, as far as booking is concerned for -- our CIS is strong, especially Q-on-Q. So this is a sign that our CIS customers are also confident in ordering equipment. So as we suppose, because if you look at the 5G, the stream of 5G phones coming out, so this bodes well for the smartphone market. So I think it's quite intuitive. Everybody is talking about the number of smartphone. This year will, perhaps, be bigger than last year. So we believe that is driving our CIS demand this year.

Now as for automotive, yes, we are also addressing the automotive camera module market, but we mentioned already before, this is still a very small market for us at this point in time. So largely, our camera module market is really on the consumer side, the smartphone side.

[Unknown Attendee]

Okay. We'll have one last round of questions. Kyna, can you please go ahead and ask your questions?

[Kyna Wong, analyst]

Actually, I have a question, it's more regarding, I mean, the geography with, I mean, as a first investor or analyst already asked some of that. But we see the -- I mean, U.S. government seems considering put -- structure like procurement for those, I mean, Chinese customers to buy with the U.S. technology. Just wonder if there will be any impact on ASM Pacific because China's market is accounting like for -- is it like 50%, over 50% of the revenue?

So understood that in the past, we have discussing about the -- some entity lease impact to certain customers. But if there's a [ 4B ] or like stricter procurement rules from U.S. to Chinese customer, then any impact you could, right, I mean, adjust or like give us some idea what should we see on this issue.

[Cher Ng, executive]

No. Kyna, your question is very broad and perhaps also a little bit more forward-looking. So we can't release comment what's going to happen in the future. But at this moment, we -- I would say we are not impacted because we are really quite diversified in terms of where our products are being made. So we have -- as I said, we have manufacturing bases in Asia. Of course, next is in the U.S. We also have manufacturing bases in Europe for SMT in particular. So from that perspective, we are kind of well-covered geographically in terms of addressing issues at this. So I think I can only give you a general color. I can't really tell you in the future what's going to happen with more and more restriction updates on all these supply chain.

[Kyna Wong, analyst]

What is like U.S. government will buy -- I mean U.S. company buying equipment from China, then you have some equipment actually made in China, perhaps some [ steady ] shift from like Singapore or Hong Kong. But do you think, yes, there will be the impact to your U.S. revenue that maybe, yes, high single-digit revenue contribution?

[Cher Ng, executive]

Sure. Thanks, Kyna. I know where you're coming from. As I said, we look, we have bases -- a manufacturing bases in [indiscernible]. We also have a big manufacturing base in Malaysia. So in fact, we are already addressing some of this concern. So by diversifying some of our product portfolio, not just manufacturing in China alone, but also manufacturing on Malaysia. So this will address the -- perhaps a concern about shipment to a certain country, yes.

[Unknown Attendee]

Thank you, Kyna. With that, officially, we'll be ending this call. On behalf of Robin and Patricia, I want to thank all of you for attending the call, and hoping to see all of you during our next call. Thank you, everyone. Have a good day.

[Cher Ng, executive]

Thank you.

[Peifen Chou, executive]

Thank you.