ASM Pacific Technology Ltd

HKEX:522

Earnings Call Transcript 2022-Q1

[Unknown Attendee]

Good morning and good evening, ladies and gentlemen. My name is [ Romil ], I'm the IR consultant for the company, and I will be the moderator for today's call. On behalf of the management of ASM Pacific Technology, I would like to welcome all of you to the company's first quarter FY 2022 Investor Conference Call. We would like to thank you all for your interest and your continued support in the company.

Before we begin with the presentation, let me highlight some housekeeping rules. [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, priority will be given to the covering analysts. In case we are unable to answer your question during the call, we will follow up with you through e-mails later or if you have more questions, then please feel free to e-mail us with your questions and we will attend to those.

Please do note that during this conference call, there may be forward-looking statements with respect to the company's business and financial conditions. Such forward-looking statements could 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 call. For your reference, the Investor Relations presentation related to our recent results can be downloaded from our website, www.asmpacific.com.

With us this morning are Mr. Robin Ng, the Group Chief Executive Officer; and Mr. Justin Tham, the Director of Investor Relations. Robin will begin with a brief discussion and key highlights about our latest results and then will provide some color to the financial performance. This will be followed by an update on the prospects and outlook and then we will open the floor for Q&A session.

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

[Cher Ng, executive]

Thank you, Rom. Good morning, everyone and thank you for joining us today. I trust that all of you are keeping safe and well as you can during these times. Even as the world emerges from -- more fully from the shadow of the pandemic, we continue to live in a normal, a new normal marked by increased uncertainty and volatility. Despite this, I'm pleased to say that after a remarkable performance in 2021, we continue to be laser-focused on delivering a strong performance while navigating the challenging supply chain and geopolitical landscape.

We managed to achieve this through a combination of our adaptive operational capabilities and some key competitive advantages afforded by our unique and broad portfolio, which feature prominently in this quarter. These have collectively enabled us to continue meeting customer demands, especially for our key Advanced Packaging and Automotive tools. As always, I'm grateful to our global team who are executing well, both operationally and strategically. Our position as a leading global supplier of hardware and software solutions for semiconductor and electronics manufacturing cannot ever be taken for granted.

Let me now share some of the highlights that shaped our business in the first quarter of this year. This slide gives an overview of our first quarter performance. Notably, we see the first quarter revenue record despite continuing and well-documented supply chain challenges. This result is at the high end of our guidance and demonstrate a very healthy performance. Facing challenges like many others over the availability of certain silicon components needed for product subsystem, we have to pull out all stops to continue serving our broad customer pool as well as possible.

First, we shifted to just-in-case inventory management for this critical silicon components. This helped partly alleviate supply constraints, albeit resulting in slightly elevated inventory levels. Second, we proactively redesigned some subsystem in order to enable more silicon component options when we assemble our products. Third, we make strategic investment in our external manufacturing capabilities to ensure our deliveries would not be overly constrained by capacity availability. Overall, we continued to work closely with our suppliers worldwide to overcome media component shortages.

Let me give some color to how our Advanced Packaging solutions have contributed to our strong booking performance. This quarter, they accounted for some 35% of our total bookings. Such strong bookings development signals our competitiveness in many AP solutions domain. The breadth of our AP solutions is unique in the marketplace. And you can see this in this slide, the strong orders that we received for many of our AP solutions, most of them at record levels for their respective categories.

What is noteworthy about these AP bookings is that while it tend to be more lumpy compared with mainstream bookings, they are fueled by long-term capability requirements, as you can see in this slide. Demand from high-performance computing applications and the increasingly demanding advanced display and system-in-package or SiP applications are all circular trends that are less susceptible to the short-term capacity cyclicality that we have observed of our customers' typical capability investment. Over the longer term, we are confident about capturing a considerable share of the expanding AP addressable market, which is expected to hit about USD 2.7 billion by 2026.

The other significant factor anchoring our bookings for this quarter has been a strong demand for Automotive Solutions, which grew about 49% Q-on-Q. This demand was all encompassing, expanding our Automotive Solutions across both SEMI and SMT segments. Here, you can see some of the solutions we offer, addressing a wide range of application areas across power devices, displays as well as cameras. Global momentum for automotive electrification is gathering pace and is expected to be one of the sustained drivers for our business. In the longer term, we are also confident about taking a significant share of the automotive addressable market, which should hit USD 2.9 billion by 2026.

Next, our unique and broad-based portfolio provides some competitive advantages. Let me recap a little bit about what we believe sets us apart. In essence, we provide a wide range of solutions that truly link the entire semiconductor packaging and assembly value chain. Our broad portfolio has 2 main areas; mainstream tools providing both volume leverage and cash generation from a large installed base where the high-growth and high-margin Advanced Packaging tools business addresses more complex packaging requirements. The interplay between the various businesses basically enables a virtuous cycle where the volume business and the higher growth and margin business complement and support each other well. This ultimately helps drive our long-term performance more sustainably as we reduce cyclical revenue and profitability trends and create the conditions of robust structural revenue growth and margin expansion.

This next slide discusses how the competitive advantage of a unique broad-based portfolio came into focus this quarter, with effects on our overall performance. This came from 2 areas. First, our SMT segment bookings increased Q-on-Q for 2 consecutive quarters and its revenue grew Q-on-Q, embarking our usual Q4 to Q1 revenue trend. This is due to the fact that SMT segment activity typically picks up several quarters after the SEMI segment. And in this quarter, it helps modern cyclical effects on the overall group revenue between quarters. Second, there was a strong demand for Advanced Packaging tools this quarter as I shared earlier. This strong demand for higher growth, higher-margin capability-driven tools within both SEMI and SMT segments provided strong support for our overall group bookings momentum.

This slide gives a more visual comparison of this quarter performance versus Q-on-Q and year-on-year. I have already spoken about our first quarter record revenue. For bookings, while we experienced a year-on-year dip of 10%, this must be placed in the context of the extremely high base effect from the first quarter of 2021, which was an all-time quarterly record. Q-on-Q bookings increased 34.2% and was largely supported by the momentum from our Advanced Packaging and Automotive Solutions. This solid booking performance led to a strong backlog of USD 1.52 billion with a book-to-bill ratio of 1.34.

Group gross margin improvement was primarily influenced by both our SEMI and SMT segments' stronger gross margin, despite cost pressures from key material cost increases, particularly silicon components and higher logistic costs from the constrained global supply chain environment. Our group operating margin year-on-year growth was mainly due to the record Q1 revenue. Overall, our strong margin performance helped us to achieve a healthy operating profit of slightly over HKD 1 billion. Net profit was HKD 830 million, which is a noteworthy increase of 57.1% year-on-year.

Let me share about the SEMI segment. Noteworthy here will be a Q-on-Q and year-on-year gross margin growth, as you can see to the bottom right of the slide. This was largely due to a favorable product mix, which included a relatively higher proportion of our Automotive Application tools. Segment bookings at USD 527.4 million were a 44.7% growth Q-on-Q, but 22.5% decline year-on-year. Drivers for the segment's sequential booking growth are consistent to what we have been sharing. These are from Advanced Packaging and Automotive Tools. Note that our record high base effect for the first quarter of 2021 is the key context behind the dip year-on-year.

Our Advanced Packaging and Automotive tools along with the mainstream die and wire bonders dominated bookings. Revenue was strong on the whole to the tune of USD 377 million, accounting for 55.9% of quarterly group revenue. This growth of 8.8% year-on-year and a decline of 28.2% Q-on-Q. Revenue performance was largely influenced by the following factors, as you can see here. Notably, the IC/Discrete business unit achieved record first quarter revenue with die bonders, wire bonders and encapsulation tools dominating deliveries. Segment profit was HKD 624.7 million, representing 13.2% year-on-year growth and 37.2% Q-on-Q decline.

Our SMT segment's Q1 2022 performance was characterized by record segment first quarter bookings. This USD 375.2 million booking level represented growth of 16.3% year-on-year and 18.9% Q-on-Q. Notably, both Advanced Packaging and Automotive bookings grew year-on-year and Q-on-Q as well. Segment revenue was a robust USD 297.8 million, representing 44.1% of group revenue and strong growth of 42.4% year-on-year and 10.5% Q-on-Q. Sequential growth buck typical revenue trends as well. Both mainstream high-end printing and placement tools grew year-on-year and Q-on-Q, while of the segment's AP tools, particularly its SiP placement tools delivered year-on-year growth.

Segment gross margin was 35.5%, representing 331 bps growth year-on-year but 125 bps decline Q-on-Q. Year-on-year improvement was mainly due to relatively higher volume effects and a more favorable product mix. Segment profit was HKD 437.8 million, representing a strong 165.1% year-on-year and 34.4% Q-on-Q increase. While we have taken steps to convert our strong order backlog at a faster pace, we continue to grapple as do many others with the effects of sporadic COVID-19 measures and continuing supply chain constraints. Such dynamic uncertainty can also influence our near-term deliveries.

Based on this, we expect Q2 2022 revenue to be between USD 670 million to USD 740 million, representing growth of 5.8% year-on-year and 4.5% Q-on-Q at the midpoint of the guidance. However, we remain confident about the future. Looking at it, strong industry tailwinds and circular growth trends from increasing semiconductor content, density and complexity in devices are powering profound and long-term structural growth in semiconductor device in unit volumes. In tandem, we have also seen leading semiconductor companies announcing bullish multiyear capital investment to ride this growth wave.

In our last earning call in February, I shared some aspects of our compelling value proposition and this bear repeating. First, we have and continue to be able to generate strong and sustainable cash flow from our mainstream and applicative tools. Second, our margin expansion continues as a result of our consistent and significant investment in R&D for both high-growth and high-margin Advanced Packaging and Automotive segments, funded by the strong cash flows.

Third, I cannot overemphasize how our unique and broad-based portfolio is a key competitive advantage. It has enabled us to achieve a leadership position in key electronic sectors from the mid-end to the back end to SMT. This cushions us from the cyclicality and volatility that -- and helps us to underpin and helps underpin true cycle revenue and profitability growth. Anchored by these key competitive advantages, I believe we are well positioned to capture a substantial share of customer investment in both capacity and capability requirements over the longer term.

Thank you. And we are now ready for Q&A.

[Unknown Attendee]

Thank you, Robin. [Operator Instructions] Let me highlight again on one thing that we will give priority to the covering analysts. And with that, let us kick off the Q&A session officially.

Can I first request Donnie to unmute yourself and ask your questions. Thank you.

[Donnie Teng, analyst]

Can you hear me clearly?

[Cher Ng, executive]

Yes.

[Donnie Teng, analyst]

So I just have 2 quick questions. The first one is first quarter booking looks like to be very strong. I think it's related to the TCB orders you just mentioned in the first quarter.

[Cher Ng, executive]

Donnie, you broke off. Donnie, we can't hear you.

[Unknown Attendee]

Donnie, I think your line got cut off. Can you unmute yourself again and ask your questions?

[Donnie Teng, analyst]

Sorry, can you hear me now?

[Unknown Attendee]

We can hear you.

[Cher Ng, executive]

Yes.

[Donnie Teng, analyst]

So first question is regarding to very strong booking in the first quarter. So, I think that's related to the -- maybe the TCB orders you've just mentioned last quarter. But due to a very high base in the first quarter, could you kindly give us some color on the booking trend into the second quarter by different business segments?

And second question is regarding to the recent lockdown in China. So previously some leading China wholesale companies mentioned about the CapEx plan, will -- the CapEx will grow this year. But I'm not sure if you have ever seen, they are starting to review their CapEx plan after the severe lockdown in China, which may significantly hit certain end demand?

[Unknown Attendee]

Thanks, Donnie. I think let me repeat your questions. So, your first question is you did highlight about our strong 1Q bookings. And you did mention that, that maybe because of the TCB orders, which Robin mentioned previously, and you would want to know that since coming from a high base in 1Q, what is the second quarter outlook for the bookings? And if Robin can give more flavor on that depending on the segments.

[Cher Ng, executive]

Yes, thanks, Donnie for asking the question. Now, on the first quarter booking, yes, indeed, as we have shared, our strong booking in Q1, $903 million. If you look at the last 4 quarters before Q1 2022, Q1 last year was very high, 1 billion and then started to come down moderate. Now to a certain extent, the Q-on-Q growth of 34.2% is a very -- it broke the cycle actually. So, we have a very strong Q1 booking that broke the cycle.

A few by -- you're right, a few by really very strong Advanced Packaging tools as well as, I would say, Automotive. It's not just -- Donnie, it's just due to -- just the TCB. We announced the TCB in quarter 4 in February that we won a silo order, $100 million order. But on top of that, the cost of Q1, we also booked a lot of Advanced Packaging tools relating to mid and deposition tools. It came in at record level as well as SMT -- SRP tools were also at a very high level.

We also got a substantial order for advanced display for mini LED placement tool. As you can recall, we -- in Q4 earnings call, we said that our LED, mini LED business is probably an inflection point. So, I think this win really solidify that statement that we have a substantial win in terms of the mini LED tools in quarter 1. On top of that, to capital, we also received very good order for laser dicing and roofing tools. which are really new end tools as well and also our photonics placement tool. So, all these cumulative give us a very strong start to Q1 bookings of $903 million.

Now as to the outlook for Q2. Now of course, from a very high base, we expect our bookings to also moderate from the Q1 high base. And also on a year-on-year basis, we also saw a very high base. Q2 last year was also a very high base. So, I think we will expect this booking to order it. But however, SMT, we view SMT will continue to -- the momentum will continue to be strong. As I mentioned in the earlier opening remarks, SMT is experiencing at this moment a high cycle. So, we won't be surprised, SMT booking will continue to be strong into Q2. barring, of course, all this barring there's really no further deterioration in terms of the macroeconomic picture like the COVID situation and the geopolitical tension that we're all experiencing at this point in time. So, barring all these getting worse, I think SMT will continue to be strong.

Now having said that, although Q2, we expect Q2 to moderate -- the booking to moderate down from Q1 because of a very high base. We expect Q2 booking also to be not too low compared to prior Q2 quarters before 2021. So, you will be still a relatively high level compared to prior Q2 levels before 2021. Now, I should say that this is not a guidance. As I always said, we don't give guidance for Q2. We just want to give investors maybe some color of a Q2 booking. Now I think you also asked for what kind of -- what do we expect in terms of mix for Q2.

As I've also said in my opening remarks, Advanced Packaging tools demand tend to be lumpy. We had a very good strong start to Advance Packaging tool demand to the tune of USD 315 million. Because the base -- customer base for Advanced Packaging are much smaller than the mainstream tools. So -- and therefore, we, on a quarter-to-quarter basis, we don't expect Advanced Packaging tools demand continue in the fashion. But overall, for the full year and going forward, in the long term, we are still very confident that we will continue to gain more and more traction in terms of Advanced Packaging tools into the future. I hope that answers the question, your question for the first question.

[Unknown Attendee]

Yes. Thanks, Robin for that. Donnie, let me repeat your second question. Your second question is more regarding the lockdowns in certain parts of China. And you did mention that many of the players and companies initially were going ahead with their CapEx plans and they were expected to grow. But you would want to know that what is the current situation and whether these CapEx plans are under review and what is Robin's opinion about all this?

[Cher Ng, executive]

Yes. The way we see it, Donnie, is that certainly, I think the uncertainties surrounding the COVID situation, the sporadic COVID-19 measures that are undertaken, the geopolitical tension, I think all these will affect sentiments in the near term. But however, if you look into the longer-term picture, I think the -- we think the semiconductor outlook still remains very much intact, still very much intact. So in fact, if you look at certain research houses like VLSI or SEMI, up to now, they have not revised their forecast for our industry. So far, they are still maintaining a growth ranging from a low percentage year-on-year growth to around mid-teens kind of percentage growth for industry. So, we also take reference from research house like this.

But on our own, looking at the situation, looking -- doing our China checking with customers, I think it's probably the near-term macro that is affecting the sentiment. In the long run, if the COVID situation can be under control, which we believe it will in time to come and the geopolitical tension can be a little bit more positive going forward, I think with the long-term semiconductor growth outlook intact, I think this short-term blip will return positive once this situation, the macro situation and uncertainty becomes a little bit less pronounced going forward.

[Unknown Attendee]

Thank you, Robin. Next can I request Gokul from JPMorgan to unmute yourself and ask your questions.

[Gokul Hariharan, analyst]

My first question, we are starting to see end market weakness in many of the consumer tech applications, PC, smartphone, Wi-Fi, many companies are starting to kind of tone down their expectations. At the same time, you're also seeing lead times for your subsystems and components expanding. I think several companies have missed numbers on the equipment side because of supply mismatches. So, could you talk a little bit about what you're seeing from your customers? Are you seeing any cancellations at all in terms of orders? And I think you had talked about lead times coming in a little bit for some of the more legacy equipment like wire bonders. Could you talk a little bit about what is happening on lead time for equipment as well given these 2 variables? That's my first question.

[Unknown Attendee]

Thanks, Gokul. I think let me repeat the question for everyone's understanding. You did highlight that the confidence -- consumer confidence and especially on the tech app side and those kinds is toning down. And the lead time expectation is also sort of going up. And you want to know that you know on the equipment side, whether people are missing on the orders and that kind of scenario. So, you want to know from Robin that for ASMPT side, what is the -- what is happening customer side. And you want to know the lead times and also for our legacy equipment and Robin's view in all this.

[Cher Ng, executive]

Okay. Thanks. Let me try to answer the question. On translation of orders, at the moment, we don't see cancellation, but more push outs, more push out. Now I think this is also a signal. If customers don't cancel orders, it's also a signal that they are still kind of confident about the long-term -- longer-term outlook for their businesses because the consequence of them canceling orders is that it become better again. When they reorder, they will be placed at the bottom of the queue again. So, if they don't cancel, it shows that they are -- they still want to take the equipment sometime later once the picture or the sentiment becomes better on the macro front. So, that's a good sign. We view this sign positively.

Certainly, there are push out. But fortunately, for ASMPT, because we serve a very broad base, customer base and we have solutions for almost the entire value chain. So, you're right, Gokul, certain segments, we see some businesses and those segments are typically relating to the consumer segment. So, we see consumer segments relatively weaker going into Q1. But however, because of our strength in the Automotive segment, the Power Devices segment, we managed to readjust our delivery without affecting the revenue guidance that we have given in -- for Q1.

So we managed to ship around the orders because the certain segments like the Power Devices, the Automotive segments is still when the equipment, if you can deliver to them earlier, they still want to take the equipment earlier. So, I think that's really one of really advantages of ASMPT because we serve a broad base. So, we could offset and readjust our delivery based on certain demand scenario.

Now as to our lead time, you asked a question about lead time. Yes, I think the continued supply chain constraint certainly is still placing a lot of pressure on our lead time. Typically, for mainstream tools, we are talking about -- I'm talking across the board, maybe 3 to 4 months, typically. So, orders that we receive in this quarter typically should be fulfilled in the next quarter. But because of the constraint in the supply chain and also because of the COVID measures, it does extend our lead time slightly to maybe a month or so depending on the tools. So, orders received today would still be able to be delivered in the next quarter, but may be delayed by a month or so. So, that's the kind of scenario we are facing right now.

[Gokul Hariharan, analyst]

My next question is a little bit more long term. I think you talked about Advanced Packaging reaching $2.7 billion, probably the fastest growth within the pie in terms of addressable market. Could you talk -- give us a little bit more color on how does it break down? What are the bigger pieces of Advanced Packaging that are more important for ASM Pacific when you think about growth, thinking about TCB, micro and mini LEDs, SiP? Like could you at least give us a rank order in terms of which are the more important pieces when you think about ASMPT taking a big share of this Advanced Packaging pie?

[Unknown Attendee]

Gokul, let me repeat the question. I think you highlighted that we did mention on AP reaching about $0.7 billion for the addressable market, you would want to know from Robin, a bit more color on how does this AP potential sort of breakdown? Which side of the AP is more lucrative for growth? And what can be the bigger say pieces of AP going forward for growth, whether TCB, micro, mini LED and others? And how does Robin can break it down in sort of a packing order for you to understand better?

[Cher Ng, executive]

Thanks, Rom. On the AP, in the longer term, we are very bullish about our Advanced Packaging business because of the -- probably we have the most comprehensive suite of Advanced Packaging tools that cater to various requirements at the Advanced Packaging to [ main ] side. Now this quarter, booking will probably give you a glance of the relative positioning of Advanced Packaging tool business going forward.

Now because of HPC, high performance computing, because of AI, because of 5G, we see Advanced Packaging tools will be in -- more and more in high demand because as we go into those kind of packages whereby the pitch between die, the accuracy that is required, only Advanced Packaging tools can effectively package these devices. Not forgetting devices are also getting smaller, they are also requiring a SiP kind of application or [indiscernible] application, all these also demand a lot of precision, a lot of accuracy, a lot of speed at the same time. So, these are all very highly demanding requirements on the Advanced Packaging side.

And we have the technology. We have the breadth of solution to provide for such application to satisfy all these applications. We have the end tools, like for example, our next tools, they are helping to actually alleviate, as we speak alleviate some of these shortages in terms of high-intensity substrate demand for HPC, for HR requirement. What a tool do is really to deposit interconnect layers layer by layer on the substrate so that the chips, when placed on the structure, they can talk to each one in more efficient, in a more faster way.

So these tools are in high demand right now. TCB tools for sure, because if we go into more precise review, let's, for example, if you need a heterogeneous integration, which is getting more and more popular, our tools, the orders that we won recently are actually used for chip wafer. They are principally used to place different kind of logic chip, DRAM chip on to a wafer, on to the wafer. So, those require very high precision TCB tools, which we are really dominant in that particular space.

So going forward, we'll also continue to see our SMT SiP tools gaining a lot of traction. It started probably a year ago. These tools are used to package very tiny components into very small real estate, into a very small real estate. PCB that goes into our ear pods, that goes into wearables like watches, mobile applications. So, they require speed as well as accuracy. So, our SMT tools serve that requirement very well. Besides these 3 tools, we also think mini LED, as we said before, has really reached an inflection point and the orders that we have received is probably at the tip of the iceberg. We expect more such orders to come in a couple of quarters to come. So, we will announce this good news in due course. So, we're also very confident about our mini LED position for advanced display going forward.

Now, last but not least, I also want to mention our laser dicing and grouping tools are also gaining a lot of traction. So, our tools are now being recognized as being highly capable to perform a lot of applications, including memory, including power devices, logic. So, we are making also very good advancement in those -- in this dicing and grouping tools. I think this will give you a sense of what has to come in the next couple of years.

And last -- actually, last but not least, hybrid bonding. We are on track to deliver several tools this year for customer evaluation, for key customer evaluation. As we mentioned many times in many quarters, we believe hybrid bonding will be also one of the key growth drivers, starting perhaps 2023 onwards. So, I think this probably give you a landscape of our Advanced Packaging landscape for the next -- in the longer term.

[Unknown Attendee]

Thank you, Robin. Next, can I request Leping to unmute yourself and ask your questions. Leping, can you hear us? You are unmuted, but we can't hear you.

[Cher Ng, executive]

Leping, we can't hear you.

[Unknown Attendee]

Leping, I think something wrong on your side. We see you unmuted, but we can't hear you. I'm going to request -- I'm going to give the queue to Kyna and request Kyna to unmute herself and ask her questions. Leping, maybe you can join back the queue or just type the questions in the chat to me. I will read it out on your behalf. Kyna, hi, you can unmute yourself and ask your questions.

[Kyna Wong, analyst]

Hello.

[Unknown Attendee]

Hi, Kyna, we can hear you.

[Cher Ng, executive]

Now, we can hear.

[Kyna Wong, analyst]

So, yes, I also have 2 questions. The first one is a follow-up question on this question on the topic not an impact. But I wanted to ask more about the impact that related to your 2Q guidance. So, how much -- how does it impact your original expectation on the 2Q revenue? Like what should we expect the delivery issue or you cannot send engineer to your customer site, et cetera. How does it impact? And then another one is about the gross margin outlook as well because we think perhaps utilization, you are still keeping at a certain level, but perhaps efficiency also suffer from the lockdown in different type -- different area of your factory and also the supply constraint. So, could we also have any idea if there's any impact to the gross margin in 2Q as well? That's the first question.

The second one is that because I also see the tool business showing sequential improvement in the share results. And is that a good indicator for the SEMI business? Or you see some different indication from that?

[Unknown Attendee]

Thank you, Kyna. I think let me repeat your first question. I think you want to know more from Robin's point of view, keeping in mind the ongoing pandemic and its impact. So, you wanted to know that especially in terms of the 2Q guidance, how does it -- how does the ongoing pandemic situation supply constraints, how does it impact? And whether our expectation on 2Q revenue, all this is still intact or does it shift because of the ongoing pandemic? Also, you want to know whether any issue on the delivery to the customers in all or whether if customers need some, say, help, we need to send engineers, whether all these things because of the ongoing pandemic is an issue? And you would want to -- I think, I think let Robin highlight this, then maybe second part of your first question, we go on the margins next.

[Cher Ng, executive]

Thanks, Rom. Yes, Kyna, to answer your question, our Q2 revenue guidance has indeed taking into account some of these factors like COVID-19 measures that may happen. Of course, we can't predict everything to be very honest. But let's put it this way if there were no COVID-19 situation, our guidance for Q2 would have been higher. Let's put it that way. So definitely, we have a factor in some of these challenges that I think we will face, we anticipate to face in the coming Q2. So, if Q2 turn out -- if the COVID situation turn out to be better, I think we look forward to that. I think, as I said earlier, hopefully, this situation will go away soon so that the long-term growth for this whole semiconductor industry can come back competitively.

Now certainly, because of COVID-19 measures, you're absolutely right, it has a lot of -- it caused a lot of disruptions, not just factory shutdown for some. As you're probably aware, in the middle of March, we also had to -- because our factory was located in Shenzhen, we also have to shut down our factory for 1 week. So, that caused capacity loss as well and also a lot of disruption to productivity. Now however, we do what we can. We do what we can as a company with multiple production sites, 3 in China, 1 in Malaysia.

We have built in some redundancy, yes, we have built in some redundancy. But in a major lockdown, this redundancy would not be sufficient to offset any significant loss of capacity if our plans will have to be shut down for a longer period. So, 1 week is still manageable. So, we'll do what we can to manage all these contingencies. So, that's why we are also diversifying our suppliers, not just within China itself, but also diversify outside China so that we are not too reliant on few supplier if they face COVID situation measures, we will not be severely affected. So, we do what we can to improve our supply chain resilience.

Now I think I can follow on to the second part of the first question, which is the margin part.

[Unknown Attendee]

Yes. So, Kyna highlighted that I think you did touch on it, but let me repeat the second part of the first question that utilization for ASMPT might be at a certain level. But she highlighted that the efficiency might suffer because of the supply constraint and the ongoing pandemic and this kind of scenario. So, I think she just wants a bit more guidance on the impact of all this on the GP margin.

[Cher Ng, executive]

Sure. Thanks, Kyna. I think you know us very well. We still have a substantial production capacity in-house, although over the years, we have continued to have more and more outsourced to balance up the production mix between in-house and outsourced. So, because we have still in-house production, yes, any -- the shutdown of the operation certainly, will certainly affect our margin because our margin is also dependent on capacity utilization. The higher the capacity utilization, the better would be our margin. But just one component of the gross margin.

On the tool level, we are confident that with more -- at the tool level margin, when I mean my tool level margin, that means whether it's Automotive tools or Advanced Packaging tool for that matter, at the tool level -- or mainstream tool for the matter, at the tool level, because of our strength in getting more and more Advanced Packaging business into our mix, getting more Automotive business into our mix. At the tool level, we are confident that the margin expansion will continue, okay? But this is just one component.

The overall gross margin is still dependent on tool level margin, capacity utilization. So, all these are -- and also cost, inflationary cost on our production -- production cost base. So these 3 factors, tool level margin, capacity utilization, costs will have an impact on the gross margin. In the longer term, even the longer term, if we put aside COVID-19 impact, in the longer term, we strongly believe that with more AP and Automotive business economics, at the tool level margin, we will continue to improve our margin going forward. I hope I give you a picture for the short term as well as in longer term.

[Unknown Attendee]

Thanks, Robin. Kyna, let me repeat your second question. You highlighted that the material business is showing sequential improvement. And you would want to know that whether that's a good indicator for the SEMI business and what is Robin's view on that and probably a bit more details on the SEMI business outlook.

[Cher Ng, executive]

I think that's also a very insightful observation by Kyna. Yes, indeed we know our share of the lead frame JV profit has been increasing. This is really a demonstration that the lead frame -- our lead frame joint venture has indeed been performing above expectations. And that also was the reason in Q4, if you recall, we had an extraordinary gain because we are on track. Based on the performance, we are on track to increase our share of the JV from 44.44% to 49% in about 2 years' time when -- as part of the agreement that we can increase our shareholding in 3 years after we acquired the lead frame if they perform up to a certain level. So, there is a clear indication that the lead frame business was very healthy.

Now in recent quarter because of the COVID-19 situation, the bookings did initially came down. But however, we are starting to see some green shoots in terms of demand for lead frame. So, this could also be another sign that the inventory level for lead frame as some of the customer base are still not too high. And so we are all looking forward to see how Q2 different demand will continue. If it continues to increase, that is a sign that the recovery may be on sign.

[Unknown Attendee]

Thank you, Robin. Thanks, Kyna. Let me next read 2 questions from Leping, which have been posted in the chat. The first question is about your Automotive business. What types of customers are expanding their automotive equipment now? Are they at capacity buy? Or are they buying more advanced equipment, which they have not used before?

[Cher Ng, executive]

Thanks, Leping. As far as our customers are concerned, we see automotive customers coming strongly from the IDMs. We have been engaging these IDM for many, many years. So, over the years, many of these IDM have shifted their focus from other segments to the automotive segments. So, as a result of our strong engagement with this IDMs for so many years, we benefited from this trend. And we also were able to provide very capable, I would say, very capable automotive solutions that our customer demand for the next generation of automotive devices, particularly for new wide band gap materials like silicon, carbide, gallium nitride. So, we are able to -- our tools are able to package this devices effectively for our IDM customers for automotive customers. So, we are in a good position.

We have a range of solutions, comprehensive solution. We don't just supply a die attach, for example, we also supply laser cutting tools for the wafers. We also supply what we call die attach, also molding equipment. So, because of a comprehensive automotive solution, our customers and automotive customers like our solution, okay? Now, as to whether this a capability of capacity, I would say both at this point in time, both. The good thing about IDM business is that they are fairly long term. They invest for the future. So, the other segments maybe a bit weaker, when it comes to automotive, these IDMs are still very bullish, so they will still continue to invest in capabilities. And the good thing about investment in capabilities is once our tools are being qualified by these customers, okay, once they're qualified, they will continue to use our tools for high volume in time to come when these new devices actually go into high volume production. So, that is the beauty of the automotive business. Once you are in, okay, once you get qualified, you get you're in for a long time.

[Unknown Attendee]

Thank you, Robin. Leping's second question is about mini LED. We have been discussing mini LED for many years. Why do you believe mini LED will finally come this time? And what are the major applications.

[Cher Ng, executive]

The major applications for me the way we see are mainly for advanced displays, the space that you see in offices and shopping malls, okay? And also mini LED TVs, okay, increasingly sold because these are true mini LED TVs. They are not just backlight, but the whole TV have been populated by either mini LED and, in fact, going forward, maybe even mini -- micro LED going forward. So, this is the trend. This is a trend for a mini LED and micro LED. So, we see this is really an inflection point for the industry because the customers are demanding more and more higher resolution displays and TVs. So, consumers are being more demanding in terms of higher resolution. So, the trend towards mini and micro LEDs in my opinion, will continue very strongly into the future.

[Unknown Attendee]

Thank you, Robin. Next, can I request Frank to unmute yourself and ask your questions.

[Frank Lee, analyst]

Can you guys hear me?

[Cher Ng, executive]

Yes.

[Frank Lee, analyst]

So, just wanted to touch a bit on the bookings you guys saw in the first quarter, the strength. You've highlighted that it's coming from AP and also Auto. I think in 2021, your Auto revenues was about maybe 15% of total sales. Can you disclose, I guess, more specifically what AP and Auto percentage of revenue looks like in Q1? And I guess and related to this is the overall booking strength, can some of it be attributed to the -- some of the -- is there some easing in some of the tool supply chain tightness that largely impacted the industry last year because of the extreme shortages. So, is that kind of leading as things are easing in some cases, leading companies to be able to fulfill and increase their booking orders?

[Unknown Attendee]

Thanks, Frank. Let me repeat your question. You want to know more color on the bookings in 1Q 2022. You would want to know how the breakdown if you can provide for AP and Auto because those ones were strong. You did highlight for 2021, the percentage of revenue for AP and Auto was about 15%. So, you want to know more color on that in terms of growth. And whether on the market outlook and from last year to this year, you know what has happened and how has it shifted on the overall booking strength in these segments. And you know whether some easing on the supply chain from last year, especially is helping out on this cost.

[Cher Ng, executive]

Yes. Thanks, Frank, for your question. Now let me give you some color. Now Frank, we don't disclose the breakdown on a quarterly basis. We will show more details of a breakdown by end market and Advanced Packaging tools every half yearly. We think that breaking down a quarterly may not be that meaningful for investors. But on a longer term, every half year, I think that will be more meaningful. But nevertheless, I can give you some color. Now at least on the booking side first. Now if you look at the booking 35% of our booking is this quarter was for Advanced Packaging. And also, we alluded that the -- our Auto bookings grew also Q-on-Q by 49%. So, you can imagine this will filter down into our backlog. So, based on our backlog, we see that the Advanced Packaging tools mix and the Automotive mix are higher than last year, okay?

So this backlog will eventually be translated into revenue, right? So, I hope I give you some color that going forward, if this momentum for Advanced Packaging and Automotive continue, we will see more and more of these 2 segment, of these 2 areas constituting more and more of our revenue mix going forward. And that's -- and that is good actually, if we think we have been saying that AP and Automotive, they are relatively higher-margin tools. I talk about tool level margin. So, we are confident that with this higher mix of AP and Automotive tools, they will continue to uplift our true margin at least at a tool level. And this bodes well for gross margin going forward.

[Frank Lee, analyst]

I guess, as far as some of the improvement, can some of that be attributed to some easing in certain parts of supply chain, allowing equipment tools to accelerate the momentum?

[Cher Ng, executive]

I think so. I think so. We think that's the case because we see a lot of demand coming from automotive side. So, I think the supply chain constraint on the automotive side seems to be easing already.

[Frank Lee, analyst]

And sorry, can I ask the second question is more on your SMT. That also has been very strong, and you said Q1 looks to be above seasonal. From an end product perspective, can you give us a little bit of a clarity? I mean I know the SMT has some auto and other areas, but there's also a lot of consumer and potentially smartphone, which generally has been weak. So, just trying to get a sense of, I guess, what's driving also the much stronger SMT.

[Cher Ng, executive]

Sure. I think across the board, because the SMT, as I say, is experiencing a high cycle right now. So, demand across the board generally are very strong. But in particular, we see automotive, industrial, we see SiP [indiscernible] for Q1 booking was very strong. So those areas, good margin areas for SMT as well. Now, a relatively consumer segment, you're right, communication segment, computers relatively are weaker compared to say, automotive and industrial.

[Unknown Attendee]

Thank you. The queue for the Q&A right now is empty. [Operator Instructions] In the meantime, let me read 2 questions from the chat. The first question is from Daniel from Overlook. I shall read the question. How much of the order backlog is related to business outside of China? Are you seeing significant business from U.S. and European businesses side, building out supply chains closer to home?

[Cher Ng, executive]

Okay. Let me give you some color. With the very strong Advanced Packaging booking in Q1, we see geographical locations that the Americas, Europe, I would say maybe even Malaysia, Korea, these are typically areas where we -- Advanced Packaging tools demand will come from. So, those areas are relatively high compared to either area. So, the geographical mix has somewhat changed. But let me tell you China still remain a very important location for the semiconductor at least for the back end. So, it continued to be a very strong area but the mix, the geographical mix has somewhat changed because of the strong bookings in terms of Advanced Packaging.

[Unknown Attendee]

Thanks for that, Robin. Let me read one more question. This is from Yikang from CICC. My question is that you did mention the utilization of the factories. Can you give a more specific number of percentage in terms of different region and globally? Also, how did this number change during the past few quarters?

[Cher Ng, executive]

I'm not sure whether he is asking us internally or is it...

[Unknown Attendee]

Asked to the management.

[Cher Ng, executive]

Our internal operations? We have only few location in China. We have 2 in Shenzhen and 1 in Yizhou. So I hope I answered your question. I'm not exactly sure exactly the news of your question. But in the recent lockdown it was only in Shenzhen. So we were affected, as I said earlier, 1 week of shutdown in Shenzhen. The factory in Yizhou was not affected.

[Unknown Attendee]

I think he's asking also for more color in terms of the utilization of the factories in different regions and globally.

[Cher Ng, executive]

Okay. Now yes, for sure, the Shenzhen utilization was affected by 1 week whereas the Yizhou and the Malaysian plant and our Munich plant, they were not actually affected by any COVID-19 measures during Q1.

[Unknown Attendee]

Hi, everyone. The queue is empty right now. [Operator Instructions] Frank, can you please unmute yourself and ask your questions.

[Frank Lee, analyst]

So just wanted to, I guess, ask a bit on your traditional wire bonding business. We talked a lot about the AP outlook and being strong in auto. Can you give us some sort of color and indication of how the traditional wire bonding business has looked?

[Cher Ng, executive]

Sure, Frank. Thanks. The traditional wire bond business were very strong last year. So, this being capacity by mainly. We have been advocating for many years, such demand will have to take a pause because with such high demand, there is digestion period for our customers take. We don't see that continue un-relentlessly. So certainly, I think the volume business and wire bond business has come down compared to 2021.

[Frank Lee, analyst]

Okay. So overall, wire bonding is still going to be down this year versus last year? Is that the outlook?

[Cher Ng, executive]

Frank, you can't see that. Honestly, you can't say that because it all depends on the -- I would say, because the longer-term outlook for the semiconductor is still very much intact. So, this blip maybe we call it a blip, this could be a blip because once the macro situation turnaround and because the long-term outlook for semiconductor is still very strong, we won't be surprised such main stream to the advancement.

[Frank Lee, analyst]

And sorry, can I just confirm one thing was, earlier in the call, you talked about second quarter booking orders to be moderate. But I guess I just wanted to see if you can get some clarity. Does this mean that it will be up on a quarter-on-quarter basis or down on a quarter-on-quarter basis?

[Cher Ng, executive]

You mean the booking, right, Frank.

[Frank Lee, analyst]

Yes. Yes.

[Cher Ng, executive]

For Q2 right?

[Frank Lee, analyst]

Yes.

[Cher Ng, executive]

I mean we don't give a quantity to guidance, but our sense that it will be a Q-on-Q down.

[Unknown Attendee]

Thanks, Frank. Can I next request Simon to unmute yourself and ask your questions.

[Simon Woo, analyst]

Any rough idea your raw material cost portion versus the harder fixed cost, et cetera? Because the reason I'm asking is these days metal price is getting higher and higher. So, I want to revisit the overall the impact from the metal commodity, the inflation impact?

[Unknown Attendee]

Okay. I think your question is quite straightforward. You want to know more on the inflationary pressure, which is going on right now, and especially how is it -- how the raw material costs are impacting the cost of production overall? And what's Robin's view on this?

[Cher Ng, executive]

Okay. Indeed, I think if you look at the gross margin, I would say that it's not because of the inflationary cost pressures that we face or we have to resolve, our gross margin overall could have been better. So indeed, for sure, I think this inflationary cost has impacted our margin. Although our margin overall at 40.6% for the group. So, it's already very credible. And if you look back, we have been hovering around 40%, there above 40%, 41% for the last 4, 5 quarters. So, despite all these cost pressures that we faced since the last 4 or 5 quarters, I think our margin development has been really on track.

We have been delivering a good performance in terms of gross margin over the last 4 or 5 quarters. Now we see these cost pressures will continue. So what we can do on our own is really to diversify our source and also to see how we can repackage using other materials, alternative materials so that we also don't face supply chain challenges. All these efforts what we can do, we will do internally to alleviate the cost pressures. But for sure, cost pressure is here to stay and we believe this will continue for some time to time because of the tight demand and supply situation.

[Simon Woo, analyst]

Very quickly, so you said no impact from the China or the lockdown situation. But again, you don't feel any immediate maybe supply chain disruption to get some component or some other resources within the China? And then it will be great if you can recap your all the manufacturing activities portion by region, China still 50%? And ASEAN, maybe what percent there? Would you recap properly your manufacturing activity breakdown by region?

[Unknown Attendee]

Simon, I think let me repeat your first question, and maybe I will just rephrase it a bit. I'll request Robin to maybe provide that what impact or what we are seeing on the China side, especially with the lockdown in certain places. I think Robin did highlight that. But maybe we'll just request, Robin, to just quickly recap on that especially in terms of the supply chain constraints.

[Cher Ng, executive]

Simon, I didn't see no impact. I said that in Q1, we were impacted by 1 week, although the impact is not significant because it's only one way. But if we were locked down for a longer time, the impact can be considerable. So, this is our position. Now in terms of the utilize -- I mean the capacity percentage, yes, China is still a big region for us, Simon, because you can imagine, we have 3 plants in China, one -- only one in Malaysia.

So as far as internal production is concerned, okay, China is still a big proportion of our production capacity. Of course, for SMT, they are mainly in Malaysia and Munich and so their production is not so much in China, but more in Malaysia, outside China and also in Munich. But for the SEMI side, we have still a substantial production capacity in China. But over the years, Simon, if you have follow us, we have been diversifying our production, so we have more and more outsource now. So, we are more and more reliant on outsource. So we are not 100% internal anymore. So that will help us cushion any sporadic impact or restrictions on production in any part of the world because we are more diversified in terms of production base, using both internal as well as external. I hope I answered your question, Simon.

[Simon Woo, analyst]

Yes, yes, very clear. But it will be great if you can recap what percentage of your capacity based on the outsourced versus in-house these days?

[Cher Ng, executive]

It depends, Simon, because we -- it depends on whether it's machining or, for example, typically for machining, we outsource more, for assembly because a certain IP is required in-house, so we do a little bit more IP, less outsourced. But for machining, we do a lot of source less in-house.

[Unknown Attendee]

Thanks, Simon. We are coming to close to about 80 minutes into the call. I think Robin is still going to take 1, 2 questions, if there's questions from the floor. I'll give it a minute or so, if anyone wants to raise hand and ask questions. Hi, Gokul, you can ask your questions. Thank you.

[Gokul Hariharan, analyst]

So a couple of questions from my side. First is, Robin, the management team has historically talked about diversification and the fact that you have very little customer concentration as an important facet of the business model. Now, if you think about a lot of other semiconductor equipment companies and the semiconductor industry itself, we are starting to see a lot more concentration. I think if you think about semiconductor manufacturing, TSMC or ASML or even in the OSAT side, we are starting to see a lot more consolidation. Do you think that your customer base and your customer concentration is going to become more kind of narrow and you'll have more customer concentration as we go ahead. And I don't think that is a bad thing given the industry is kind of becoming more consolidated. That's my first question and I have a follow-up question as well.

[Unknown Attendee]

Gokul, maybe I'll just quickly repeat your question. I think you did highlight that we do have a reasonable customer diversification. And you want to know that with the ongoing situation in the industry, there is a certain level of consolidation happening in the industry. With that, you want to know from Robin whether our customer diversification will it narrow down, will it become more concentrated, or what is Robin's view on this?

[Cher Ng, executive]

Now frankly, Gokul, we don't see that our customer base is narrowing actually. We -- actually, with the recent acquisitions, like NEXX, AMICRA, we're actually expanding our customer base. NEXX is a good example. We have never penetrated into high-density substrate manufactures before we purchase NEXX. But because our NEXX business, high-density substrate makers are now our key customers. So in fact, we don't see that happen, customer base is still very broad based, but also by virtue that we're also offering a very broad-based portfolio, ranging from Advanced Packaging tools to mainstream to applicative tool. So honestly, we don't see that happening. I hope I give you a little highlight there.

[Unknown Attendee]

Hi, Gokul, do you want to ask second question?

[Gokul Hariharan, analyst]

Yes. That's clear. So corollary to that, if you do all that as base effect, could you talk a little bit more, which are the key areas where ASM Pacific expects to be #1, not on #1 overall, but on individual areas, let's say, PCB, let's say, mini LED or micro LED, maybe SiP affecting, maybe die bonding or wedge bonding, die attach. Could you talk a little bit about areas where ASM is clearly number one versus areas where you think you will be #1 in the next 3, 4 years, which are still kind of work-in-progress because I know that you guys are #1 on an overall basis, but investors clearly are looking for some more pure-play exposure, as you can see from the multiple that ASM is trading compared to some of the pure-play companies.

[Unknown Attendee]

I think I will just rephrase a little bit and ask the question again. Maybe we will -- on your behalf, we'll ask Robin to highlight a bit on the say, our market positioning in terms of say market share in some segments of our business like TCB, mini LED, SiP and those kinds. And maybe Robin can just provide a bit more color in terms of our market share and how does it look like panning out in the future?

[Cher Ng, executive]

I think generally, Gokul, when we enter into whatever basis, we want to be a dominant player in that particular field. So, if you look at TCB, I think clearly, we have articulated -- I think 1 year ago, we said that we reached a milestone of 250 tools. We continue to garner a lot of market share in terms of the TCB. So TCB, if I may answer your question specifically, TCB is definitely one area whereby we have a very dominant market share. Another area is panel VCD. The next tools, as I said earlier, with our next tools, the high-density substrate shortages will be even more severe because they need our tools to lay those copper wires on to the high-density substrate. So those area -- that area is also a very dominant -- we also have a very dominant position in next deposition tools.

We believe going forward, many LED micro LED will also be an interesting area for ASMPT because we have been in this area for many years. We have a broad customer base. We mentioned in Q4 that we have a 17 customer base for mini LED segment have already gone into high-volume production. The recent order that we -- a substantial order that we won for mini LED is a testimony that we are very strong in a particular area as well -- in a particular area as well. So, there are many areas, we're very strong in commenting to become the #1 in very broad for SEMI and #1 or #2 for SMT. So, I can give you some color on this aspect.

[Unknown Attendee]

Thank you, Robin. If there are more questions, please let us know. We'll wait for 1 minute before we officially close the call. Hi, everyone, since there are no further questions, then we would like to officially end this call. We would like to thank all of you for attending today's investor conference call and we hope to see you during the next quarter's call. Please take care, stay safe. Thank you.

[Cher Ng, executive]

Thank you so much.