ASM Pacific Technology Ltd

HKEX:522

Earnings Call Transcript 2021-Q2

[Unknown Executive]

Good morning, and good evening, ladies and gentlemen. My name is Ronald. 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 ASM Pacific Technology's Second 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. [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 analyst. In case 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 questions, and we will attend to those.

Please 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 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 Ms. Patricia Chou, the group Chief Financial Officer. Robin will begin with a brief discussion and key highlights about our latest results, with Patricia giving some color to the financial performance. This will be followed by an update from Robin on the outlook and then we will open the floor for Q&A session.

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

[Cher Ng, executive]

Thank you, Ron. Good morning, everyone, and thank you for joining us today. Before I proceed with key highlights of our business, let me highlight that since Q1 2021, our reported performance excludes contributions from our former materials segment, which produces leadframes.

ASMPT's continuing operations presently comprise only the SEMI and the SMT Solutions segments. On the whole, I'm pleased to report that we achieved a record quarterly revenue, better-than-expected quarterly bookings and strong overall results for first half 2021, characterized by record half yearly revenue and bookings, sharp gross margin improvement and a record order backlog.

Let me highlight some key developments for Q2. These key highlights underpin our performance for this year is [ over well ] for our longer-term prospects.

Firstly, we demonstrated superior operational and fulfillment execution. Since the beginning of this year, the group experienced an acceleration of customer demand, underpinned by the strategic need to build more resilient supply chains or to become more self-sufficient as major economies started opening up, circular growth trends driving a richer silicon content in our daily lives. These positive developments were met with some challenges posed by industry-wide semiconductor chip or connect and supply chain constraints.

We executed well to meet these challenges, with a well-balanced robust internal and external manufacturing footprint that give us greater strategic control and visibility to address such dynamic situations. This is coupled with building inventories for some key components instead of relying on a more just-in-time inventory management approach. By strengthening our own supply chain resilience, we have been able to continue fulfilling our commitments to our customers.

Even as a group, global manufacturing teams were delivering at elevated levels. We continue to pace capacity expansion efforts particularly for external manufacturing in order to alleviate the record backlog faster. Our ability to leverage capacity allocation flexibility across our global manufacturing footprint and supply chain is a key competitive advantage, enabling us to minimize disruptions to delivers -- delivery schedules in the event of unforeseen situations such as short-term national lockdowns. Our global manufacturing and supply chain teams continue to closely monitor possible events that may impact delivery.

At this point, I would like to thank the various ASMPT teams for their hard work, commitment and perseverance that has enabled us to continue performing well.

Next, we had an overall strong performance from our Advanced Packaging or AP solutions. AP solutions are a key part of the business that we have been methodically and progressively building up. We have, in this quarter's earnings materials, offered more color on how our AP solutions across the group, both SEMI and SMT, have performed. On the whole, our range of AP solutions experienced a further broadening of its customer base with strong momentum. I will cover this in more detail after Patricia's update.

And finally, our strategic focus on long-term profitability is something that we will continue to get asked like a beacon through the future as we strategically and progressively transform our business. In past quarters, I have alluded to specific strategic initiatives we will progressively unfold over the next few years, and we have begun to see the results of some of these initiatives already beginning to bear fruit. I will also share more about this after Patricia's financial performance update.

Let me 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 second quarter 2021 performance. I'm pleased to share that the group has delivered a strong second quarter and first half 2021 financial results.

This chart summarizes some of the key metrics for the group performance for this quarter. Group revenue of USD 667 million exceeded guidance and was a record, while bookings of USD 943 million were better than expected. Don't forget that in our first quarter, we had recorded just above USD 1 billion in bookings, which is an all-time high for us.

Our gross margin of 40.6% represents a meaningful improvement from the previous quarter, while net profit of HKD 732 million continued a strong upward movement from the previous quarter, rising about 38.6% quarter-on-quarter.

Last but not least, our backlog also increased to a record USD 1.49 billion, reflecting the strength of this quarter's booking.

Let me now go into a bit more detail about our group performance over the half year. To begin, our first half 2021 revenue performance was a record, clearly exceeding guidance. Notably, we demonstrated a sequential gross margin improvement since Q4 2020. First half 2021 group gross margin of 40.1% was a sharp improvement of 260 bps year-on-year and 481 bps half-on-half, driven by relatively higher segment revenue mix from SEMI and elevated volume effects and capacity utilization, strong SMT gross margin and positive margin accretive effects from some strategic initiatives. While this gross margin gain were partially offset by some costs related to building resilience to our supply chain, strong gross margin -- strong group gross margin performance still drives the group's net profit to HKD 1.26 billion, which represents an impressive improvement of 261.2% year-on-year and 143.1% half-on-half. These figures include the share of the results from our joint venture, AAMI, in leadframes business.

The most noteworthy effect in SEMI segment is its 3 consecutive quarters of revenue growth starting from Q3 2020. This segment delivered a strong revenue of USD 408 million, representing a robust growth of 46.3% year-on-year and 17.1% Q-on-Q.

Let me give a bit more color on this. First of all, as IC/Discrete business unit showed another consecutive quarter of strong year-on-year and Q-on-Q revenue growth, IC/Discrete BU's mainstream tools such as die bonders, wire bonders and test handlers dominated deliveries. Some of its AP solutions, namely advanced replacement flip chip bonders and the advanced laser dicing and [ removing ] equipment exhibits strong year-on-year and Q-on-Q growth. The BU's overall performance reflected the customers' willingness to rapidly deploy capital in order to capture opportunities that are emerging from recovering global market conditions.

Its Optoelectronics BU reported a strong year-on-year revenue performance from general lighting customers. This, along with the conventional fine-pitch display and mini LED customers accounted for the majority of this BU's revenue.

Its CIS BU registered a slight but encouraging Q-on-Q improvement in revenue, underpinned by its broad and favorable customer mix. This was achieved despite widely reported semiconductor supply constraints that continued to impact the near-term outlook for smartphones.

In terms of overall segment bookings, mainstream wire and die bonding tools and advanced packaging panel level ECD tools represented the majority. Segment gross margin was 43.8% this quarter, a year-on-year improvement of 94 bps and Q-on-Q flat. In fact, our first half 2021 gross margin performance increased half-over-half and year-on-year. These improvements were attributed to a combination of enhanced operating leverage arising from elevated volume and capacity utilization, increased productivity, achieved with a leaner workforce, sorry, and some positive effects from the rollout of the group's strategic initiatives. These improvements were partially offset by a product mix in favor of our mainstream tools, expenditures related to the strategic initiatives and cost to strengthen supply chain resilience during industry-wide semiconductor bottlenecks.

Moving on to the SMT segment's record second quarter 2021 performance. The key highlights was its 2 quarters of record bookings that were driven by order-based demand across end markets with a sharp improvement on Q2 gross margin. The segment's Q-on-Q revenue growth was underpinned by: first, mainstream high-end placement tools accounting for the majority of segment revenue; second, the segment AP tools, including highly accurate SiP placement tools; third, mainstream printing tools, experiencing an increase of demand on the back of our key customer wins.

SMT segment achieved record bookings in this quarter of USD 390 million, which represented an increase of 134.3% year-on-year and 20.3% Q-on-Q. This Q-on-Q growth was attributed to broad based customer demand across major end market applications, including industrial, communications, such as connectivity, devices and equipment, computers, such as data center servers and automotive. SMT segment gross margin of 35.5%, this quarter was a sharp improvement of 412 bps year-on-year and 330 bps Q-on-Q. This Q-on-Q enhancement was mainly influenced by a few factors, including the higher operating leverage arising from increased volume and manufacturing utilization, favorable product mix and some positive margin effects arising from strategic initiatives.

As you can see, we continue to have a well-diversified revenue stream serving our industry's leading manufacturers. The top 5 markets that contributed to group revenue were China, including Hong Kong, Europe, the Americas, Taiwan and Korea. Our top 5 customers also accounted for only 14.4% of group revenue. Our top customers, including leading companies, chose a wide variety of electronics and semiconductor manufacturing domains, reflecting the breadth of our customer base.

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

[Cher Ng, executive]

Thank you, Patricia. In this slide, based on our management team's best estimates, we have provided an overall sense of the relative revenue mix of our business from the perspective of our end markets in relation to one another. The key takeaway here should be the ubiquity of our solutions among end market applications with growing demand for our tools across the various segments like automotive, communication, consumer, computers and industrial categories. The others category includes areas such as aerospace and medical, spares and our service business and other areas, which we cannot not meaningfully allocate to any of the other categories.

I would like to highlight 3 application areas that have grown half-on-half and year-on-year significantly. First, the consumer market. This category has continued to perform exceptionally well for the past few quarters. The foundation of this growth are not hard to fathom. In order to support extended line from home activity such as work, play, socializing and so forth, there's a proliferation of personal devices such as wearables, gaming consoles and appliances of various kind, and this will include lighting and display. These have continued to demonstrate strong momentum during this past 1.5 years and show little sign of abating.

In automotive, the continued rebound has been driven by general automotive recovery momentum we began seeing in the latter part of 2020, and which has continued into this year, particularly for Mainland China. This was intended with a growth in the automotive electrification applications. In particular, discrete and power management applications from SEMI solutions saw very strong growth. For this industry at large, various trends such as autonomy and connectivity and smart shared mobility are in play. But we see the big one thing being electrification. Automotive needs from more digital capabilities, more connectivity intended with more electrification will continue to increase.

For industrial, there was a strong growth fueled by broad-based demand for automation and control devices that are used in varied applications, including smart grids and EV charging infrastructure.

Let me give more color to our AP solutions for this half year. Basically, we have experienced a strong performance from our AP solutions due to a broadening customer base. Our AP solution portfolio is very diverse. It spans across our SEMI and SMT segments in support of a full spectrum of customer needs. For example, 2.5D, 3D-IC, fan-in fan-out wafer-level packaging and system-in-package, or SiP, tools from our SMT segment.

In terms of the packaging ecosystem, our AP solutions run through the gamut from wafer level, mid and semiconductor processors, wafer dicing and grooving tools, die-level high accuracy placement tools and SiP placement tools as well. Taken collectively, our AP tools deliver what we call total interconnect solutions with industry-leading capabilities for our customers who serve in advance end user market such as tools for CPU, GPU, XPU and SiP application.

Let me speak about the highlights for this business. Over a trailing 3-year period, which is from the second half of 2018 to the first half of 2021, we reached a significant revenue milestone of USD 1 billion for AP solution business. Next, our first half 2021 bookings have already exceeded 80% the booking level for the full of fiscal year 2020 for AP solution business. Within the group's AP performance in the last 6 months, we are seeing what we call mid and semiconductor process deposition tools featuring prominently in the capital investments of key IDM and both leading fabless and foundry companies. In this regard, our panel-level ECD, or Electrochemical Deposition, tools maintained a dominant market position, with Tier 1 high-density interconnect substrate suppliers. We also saw strong demand for SMT SiP tools.

Let me give some additional color to this business. In February, we delivered 250 thermo-compression bonding or TCB tool to customers, representing broadening customer demand here. We continue to make further investment into new TCB developments to reinforce our leadership in this space. We believe that TCB solutions will continue to coexist with emerging technologies like hybrid bonding.

Speaking of hybrid bonding, we are devoting significant investment in order to realize this technology's fullest potential. Our development road map is progressing well and on track for delivery at the end of this year.

Our board has declared an interim dividend of HKD 1.30, representing a year-on-year increase of about 86%.

I had mentioned our focus on long-term profitability earlier. Let me give some context behind this. We believe that a positive longer-term outlook along with our revenue growth strategies and strategic initiative offers excellent opportunities for ASMPT to strengthen its focus on delivering consistent and sustainable long-term profitability to its shareholders. As we continue to invest consistently in technology and innovation, we have progressively deepened and expanded our overall solutions leadership across mainstream, advanced packaging and the Industry 4.0 domains.

The sustained commitment of 10% of our equipment revenue for R&D for many years has enabled us to build a deep R&D talent pool and significant in-house process and development capabilities and expertise. We are able to cross-fertilize technologies and expertise in unique ways and this ability has been fundamental in supporting our customers' technology road maps, in turn expanding our served market opportunities.

We have also married this with a focused approach to inorganic growth, both M&A and partnerships, distinctively complementing our strong in-house capabilities. By basically seeking to invest ahead of the curve in order to capture opportunities in growth area, we have had a strong record of successfully integrating acquired companies and strengthening our overall portfolio. These inorganic investments have helped support the group's revenue growth.

On top of delivering revenue growth, we have also been focused on rolling out a number of strategic initiatives to both leverage and deepen our strong organizational foundation that -- in the way to creating significant value for stakeholders. We have taken in some near-term temporary expenditure associated with planning and rolling out this initiative, deeming this necessary in order to realize opportunities for longer-term earnings accumulation. We believe these collective efforts will enable ASMPT to progressively increase its profit share over the long term. We believe the world is at the early stages of a sustained semiconductor growth in the present multiyear data-centric era. This bodes well for plans to continue delivering consistent and sustainable long-term profitability to stakeholders.

Supported by a record backlog and a carefully calibrated capacity expansion plan, the group expects revenue for Q3 2021 to be in the range of USD 730 million to USD 780 million, and it reaffirms that the second half of 2021 revenue will stay strong.

Thank you, ladies and gentlemen. We are now ready for Q&A.

[Unknown Executive]

Thank you, Robin and Patricia, for taking us through the presentation. We will start the Q&A session officially. [Operator Instructions] Can I request Donnie from Nomura to unmute yourself and ask your questions?

[Donnie Teng, analyst]

Can you hear me?

[Unknown Executive]

Yes, we can hear you.

[Donnie Teng, analyst]

My first question is related to the booking in third quarter. So in second quarter, SEMI solutions bookings declined, but SMT bookings increased. So just wondering if you have any preliminary view on the bookings in third quarter.

And secondly is that could you comment on your delivery lead time versus -- the equipment delivery lead time versus the first half, whether it's further extended or shortening? And the impact of lockdown in Malaysia, whether there will be any impact to our leadframe and SMT business?

[Unknown Executive]

Let me repeat the first question. You want to know about the bookings for 3Q, noting that the bookings for SEMI was down and SMT was up.

[Cher Ng, executive]

Thank you, Ron. Now I think you guys know, we don't really give any guidance on booking. Our guidance is really restricted only on revenue. But of course, I can give a little bit more color what we see so far. Now after a high base for both the SEMI and as well as SMT, we expect Q3 order momentum for both segments to moderate really after record first half 2021, in line with the currencies and our trends.

Now if I can refer you to some industry research houses, which we also make reference to, like VLSI for example, in the long run, they still forecast a very bullish long-term outlook for the overall semiconductor market, including our key AP market. Our group being one of the major participants in this industry, we believe that we also stand to spend also -- or benefit from such bullish outlook. However, having said that, the near-term outlook will remain at an elevated level, we believe, stronger than the past quarters. This is how we are looking at the Q3 short-term outlook in terms of bookings so far. Second question?

[Unknown Executive]

Thank you, Robin. Second question is some comments are required on the delivery lead time for the first half, especially for the equipment.

[Cher Ng, executive]

I think on balance, going forward, we still see supply chain constraints and barring -- because of the COVID-19 situation that you mentioned just now in Malaysia is clearly well known, and you guys know also that we have a substantial presence in terms of manufacturing in Malaysia, so we are keeping closely -- a close watch on this development. So barring any flare up in terms of all this COVID-19 situation in those locations that we have a big manufacturing presence like Malaysia, China and also taking into account the supply chain constraints, we think that the -- on balance, the lead time may continue to extend a little bit from the earlier first half.

[Unknown Executive]

Thank you, Robin. Next, can I request Arthur from Citi to unmute yourself and ask your questions?

[Arthur Lai, analyst]

Congrats on the strong results. I have 2 questions. Number 1 is on the pricing trend of your equipment. With the higher and higher productivity your equipment have, did you adjust up your pricing? This is first question to Robin.

[Cher Ng, executive]

Yes, Arthur. Yes, you are right. I think we have voiced that we're very fair to our customers in terms of pricing. We are not opportunistic but we will increase our price when it makes sense, yes? So typically, the best time to increase pricing is when we roll out new models or new products that come with new capabilities. And when -- for those new products that come with greater capability, the customers typically are more willing to pay a higher price because they get a benefit on it as well in terms of overall TCO. So that's the best time. So continuously, we are rolling out new models as we speak to address higher and higher capability requirement by our customers.

[Arthur Lai, analyst]

And just maybe high level quantify how much new machine in terms of percentage you ship over the total shipped?

[Cher Ng, executive]

Arthur, it's not easy to quantify this. As I said, in every -- for every equipment supplier I ask, there is this relentless pursuit to really upgrade -- continue to upgrade our tools in terms of speed, in terms of accuracy and in terms of cost of ownership, to really stay ahead of the curve. So this process is continuous. It never stops.

[Arthur Lai, analyst]

Okay. And second question is for Patricia. So investors often [ trust ] me to ask what's the company plan for dividend payout in terms of ratio? And then do we also have a plan to do a share buyback? And lastly, we noticed that you have a -- Slide 14 highlights the advanced packaging. We feel really positive feeling to learn the new technology you have. Please continue disclose more.

[Peifen Chou, executive]

Thank you, Arthur. Thank you so much for your warm comment and also the question regarding our dividends and potential buyback.

First of all for dividend, our 2021 interim dividend of HKD 1.3 per share declared is about 86% higher than prior year's interim dividend. And for the long run, the company's dividend policy is to continue a consistent annual dividend payout of around 50%. We will stick with this company dividend policy. And up to this moment, we do not plan -- we do not have a plan to have the share buyback program.

[Unknown Executive]

Thank you for that. Can I request Kyna from Credit Suisse to unmute yourself and ask your questions.

[Kyna Wong, analyst]

Congratulations for your strong results. And I wanted to have a follow-up question, which is a [indiscernible] one. So because of the lead time extended a little bit from the first half going into this third quarter, what should we expect from the fulfillment schedule of your strong backlog with like USD 1.49 billion? Should we expect that to be fulfilled in 6 to 9 months or, like, it should be like another kind of period we should expect for the majority of their backlog?

And the second question is like regarding the -- I noted that the company has streamlined the positions and also workforce. And we noted that the total employees actually decreased from the -- by end of last year. And so are [ all those ] employees actually cut? And should we expect a further streamline and optimization for the operations? And is that actually -- I mean, will that impact the, like, position -- productivity going forward if the demand like pick up? Or should we expect more contract employees from your side to fulfill the demand in the future?

[Unknown Executive]

Thank you, Kyna. Let me read the first question. So you want to know that based on the lead time for 1H and going forward what is the fulfillment schedule, whether it's 6 to 9 months? Or does it vary for the backlogs?

[Cher Ng, executive]

Now Kyna, if you look at our guidance for Q3 revenue to be around USD 730 million to USD 780 million. If you simply do some simple math, right, I mean, if you take it -- we will deliver around 50% of our backlog by Q3. So from that very high level perspective, we expect the vast majority of the remaining backlog to be delivered this year. As said, there are some long lead time tools as per normal. Some of the -- especially some of the next tools, the lead times are typically longer than 6 months. So some of the orders that we've taken in towards the end of Q2, can only be delivered in the early part of 2022.

So there are some exceptions like this. Now just a little bit more clarification on earnings question, just not about the lead-time. Why I say that we extend it, because of the very strong backlog as well that's also underpinning, causing us some stress in terms of the supply chain.

So you can imagine with such a high backlog, and with the supply chain constraint still prevailing, our team has worked very hard to ensure that we keep the supply chain flowing. So there is risk still there, but we are trying to cope as much as possible, as well as possible in this particular aspect. Second question, please.

[Unknown Executive]

Sure. Thank you, Robin. For the second question, I think, Kyna, you talked more about the streamlining process and mentioned that the number of employees have reduced. And you would want to know that will there be further streamlining? And will that impact any level of productivity? And how about getting contract workers here?

[Cher Ng, executive]

Yes. Kyna, I think you have been following us for a long time. So indeed, if you look at the past, say, 3 years around that, we have been trimming our permanent headcount in terms of [ metric manufacturing ] and supplementing this with what we call contract workers. So these contract workers are on a short-term contract. So they complement, they supplement our permanent workforce in times, especially in times that this elevated demand and very high upward delivery level. So this is -- this has been a very successful strategy over the last couple of years. And that strategy -- the benefit of this strategy has clearly benefited or manifested in the recent gross margin improvement that we see in our SEMI Solutions segment compared to last year.

So we are very happy with this progress. I think this strategy worked very well for us. So in a high-demand situation like this, we will continue to supplement our workforce with contract workers rather than increasing our permanent workers.

Now our productivity level has also been greatly enhanced over the last couple of years. So this has also contributed in some way to the improvement in terms of gross margin.

[Unknown Executive]

Thank you, Robin, and thank you, Kyna. On the queue next, we have Leping from Huatai. And after that, will be Gokul from JPMorgan, Frank from HSBC and Laura from KGI. Can I request Leping to unmute yourself and ask your question?

[Leping Huang, analyst]

Okay. So I have 2 questions. So one is based on your experience, where is the cycle of this round of capacity shortage? I think or how -- especially from your packaging customer side? And how long such the very large backlog situation will continue? I mean if we're to continue for, let's say, more than one year or that -- this is the principle.

And then the second question is, what's the size of your AP business in terms of total revenue now? And when you look your AP business -- so I remember, I think maybe one year ago when you said people mainly buy it for the technology part, but when -- because we've seen very strong prompt for HPC growth in the foundry customers. So are your people -- that customer buy your AP tools mainly for capacity expansion now or is still in a technology [ biased ] phase?

[Unknown Executive]

Thank you. Let me repeat the question one by one. So on the first question, you are talking more on the cycle in relation of the capacity shortage, particularly from, say, packaging customers' side? And how is this cycle and how long is it going to last?

[Leping Huang, analyst]

Yes.

[Cher Ng, executive]

Now on the shop capacity shortage side, I think -- I mean, we can -- when we interface with customers, some of the customers' loadings are still very high. And looking at the way they place orders, some customers are also -- we told them a lead time is for certain tools, for example, 6 months. So they're still very bullish. And we told them that we can only deliver some tools in January or February next year. The stance is they want to place an order now in order to secure delivery. So that is some general picture for you guys how the situation is like and some of the customers are placed.

Now how long this backlog solution for ASMPT will continue. Now we have a backlog of 1.5 roughly as of June, and if you look at the forecast, as I mentioned earlier, we probably will consume around half of it. But of course, more orders are coming in from now to the end of the year. Now we expect the book-to-bill ratio to moderate as well as we continue to ship more. And I mentioned just now our -- we expect our Q3 bookings to moderate from Q2. So the book-to-bill ratio will trend down in the quarters to come. Second question, please.

[Unknown Executive]

Thank you, Robin. Your second question is you want to know more on the size of advanced packaging if it can be broken in terms of revenue and contribution. And how does the management look at the AP scenario currently, then demand from the industry, especially when there's a time of HPC growth and others. So do you look at it more from a capacity or a technology by perspective? Please comment.

[Cher Ng, executive]

Now we have given you guys some more color as to how our AP tools, our business have performed over the last 3 years. We are really pleased to share that in the last 3-year trailing period from the first half of 2018 -- second half of 2018, sorry, to first half of 2021, we have already crossed the USD 1 billion milestone in terms of sales of AP tools. I think that's a significant milestone that I think we are very proud of.

Now as you can imagine, when we move from year '18 to year 2021, the demand for AP tools have obviously increased over time. So the percentage -- I think you asked the question, the percentage of AP tools over revenue. It also -- it's also a function of our top line revenue. All I can say is that our AP business has grown over the last few years. So using the AP business over total revenue might not be a good indicator because it all depends on how well our business are doing overall. Like for example, in the first half of this year, our mainstream tools are also doing very well. So even despite the fact that we have increased our AP solution business, but because the overall business is so well, the percentage will come down year-on-year.

So it doesn't really make sense to measure our AP based on such metrics. So we rather give you a picture of how AP science has grown over the years. I think that's a proper -- a better way to measure how we are progressing in terms of AP business.

Now in terms of the -- whether is it a capability or capacity buy at this point in time? I'll say on balance, on balance, it's still much leaning towards more capability buy. Because AP tool, as we have mentioned many times, is an expensive solution. So from that perspective, the customer base also definitely much narrower compared to our mainstream tools. So -- and the customers only buy AP tools if they require certain performance like HPC or AI for AI purposes.

[Unknown Executive]

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

[Gokul Hariharan, analyst]

My first question is on advanced packaging. You are starting to see a lot of 3D packaging capacity being built by foundries as well as your IDM customer. Could you talk a little bit about ASM's presence in the 3D packaging area, especially with respect to hybrid bonding and some of the other underfill areas?

Second related question is your China versus non-China exposure. Given that a lot of the advanced packaging activities happening in U.S., Taiwan and other geographies, do we see that the exposure from non-China markets become bigger as we go over the next few years as a part of your strategic plan? Or do we still see this kind of 50% China, 50% non-China exposure remain largely stable?

[Unknown Executive]

Thank you for the questions. Let me talk on the first question. You are talking more from AP perspective that a lot of 3D packaging is happening. And you want to know from the management the presence there, especially with relation to the hybrid bonding and all.

[Cher Ng, executive]

Yes. As I said earlier, I think our 3D -- I mean, our hybrid bonding solution is pretty much on track for delivery at the end of this year [ and this product had to ]. Now we are in deep discussion or engagement with certain key customers in this particular area in terms of hybrid bonding. So we're also glad to know that the industry has really endeared -- starting to endear to this technology as you can see, even in the market that people are talking more and more about hybrid bonding. So I think this is a good development that the industry is beginning to see hybrid bonding as a possible solution going down the road.

Now -- but we still feel that at this point in time, the hybrid bonding area right now is still kind of nascent. We still believe that the high volume will probably start around second half or towards the end of 2022. So meanwhile, I think the other technologies or tools like TCB, flip chip are still very much important to the industry because as we always say, customers will choose tools that are most cost-effective. So hybrid bonding, as you can imagine, being so precise in terms of placement accuracy, in terms of packing chip in high density. So these tools will be very expensive. So the other tools like TCB we strongly believe will coexist alongside hybrid bonding in the years ahead.

[Unknown Executive]

Thank you, Robin. Your second question is more on exposure on the China and the non-China markets. Does the management see non-China markets growing bigger? Or is it expected to remain the same at roughly the 50% level mark?

[Cher Ng, executive]

Yes. Now, the 50% level mark is our total revenue. So if you're talking about AP, we see China increasing, customers increasing to inquire and order more advanced packaging tools. Although compared to the customers outside China, the tools outside China are still much more advanced compared to what our customers are ordering in China as far as AP tools are concerned. But we see that the trend of more Chinese customers going to advanced packaging will continue is inevitable. This pursuit of self-reliance in terms of the semiconductor landscape is unrelenting. So every [ customer jurisdiction ] and impact by government are pursuing that particular direction. So it's inevitable in short that China will go more and more into AP in time to come.

[Unknown Executive]

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

[Frank Lee, analyst]

I just wanted to ask, given based on your current guidance, it seems to suggest that the SMT momentum will continue to be quite strong. I just wanted to, I guess, understand the margin profile as well for SMT has continued to pick up even in the second quarter. Just want to see if you can highlight a bit of where that is? And then also, my second question would be any more incremental update you can share regarding mini LED as well given the Apple launch.

[Unknown Executive]

Thank you. So on your first question, mostly on the guidance part, you acknowledge on the growth in the SMT momentum and you want to know more on the margin profile for this site.

[Frank Lee, analyst]

Right.

[Unknown Executive]

Can I request Patricia to answer this question, please?

[Peifen Chou, executive]

Sure. In terms of the gross margin for SMT, we usually consider several factors. First of all, the volume effect, whether the higher volume, meaning SMTs, current quarter's billing and the upcoming orders bookings. We are confident that SMT segment will continue growing the volume effect from the relatively high sales and billings.

And also the product mix for SMT starting in Q2, we do see a higher volume of shipments from the advanced packaging tools such as the SiP tools to fulfill the market demand. So we continue to expect more SiP tools delivery in Q3. And for all of the positive factors we mentioned above, it will be partially offset by some incremental costs associated with the supply chain constraint. As you can imagine, for us to secure those critical components under the supply chain constraint, we have to have some spot purchase with higher pricing to support our internal manufacturing customer shipment. So with all that in mind, I believe you can have a good picture for our SMT segment gross margin. Thank you.

[Frank Lee, analyst]

Okay. And I guess any update you can share on mini LED?

[Cher Ng, executive]

Yes. Certainly. I'll take that question. Now as we have said before, we have been engaging a very broad base of customers in terms of mini LED for some years now. So these customers -- some of these customers have already gone into high-volume production already in the first half of this year. So we expect more and more customers to go into high-volume production in the latter half and towards 2022. So from that perspective, we are confident that our mini LED business will continue to grow.

The applications mainly are right now, we see more for those displays going to, say, shopping malls, going to offices and also less so in terms of a TV at this point in time. So -- but eventually, mini LED going into backlight unit for TVs will also happen. So in general, I think we are well positioned for mini LED. We believe we are the leader in this particular space, and we are ready to capture all this opportunity as we come along.

[Unknown Executive]

Thank you, Robin. We have one person in the queue right now. So if you guys have more questions, please join the queue. Can I request Laura from KGI to unmute yourself and ask your questions.

[Laura Chen, analyst]

Can you hear me?

[Unknown Executive]

Yes, we can hear you.

[Laura Chen, analyst]

Just a follow-up question about the booking outlook in second half. Since you mentioned that, that would be more moderate, just wondering, is that just because of more strong pooling in the first half? Or you also got some impact on component shortage?

And specifically, I'm also curious about the current progress on advanced packaging. Does it also get some impact due to we see a lot of talk about tight substrate supply. So just wondering the moderate order booking outlook into second half, is that impacted by component shortage? That's my first question.

[Unknown Executive]

Okay. So let me repeat the first question again. You want to know more on the booking outlook for the second half. And is it because the strong first half or because there was some impact on -- due to the component shortage.

[Laura Chen, analyst]

Yes.

[Cher Ng, executive]

Yes. I think, Laura, on balance, I would say that it's really due to a very strong first half bookings. So such bookings, if you look at the first half, we are already close to $1.9 billion, I think, in terms of total booking. So this is a very high level compared to prior year's, already beating almost every year, full year, maybe I said 2018, if I recall correctly, it was a strong year for us as well in 2018. But our $1.9 billion first half bookings are already quite close, I believe, to the full year of 2018, which was a record year. So you can imagine -- and the surge is so strong. So we do expect, I think, the bookings to come down in the second half.

[Laura Chen, analyst]

Yes. So it's more like first half already see quite strong momentum. Is that really because of like some component tightness?

[Cher Ng, executive]

Yes, I say on balance, it's more due to strong hub. But on the chip shortage itself, of course, it may have some impact, but as I said, on balance, more due to the very strong first half bookings.

[Laura Chen, analyst]

Okay. And my second question is about, like, given current COVID situation in Malaysia, do you expect that will impact our near-term margin or operating cost?

[Cher Ng, executive]

Yes, very good question. Actually, the situation in Malaysia is really a concern for us. We monitor the situation very, very closely because we have a substantial manufacturing presence in Malaysia. But so far, I think we are managing it well within the best of our ability, okay? So as you know, Malaysia has imposed at this point in time, still a threshold of 60% workers can be -- only be in the plant at any point in time.

So effectively, you can imagine 40% of workers are not allowed into the plant. So that definitely has an impact on our production volume. But however, we -- as I said, we are coping it very well, partly also because we are blessed with a wide geographical spread in terms of our manufacturing footprint. So we had to shift some of our production work from Malaysia to our China plant in order to cope with this kind of restriction.

Now at 60% level, the threshold imposed by the Malaysian government, we are still able to deliver our commitment to our customers to the best of our ability. But in the unforeseen circumstances, if the Malaysian government impose further restriction and bring down this threshold further, then it would certainly impact our production volume. So as I said, we are really watching the situation very closely, and we really hope that the Malaysian situation will improve from here.

[Unknown Executive]

Thank you, Robin. Can I request Kyna to unmute yourself and ask your questions?

[Kyna Wong, analyst]

Just the overall comment regarding the, like, potential impact or, like, say, the overall margin in the SMT and what should we expect for the third quarter margin outlook? Should we consider like higher revenue, higher loading and also -- but the SMT contribution also increased as the supply constraint, the cost impact, et cetera. Should we still expect these gross margin improvement to sustain into the third quarter? And because we also -- I mean, we will also expect more effects from these strategic initiatives that the company -- the group actually implemented from late last year.

[Unknown Executive]

Patricia, would you like to take this question?

[Peifen Chou, executive]

Sure, sure. Yes. Kyna, first of all, as you know, we do not really give the quantitative guidance to immediate term gross margin. However, I would hope to share with you some high-level thought process about how we evaluate or make the estimate for our Q3 or near-term gross margin.

First of all, the relatively higher third quarter revenue guidance compared with Q2 actual sales should be able to support Q3 gross margin performance in high level. And some other key factors which may influence our gross margin performance such as the -- as you just mentioned, the higher volume effect, based on the Q3's revenue guidance is relatively higher than Q2. And normally, it will drive the improved operating leverage from our already high internal manufacturing capacity utilization. Of course, we will try to better managing our internal and external manufacturing capacity to still keep a high level of the operating leverage.

And then the second factor to be considered is the product mix. And in Q3, we expect the product mix between SEMI and SMT and also [ with the ] SEMI SMT the percentage of mainstream wire bonder, all the product mix in Q3 would be pretty much similar to Q2. Then -- which can also give us a very good indication for the near term. And then after all of the positive factors we talked about, it will -- it may be also partially offset by the incremental costs associated with the supply chain constraints. As we talked about, we may have to incur some higher pricing to secure those key components.

So all in all, I would say, by considering all these key factors, you should be able to get a good picture in our Q3 gross margin performance there. Thank you.

[Unknown Executive]

Thank you, Kyna. The next 2 on the queue will be Nicolas from Macquarie and Arthur from Citi. Can I request Nicolas from Macquarie to unmute yourself and ask your question.

[Nicolas Guy Gabriel Baratte, analyst]

Three questions, Robin. The first is on the Semiconductor Solutions side. If you could give us some idea about either the size, either the growth of the traditional die, wire bonding revenue lines. You've given good indication about advanced packaging. So in a similar way, is it possible to have some indication about wire bonding?

[Unknown Executive]

Thank you. Let me repeat the question again. You want to get an idea about the size, growth of the traditional die, wire bonding business and whether we can provide more color on that.

[Cher Ng, executive]

Yes, sure. Now if you look at our bookings this half year, first half of 2021 is close to $1.9 billion. Substantial portion are coming from also the SME side. Now to support this volume, definitely the mainstream wire bond, die bone, test handlers, all these are what we call mainstream tools. So these are the tools that will give us the kind of volume. At this point in time, AP tools, although they are growing very nicely over the last 3 years. And because of the landscape, current landscape and the dynamics, AP tools would not be able to give us a kind of volume.

So mainstream tools still play a very important part in terms of revenue growth under this situation. So die bond, wire bond are what we call mainstream tools. So in this particular period, they are highly in demand. So because there are a lot of components that need to be packaged by our customers. And these tools are still the most cost-effective tools to -- for their solution, that's why we see very strong demand this half year for such tools, or what we call mainstream tools.

[Nicolas Guy Gabriel Baratte, analyst]

Robin, when you talk about -- you seem to talk about the number of tools rather than the revenues.

[Cher Ng, executive]

Yes, yes. I think I was -- I mean, I'm speaking of both. So these tools, although they may not be as high ASP as an advanced packaging tool, but because the volume, definitely, they are the major contributor in terms of the top line for the first half of 2021 as far as SEMI is concerned here.

[Nicolas Guy Gabriel Baratte, analyst]

In terms of the revenue top line, right?

[Cher Ng, executive]

Yes, yes.

[Nicolas Guy Gabriel Baratte, analyst]

Okay. In mini LED, you are talking about display walls, very large external walls. What about portable devices?

[Cher Ng, executive]

Certainly, certainly. So some of these mini LEDs will go into portable devices like gaming consoles, for example. So these are quite a popular application for many LEDs.

[Nicolas Guy Gabriel Baratte, analyst]

Understood. Last question for me on the SMT side. So this increase in booking that we see together with the margin increase, does this reflect more the high end of SMT, automobile or industrial? Or does it reflect more the mainstream consumer electronics side?

[Cher Ng, executive]

Yes. I think maybe also to share a little bit, we have been saying that the SMT supply chain tend to lag behind the SEMI supply chain by 1 or 2 quarters typically. I think that has manifested itself already. So if you look at our SMT bookings for Q1 and Q2 this year, consecutively, we broke record booking level in these 2 quarters. So really, I think PMIC is a manifestation of that phenomena. So when we see SEMI increasing in terms of volume, ultimately, this volume will have to flow into the SMT side. So that's the beauty of our business. We have a huge broad portfolio of SEMI tools, coupled with SMT tools. So in situations like this, we'll see -- we'll start to see the benefit of this strategy that we have been maintaining over the years, very broad SEMI as well as SMT tools. Now the other question is what, sorry?

[Nicolas Guy Gabriel Baratte, analyst]

In terms of the SMT application, is it more a higher ASP, automobile, industrial demand or consumer electronics?

[Cher Ng, executive]

Yes, certainly. I think for SMT in general for this year, we see automotive and industrial coming back quite strongly compared to last year. I think we all can find them there because the automotive side have been seeing some general recovery on the automotive side. So we are a key player in those areas, so we are benefiting from those areas. So automotive, industrial. Now for industrial communication, we do see some demand, computers as well for data center servers. So these are broadly what is driving our SMT demand so far.

[Unknown Executive]

Thank you, Robin. Thanks, Nicolas. Can I request Arthur to unmute yourself and ask your questions.

[Arthur Lai, analyst]

So I also want to ask some more on the SMT side. So the increase in the bookings is mainly driven by the automotive. And can you share with us, with this time automotive demand from your point of view is driven by the EV or ADAS or combination of both? And will we expect a longer cycle than 2017?

[Cher Ng, executive]

Yes. Arthur, I think as far as automotive, I want to be clear, automotive is not just driving SMT. So don't forget, automotive is also driving a lot of our SEMI business. So when I speak to -- when I speak about automotive, they are both driving -- they are driving both our segments. Now we see certainly EV cars, although small in volume at this point in time, but it's an irreversible trend. EV cars will continue to increase. So we want to position ourselves very strongly in those areas. I think we are getting some very strong -- made some very strong inroads into those areas, supporting our semi bookings also for the first half of this year.

Now ultimately, whatever the SEMI package, those devices, automotive devices, they will have to be put on the board. So that's where our SMT come in. And our SMT being a very prominent player in automotive market. So EV, electrification of cars, general recovery of the automotive market will certainly benefit our SMT in addition to our SEMI side, yes.

[Unknown Executive]

Thank you, Arthur. There's no one in the queue right now. [Operator Instructions] If there are no more questions, then we would 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. Take care and stay safe. Thank you.

[Cher Ng, executive]

Thank you.

[Peifen Chou, executive]

Thank you.