ASM Pacific Technology Ltd

HKEX:522

Earnings Call Transcript 2022-Q2

[Romil Singh, IR]

Good morning and good evening, ladies and gentlemen. My name is Romil and I'm from the Investor Relations team and I will be the moderator for today's call. On behalf of the management of ASMPT Limited, I would like to welcome all of you to the Group's Second Quarter FY 2022 Investor Conference Call. We would like to thank you all for your interest and continued support in the company.

Before we begin with the presentation, let me highlight some housekeeping rules. To facilitate the identification process, please, kindly provide your company's name and your name as your display name, if you haven't done so. All participants will be muted to ensure good sound quality when the management is presenting. For the Q&A session, please either use the raise hand function and we will allow you to unmute yourself for you to ask your question or please type your question in the chat to ASMPT-Q&A and we will read out the question on your behalf. When asking questions, please limit to two questions at your turn and ask your question one by one for the management to answer properly. You may join the queue again in case you have more questions. 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 constraint, priority will be given to the covering analysts. In case we are unable to answer your question during the call, please feel free to e-mail us with your question, and we will attend to that. 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.

With us this morning are Mr. Robin Ng, the Group Chief Executive Officer; and Ms. Katie Xu, the Group Chief Financial Officer. Robin will begin with a brief discussion and key highlights about our latest results and then Katie will provide color on the financial performance. This will be followed by an update on the outlook and then we will open the floor for Q&A.

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

[Robin Ng, CEO]

Thanks, Rom. Good morning, everyone, and I would like to thank you all for joining us on this call. As the Omicron variant has caused resurgence of the coronavirus cases rising in many parts of the world, I wish that you and your loved ones stay safe and healthy in these uncertain times. As we are gradually trying to adjust and transition to a new normal, the first half of this year was overcast with uncertainty and volatility.

We witnessed gradual dampening of consumer sentiments with the start of the Russian-Ukraine conflict in February, followed by the COVID-19 lockdowns in China from end-March and interest rate hikes by the U.S. Federal Reserve in June. From an operational perspective, supply chain and logistics constraints persisted, together with inflationary pressures. Despite these challenging conditions, I'm pleased to update that the Group showed resilience and for the first half of 2022, delivered year-on-year growth in both our top and bottom lines and maintained healthy gross margin levels.

We managed to deliver a commendable first half performance due to a combination of practice. Most importantly, my heartfelt appreciation goes to our capable global workforce that truly acted as a team, followed the Group's strategic direction and executed well. They have helped uphold our reputation as a leading player in the semiconductor and electronics industries, even in these trying times. We also strongly believe that our competitive edge is powered by our unique and broad-based portfolio that enables us to serve an extensive base of customers and diverse end-market applications.

We have also been focusing on growth areas of automotive and advanced packaging with a comprehensive suite of solutions and we continue to see sustained demand in these areas. Before I take you through our presentation today, let me update that the Group's name is now ASMPT Limited or ASMPT. ASMPT is not an acronym. It is built upon a long history and our tradition at ASM Pacific Technology, the name under which the Group operated for many years. While we are proud of the rules, the updated ASMPT better reflects the Group's global reputation, progress, influence and the direction of its future growth.

Let me now begin the presentations. This slide gives some of the key highlights that shape our business in the first half of this year. Let me take you through to each of these points in more detail. This is a summary of some of the key financial matrices for first half 2022. The Group delivered a strong first half 2022 revenue performance, representing growth of 10.1% year-on-year. There was also reasonable year-on-year gross margin improvement. We managed to achieve this strong revenue and margin improvement performance despite persistent supply chains and logistics constraint, coupled with other macroeconomic uncertainties, including inflationary pressures, ongoing geopolitical conflicts and COVID-19 control measures in China. Overall, our relatively strong performance in the first half was also a direct outcome of key developments in our diversified end markets.

In particular, the 2 end markets enjoyed robust growth for the first half of this year on both a year-on-year and half-on-half basis are automotive and industrial. In fact, revenue from automotive grew at a much faster pace for both year-on-year and half-on-half than the other end markets where industry achieved a record first half revenues. Geographically, while China, including Hong Kong, remained the largest market, its contribution to the Group revenue moderated in the first half 2022. However, Europe, Malaysia, the Americas and Taiwan registered a combined year-on-year increase of around 47%. Now, a quick look at bookings. The Group received new customer investments that grew from the second half of last year. Our high-growth sectors of advanced packaging and automotive accounted for about 46% of first half 2022 Group bookings. Backed by this bookings performance, we ended the first half with a high backlog and a book-to-bill ratio of 1.12.

In the next few slides, let me give some color on our 2 prominent high-growth sectors. Let's begin with the automotive market. As I stated earlier, this market has the fastest year-on-year growth among all our end markets at around 60% in first half '22 and contributed to about 20% of the Group's total revenues. This growth is synonymous with circular automotive electrification trends, which the Group is capitalizing on with its unique automotive solutions. The Group also continues to experience significant new customer acquisitions. Typically, automotive customers require their suppliers to meet stringent process requirements, which results in a high degree of loyalty to a supplier once qualified. Against this backdrop, we are in a commanding position to capture a greater share of the automotive addressable market estimated to be worth about USD2.9 billion by 2026, with a 2021 to 2026 compounded annual growth rate of 9%.

Our other high-growth sector is advanced packaging or AP. Here, the Group delivered first half 2022 revenue that represented around 18% of the Group's total revenue. What is important to note is that the customer capital expenditure in AP tend to be driven by longer-term technology trends on top of shorter-term capacity needs. Thus, on a quarter-to-quarter basis, we may see lumpiness, but the long-term growth trend remains intact. On the bottom part of the slide, you can see our comprehensive AP solutions that cater to a diverse group of customers across various industries. Together with the bullish capital spending plans of leading semiconductor companies, these strong foundations will enable us to expand our share of the AP addressable market valued at USD2.7 billion by 2026, with a 2021 to 2026 compounded annual growth rate of 11%.

Let me now talk about our unique AP solutions in a little more detail. We strongly believe that our unique and differentiated capabilities in the AP space create rich opportunities that further strengthens the Group's competitive advantage as the total interconnect company. We may be the only company in our space being able to offer solutions that truly link the entire semiconductor and electronics value chain. The Group's semi segment offers solution ranging from deposition interconnect on organic substrate, glass area or glass substrate to first level by interconnect on organic substrate, wafer, panel or wafer carrier interconnect. And in turn, the SMT segment solution cater for packaged interconnect on PCB bots and die interconnects on wafer. Equipped with this multiple solutions, the Group continues serving the high-end of the market.

The slide also highlights the AP solutions that enjoy market-leading positions across the different level of interconnects and our new innovations within ioTech. Going through the different interconnect levels, let me first highlight film deposition and our panel level electrochemical deposition, or ECD. Our panel level ECD is the dominant market leader, and our solution is the de facto standard for finite space. This is for 10 microns and below. Propelled by our leading customers cutting-edge technology road maps, the strong order momentum in 2021 for our panel level ECD tools continued in the first half 2022.

This strong momentum is backed by a broadening customer base, particularly for high-performance computing in tandem with strong industry momentum from significant new Ajinomoto Build-Up Film or ABF substrate capacity expansions due to underinvestment in prior years. These combined trends bode well for us in further reinforcing our market governance in this space. Moreover, we collaborate closely with leading customers to address the next-generation technology mix, and these unique partnerships have helped cement our technology leadership well ahead of our closest peers.

In this slide, let me shed some light on our thermal compression bonding, or TCB, and our hybrid bonding technology road maps and how this presents significant opportunities for us. First, let me talk about TCB. We had record order wins in the first quarter of 2022 for our chip-to-wafer TCB tools. And this order momentum continued into Q2 as we secure new orders from leading semiconductor customer for this more advanced TCB platform.

We strongly believe that our innovation in ultra-fine pitch chip-to-wafer TCB developments will drive served market expansion of leading-edge advanced nodes in the semiconductor packaging and assembly market. By providing more options to customers for high-volume manufacturing for leading-edge advanced notes packaging requirements, our advanced TCB tools overlap the domain served by Hybrid Bonding. I repeat, our advanced TCB tools overlap the domain served by Hybrid Bonding, which is still undergoing a greater transition to market adoption to low volume manufacturing.

We remain confident that the demand of TCB tools will experience structural growth over the long term. With regard to Hybrid Bonding, we are focusing resources and investments to deliver these tools for qualification with leading customers to support the progressive addition of 3 nanometer and below advanced node wafer fab capacity in the next couple of years. In line with our customers' production ramp-up plans and in line with indications we have given in the previous earning calls, our Hybrid Bonding tools are expected to contribute meaningfully to Group performance from 2023 onwards. We are in a unique and opportune position to benefit substantially from this combination of TCB and Hybrid Bonding solution as our leading customers advanced nodes, wafer capacity comes onstream at an accelerated pace over the next few years.

This slide is quite self-explanatory and gives an overview of TCB and Hybrid Bonding market readiness. I will just highlight a couple of points here. First, the readiness of the wafer spec ecosystem is a crucial aspect on market readiness. This is the combination of the technology services and expertise in place to help customers adopt, implement and scale their solutions successfully. As you can see here, the TCB ecosystem is fairly mature and well established, while Hybrid Bonding is still at an early adoption stage. This is also reflected in customer buying patterns with our TCB customers able to adopt and run with this solutions fairly quickly, while Hybrid Bonding remains for the time being a frontier technology buy.

Hybrid Bonding will grow and evolve over time as we work closely with customers, but we believe this will be a progressive journey. With the relative cost for the Hybrid Bonding tool set to be significantly higher than the chip-to-wafer TCB tools, we believe that the combination of these factors indicate that the demand of our TCB tools will continue to experience structural growth over the long term. On the whole, we are confident that the addressable market growth rate for our suite of TCB and Hybrid Bonding solution will significantly outpace the wider semiconductor packaging and assembly market, CAGR that has been recently revised upward to 5.9% for 2022 to 2027.

Last, but not least, let me provide some color on our second level interconnect solutions and focus on our System-in-Package or SIP placement tools. The Group is recognized as a proven and a preferred partner for the higher density SiP applications and our customer base is highly diverse, including handsets, high-density OSAT manufacturers, partners, foundry and IDMs. Our customer investors hit significantly in these tools in 2021, and the auto momentum continued in the first half 2022, fueled by circular growth trends in the 5G technology, with increased technical requirements for better connectivity, performance, power management and higher component density within smaller device form factors. The Group is confident that its market leadership for SiP placement tools will strengthen as demand intensifies over the long term. This is supported by the proliferation of 5G radio frequency or RF front-end modules and strong market demand for consumer variables along with power management applications.

On the left side of this slide, you can see that higher component count required for 5G compared with 4G phones. For example, the density of RF contains in the typical 5G smartphone is around 40% higher than a 4G handset. This gives more color to a unique broad-based portfolio. We have seen this before, and I cannot emphasize enough about its importance and how our portfolio provides significant competitive advantages over its peers. One clear example of this advantage to be seen from the quick analysis of our SMT SEMI business in first half 2022. It showed continuous momentum with close to 80% growth in bookings for first half 2022 on half-on-half comparison. This was when our SEMI segment witnessed a slight drop for bookings over the same period.

Typically, our SMT segment's activity picks up several quarters after the SEMI segment. With our broad-based porthole across both segments, we are relatively better shaped in times of uncertainty and volatility. Even though we face uncertainty and volatility in first half 2022, we still managed to stay resilient and delivered reasonable growth in performance. In addition, our broad-based portfolio not only helps serve diverse end markets, but also has a comprehensive suite of solutions for advanced packaging. Our automotive and AP sector show high growth with a combined bookings accounting for nearly half of the first half '22 bookings.

Before we touch on our financial performance, let me introduce Katie Xu, our new Group CFO. Katie joined us in early May this year and has over 2 decades of experience as a financial professional in multi-industrial, service and software industries. Prior to ASMPT, she was the CFO in Honeywell International until 2019 in its different businesses. Thereafter, she served as CFO for Global Shared Services in ABB.

I now hand over the time to Katie to say a few words before she gives the financial highlights.

[Katie Xu, SVP & Group CFO]

Thank you, Robin, for kind introduction. Good morning, everyone. It's my pleasure to be speaking with you today. As Robin mentioned, I have been in corporate finance for more than 20 years with roles in the United States and Asia. On the personal side, I have a family of four with my husband and 2 daughters. We're in the process of relocating from New Jersey to Singapore. We're very excited to be returning to Asia.

As a mom, I'm thrilled that my preteen daughter will be able to continue speaking Chinese and build on her academic experiences with great education quality Singapore has to offer. However, she's probably more excited about eating Chilli Crab and drinking milk bubble tea in Alliance City. Hope she is not listening. On the professional side, since joining ASMPT about 10 weeks ago, I have had the opportunity to meet a lot of very dedicated people who are passionate about making great products to serve our customers around the globe and developing leading-edge technology to be a catalyst in the growth of semiconductor and electronics industry. As I settle into my role, I look forward to meeting with many of you virtually or in-person to share with you the exciting progress ASMPT is making.

Okay. Let's get down to business. I'll take you through the financial highlights now. This slide portrays our key financial metrics for the first half of 2022 on a year-on-year and half-on-half basis. For bookings, they were up half-on-half. However, they were down year-on-year due to a record base effect. As Robin mentioned earlier, our high-growth sectors of advanced packaging and automotive end markets made high combined contributions to first half 2022 Group bookings.

Looking at revenue for the first half, there was a record first half with growth of 10.1% year-on-year. Revenue was down half-on-half due to a record high base effect. Our book-to-bill ratio was at 1.12. For gross margin, it was higher both half-on-half and year-on-year. Main reasons for the year-on-year margin expansion was stronger gross margins from both SEMI and SMT segments, targeted pricing adjustments and accretive effects from ongoing strategic initiatives. We achieved a strong performance despite headwinds from higher material prices and logistics costs due to stretched global supply chains.

Next slide. This slide highlights key financials for Q2 2022. I'm sure many of you are interested to know why we delivered revenue slightly below the lower end of our guidance. Let me mention here that reasons were external in nature, largely due to stretched global supply chains and the logistics constraints, along with weaker consumer sentiment due to macro uncertainties. For bookings, they declined both year-on-year and quarter-on-quarter, largely due to a high base effect. Note that our Q2 gross margin was an improvement of over 100 basis points, both year-on-year and quarter-on-quarter. The main reason for this expansion was due to the relatively stronger margin performance of our SMT segment. Lastly, I'm pleased to highlight that the Group has been delivering gross margin above 40% for 5 consecutive quarters.

Next slide. The slide shows our SEMI segment's performance in Q2. The segment contributed 59% of Group's revenue in Q2. SEMI segment's IC discrete units, die bonders, including eClip bonders, encapsulation tools and test handlers enjoyed a quarter-on-quarter growth and dominated deliveries, while wide boulder deliveries were relatively slow. Some of its AP solutions, in particular, panel-level ECD tools, laser dicing and grooving tools and TCB tools experienced a quarter-on-quarter uptick in deliveries. For the Optoelectronics unit, there was decline in deliveries for year-on-year and quarter-on-quarter due to weaker consumer sentiments, particularly for Chinese customers. However, it enjoyed year-on-year growth for its more advanced tools, drilling automotive, photonics and silicon photonics applications.

For the CIS unit, it has slower year-on-year and a quarter-on-quarter performance, largely due to softness in the smartphone market. For Q2 2022, bookings declined primarily due to a high base effect. Mainstream die bonders, wire bonders and encapsulation tools, together with advanced tools including panel-level ECD tools, TCB tools and multi-chip module bounders contributed to the majority of the bookings. SEMI segment's gross margin remained relatively strong. Main reasons for margin performance were the higher proportion of revenue from AP and automotive, targeted pricing adjustments and accretive effects from ongoing strategic initiatives. This segment also managed to control cost pressures from inflation and supply chain shortages.

Next, let me touch on the SMT segment's Q2 performance. For Q2 2022 revenue, the SMT segment had year-on-year growth, mainly due to increased deliveries to automotive and industrial customers. However, there was quarter-on-quarter decline due to lower contributions from Chinese customers. For SMT's Q2 bookings, they were both year-on-year and quarter-on-quarter declines due to high base effect. Do note that Q2 bookings remained elevated compared with the second quarter of previous years. In Q2, SMT's gross margin improvement was very strong, increasing almost 200 basis points, both year-on-year and quarter-on-quarter. Year-on-year margin improvement was mainly due to higher contributions from automotive and industrial customers, targeted pricing adjustments and accretive effects from ongoing strategic initiatives, partially offset by high material and logistics costs.

Next slide. On the left of the slide, the pie chart shows that we continue to have a very well diversified revenue streams, spanning across various regions. Europe, Malaysia, the Americas and Taiwan accounted for roughly 42% of first half 2022 revenue, an increase of 47% year-on-year. China including Hong Kong, remained the largest market, but the contribution moderated to about 44% of first half 2022 revenue. Our customer concentration risk continue to remain low as the Group's top 5 customers accounted for less than 14% of first half 2022 revenue. Our top customers include industry-leading semiconductor and electronics manufacturers globally, reflecting the diversity of our customer base.

I will now hand the time back to Robin to share with you our end market applications trend, dividends, share buyback and our outlook.

[Robin Ng, CEO]

Thank you, Katie. Based on management's best estimates, this slide portrays the breakdown of first half 2022 revenue in terms of approximate percentages for our end market applications. You can see that our revenue is quite nicely spread up, showing the uniqueness of our business model, serving broad-based end market applications. As mentioned earlier, the automotive market contributed about 20% to Group's revenue and grew at fastest space among the end markets for both year-on-year and half-on-half. Year-on-year growth was close to 60%. The industrial market, which accounted about 14% of the Group's revenue experienced year-on-year and half-on-half growth, achieving record first half revenue.

Our Group policy is to pay out about 50% of our profits as dividends to our shareholders on an annual basis and we are committed to this policy. Our proposal is to pay an interim dividend of HKD1.30 per share, which is a similar amount compared with interim dividends paid last year. Here, let me highlight that in addition to the interim dividend we are paying out, our Board of Directors has approved a share buy-back plan pursuant to which ASMPT will buy back on-market shares of ASMPT Limited up to a maximum value of HKD420 million. The Board of Directors believe that the share buy-back plan reflects the confidence of the Board and the management team in the long-term strategy and growth prospect of the Group and considers the share buy-back plan to be in the best interest of the Group and its shareholders as a whole. Implementation of the share buy-back plan shall enhance the Group's earnings per share and improve overall shareholders' return.

Looking at the chart on the left of this slide. If the share buy-back plan is fully executed, cash returned to shareholders will have increased 79% when comparing the first half of 2022 with the first half of 2021. Let me state that even as the Group undertakes the share buy-back plan, it remains committed to its policy of paying out 50% of its profit as dividends to shareholders annually. For Q3 2022, our revenue guidance is USD560 million to USD630 million. Let me provide some context. ASMPT continues to navigate a dynamic and challenging operating environment.

Even as our near-term focus remains on converting our high backlog, constrained factors are prevalent, including weak consumer sentiment, ongoing supply chain issues and COVID-19-induced uncertainties. Even as we keep one eye on the current climate, over the longer term, prospect remained bright for our industry. The long-term circular technology trends are unchanged and silicon consumption will not abate, but accelerate in an increasingly digital world. We remain confident about the long-term structural growth for semiconductor capital equipment market.

Let me conclude by highlighting that our unique broad-based portfolio is serving industry-leading semiconductor and electronics players globally and across a diverse range of end market applications. This breadth and depth of engagement and traction provides vital resilience to the Group as it navigates efficiently through the current volatile and uncertain industry conditions. Moreover, our delivery push in the high-growth sectors of AP and automotive, coupled with a Group-wide strategic initiative and continued emphasis on R&D investment and innovation help to ensure that we are in a commanding position to capture a substantial share of customer investments in both capacity and capability requirements over the long term.

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

[Romil Singh, IR]

Thank you, Robin and Katie for bringing us through the slides. Before we start the Q&A, let me highlight once more that to ask questions, please either use a raise hand function or please type your question in the chat to ASMPT Q&A.

With that, can I please request Donnie to unmute yourself and ask your questions.

[Donnie Teng, Nomura Securities]

Hi, thank you, management. Can you hear me?

[Romil Singh, IR]

Yes, we can hear you, Donnie. Go ahead. Thank you.

[Donnie Teng, Nomura Securities]

I have two questions. So, first one, as usual. So, wondering if you could give us some direction-wise comment on the booking trend for different business in the third quarter or in the second half? And I guess most importantly, which time should be when are you expecting the bookings can be bottoming or back to like a relatively normal level as we have seen a huge correction in the second quarter already? That's the first question. And second one is regarding to the share buy-back plan.

So, I'm just curious what makes you change your mind? Because last time when ASMPT has been removed from the Hang Seng Technology Index, management did not mention about any share buy-back plan and what makes you change the mind? And I also noticed that last time when we had the share buy-back plan announcement was in November 2018. But we actually did not execute any share buy-back. So, I'm wondering if this time, we are really going to execute -- execute the share buyback or just the announcement. Thank you.

[Romil Singh, IR]

Donnie, thanks for your questions. Let me repeat the first question. And then after that, I will request Robin to answer that question. I think for your first question, you want to know more for the direction of bookings trend for different business segments in Q3 and later part of the year. And particularly, you want to know when will bookings bottom knowing that Q2 bookings came down comparatively on a quarter-on-quarter basis.

[Robin Ng, CEO]

Thanks, Rom, and thanks, Donnie for the question. Now I think we can give some color. As I said, we don't give a guidance on our bookings for Q3. This has always been our stand. So, I can give you some color. Now we expect Q3 bookings to be in line with seasonality trend. If you look at the past, Q3 tends to -- tends to come down from Q2. So, no different this time around, we expect Q3 booking mainly to come down around the single-digit decline from a Q2 kind of level. This is just a color that we can give to the street.

Now, you also ask -- of course, I also must say that even at this kind of level, I think Donnie you mentioned that it has come down quite heavily in Q2. But let's look at things in perspective. If you compare against 2021, 2021 is certainly a high base for us. But if you compare Q2 bookings, right, against prior years before 2021, actually, it's not at a low level. It's still pretty -- sitting pretty high compared to past Q2 level. So, if you expect Q3 to come down by single digit, again, if you look past before 2021, single-digit decline Q3 from Q2 is not going to be that low compared to past Q2 as well. Now I can say, of course, this kind of color is contingent on the fact that the macro environment does not deteriorate further. Although, we still expect weak consumer sentiment, especially in the smartphone and the PC area are likely to perceive in the near future.

Now, you asked a little bit of color. So by segment, I can give a little bit of color. We still think that the bright spot is still SMT. We feel SMT really, the robust momentum will probably continue into Q3 for booking. And because we serve a very diverse end markets, I think in my opening remarks, we stressed a lot that ASMPT is really unique because of our broad-based solution, broad customer base. We serve a diverse end market. So, another bright spot on our SMT robust momentum continue is really receive power, power devices, automotive and industrial segments, and our AP demand should continue to show strength in the coming quarter.

Now you asked a very difficult question. When will we see a bottoming of bookings is. I can't really answer that to be honest, especially in this uncertainty and volatile environment, we can only see as far as Q3. But having said all this, obviously, there are still the headwinds that we can manage. We are pretty engaged in China. China is a big region for ASMPT. So, it's probably worth noting at this point that China has announced it has rolled out a slew of stimulus package to revitalize its economy. As with all industry players or semicon players, we are hoping that this will boost near-term consumer sentiment and spending. And hopefully, that will stimulate the semiconductor industry in China as well. But if you ask me when will this stimulus kick in, it's really difficult to predict, okay? So, I think that will answer probably your first question.

What about the second question, Rom?

[Romil Singh, IR]

Okay. Let me get to the second question now. The second question is more on share buyback. And you asked the management that what made the management change their minds for this round. And you did highlight that previously, once ASMPT was removed from the HS Tech index, management did not initiate any buyback plus in 2018 when there was a plan, nothing was executed on the share buy-back plan. So keeping all this mind, I want to know that what is happening now and what made management decide on this?

[Robin Ng, CEO]

I think first and foremost, the buyback plan is really to demonstrate our confidence in the long-term strategy and the future growth prospect of ASMPT, right? So obviously, I think the share price of ASMPT has come down to, in our opinion, to a low level compared to the past. So, I think that's probably one motivation why we are thinking of this share buyback-plan. Now your question about 2018, yes. But if you look 1 year before 2018, we also launched a special buyback plan, and we did execute the first one. For the second one, you're absolutely right, we didn't execute probably due to the macro conditions at the point in time. Now, if you ask me whether we would execute this time around. Of course, there's no guarantee. There's no guarantee that we will execute. But we have every intention looking at the situation right now, we have every intention, okay, to execute the share buy-back plan that we have proposed in this round.

[Katie Xu, SVP & Group CFO]

And also, may I add that, Donnie, if you look at our history in terms of the affordability, the liquidity of the company in 2018 time actually, the net cash was in the negative position. Since starting about 6 quarters ago, the Group has been building cash momentum from very good margin expansion and working capital control. So, now the net cash position balance is sitting at HKD1.7 billion. And I think this has enabled management enabled us to start this share back plan at this time. And I hope this really signals management resounding confidence in the long-term growth of the company in this very uncertainty times.

[Romil Singh, IR]

Thanks, Robin, and Katie for answering that. Next, can I request Kyna to unmute yourself and ask your questions.

[Kyna Wong, Crédit Suisse]

I have two questions. The first one is also a follow-up on the outlook side for the booking because we see that TSMC also comment on the industry inventory progression in semi. And what's the management view on the impact to the -- and semi CapEx as well for at least the trend out to the first half 2023, that this kind of inventory correction happened in the semi industry. The second question is about do you see any sign of like slowdown from Europe automotive demand, extend the Russia-Ukraine conflict? We start to hear some concern about that despite reduced contribution from the [indiscernible] surged a lot. So of course, we are encouraged by that, but is this a sustainable trend? Or what should we expect the automotive like contribution in the second half?

[Romil Singh, IR]

Thank you, Kyna. Let me repeat your first question. You want to know more color on the outlook for our bookings. From the industry side, as we noted that the industry correction is happening and may continue till early part of 2023. So based on that, you would want to know what is the management's view on the outlook for the bookings. So, maybe let me request Robin to comment on this.

[Robin Ng, CEO]

No, I'm not going to give too much color on the Q3 itself, but maybe on the trend longer term, right? Because I already mentioned about Q3. So, on a slightly longer term, I can give you a little bit of perspective of how we look at industry going forward. Now if you look at the communication market, obviously, smartphones volume this year, we forecasted widely to decline year-on-year. This will certainly impact our CIS business. However, having said that, for CIS business, we are not just engaging customers in the short term, but we're also engaging customers in the long-term because in the CIS business, there are also a lot of new technology, new developments coming up. So, this development would turn into demand further down the road.

Now although the smartphone markets have certainly not been very -- not been doing well this year on a year-on-year basis, there is a bright spot in that, and that is 5G phones. Looking at data that have been circulated widely in the market, the 5G phones are impacted less. And these devices contain or require a lot of front-end kind of RF modules that require our SMT SiP tool solution. So going forward, we still believe that although the communication market because the smartphones may be down, okay? But still sits in a sweet spot that we are playing and that's SMT SiP tool that's getting high demand, which we have highlighted earlier as part of our opening remark.

Now, as I move on to the computers market, now although notebook and PC segment are also forecasted to decline year-on-year based on industry research, but we see the server, the high-end server market is expected to continue to grow. And the key drivers of this demand are really coming from high-performance computing, cloud and edge servers, data centers and coming up is really metaverse as well, applications. And mind you, these areas require our AP tools like NEXX deposition tools, our TCB, our silicon photonics tools, our photonics tools, which we have the solution to provide for customers playing in those areas; HPC, cloud data centers and metaverse.

Now coming to the automotive market, this is indeed a bright spot, not just for the industry, but also for ASMPT. We noted that the sale of EVs or electric vehicles remain and continue to be strong despite the adverse macro condition. We read some data, EVs in China grew year-on-year despite the lockdowns in China. This bodes well for ASMPT as a whole as we are a complete solution provider on the semiconductor side, not forgetting the SMT side, which traditionally we're very, very strong in terms of automotive.

Now for the semiconductor side, the power modules that go into key segments of the EV cars, these require a lot of our tools, our automotive tools. That's why we have been saying automotive has been a big demand driver for ASMPT over the last 1 year or so, and we believe this trend will continue. Moreover, as I earlier said, our SMT traditionally has a large market share in both the conventional as well as the EV market. So, this a point of strong growth as well in the future. And also one area which we see pretty exciting is also the industry area. Now as EVs continue to grow, the infrastructure in terms of charging stations will have to grow alongside the growth of the EV cars. So, it require power devices, which we have a very good solution for that as well.

So in short, for EVs and power, we have end-to-end solution for all these solutions. Now, the only market we see that probably is a little bit hazy at this point in time is the consumer market. Now consumer market tends to be a big segment for our industry and also for ASMPT. We see that kind of slow down because of factors like smartphone slowdowns, quite good purchase slowdown, consumer sentiments and consumer confidence basically being dampened by the macroeconomic condition. So, consumable market, the way we see may continue to be relatively slow compared to the other markets.

So, in short, for ASMPT, we are pretty well positioned in markets that are growing faster than the general market. Of course, there is still headwinds, the headwinds will still be there. The supply side will release in terms of supply chain and obviously constraints, the demand side, consumer sentiment, all these are fitments that we have to continue to navigate. So, I think this is the picture I can give you in the slightly longer term, not just Q3, but in a slightly longer-term picture.

[Romil Singh, IR]

Thank you, Robin. Kyna, I think Robin answered part of your question, but let me repeat your second question. Second question is specifically that do you see any sign of slowdown in Europe, particularly in the automotive side because of the ongoing Russia-Ukraine conflict and maybe some color on automotive contribution in the second half.

[Robin Ng, CEO]

I can't be too specific. But as far as automotive is concerned, we see Q3 is still to be a strong sector for ASMPT, not just for the semiconductor side, but also for the SMT side. And as you are aware, you're pretty familiar. We are a company. Now SMT, as far as SMT is concerned, we are a dominant force in terms of automotive in the Europe as well as in the American market.

[Romil Singh, IR]

Thanks, Robin. Next, can I request Leping to unmute yourself and ask your questions.

[Leping Huang, Huatai Securities Co.]

I guess I have one question about the guidance for the China market. So, how much is the declines due to the lockdown in China? Or how much is due to the weak consumer sentiment in China? Also, if you're looking -- because we see there's a lot of new firm are announced the plans to contract new firms are announced. So it seems to be the front-end equipment demand is still okay at least now. So if you -- why the back-end demand your guidance seems to be weak?

[Romil Singh, IR]

Thank you, Leping. Let me repeat the question. You want to know that in terms of our guidance for the Chinese market, the weaker demand or the decline, how much was it because of the lockdown versus how much was it due to the weak consumer sentiments. And this is noting that there is investments in the new fab. And so what is Robin's view on this?

[Robin Ng, CEO]

Thanks, Rom and Leping. Now certainly, if you compare the contribution from China to our Group's revenue last year versus the first half of this year, it has dropped. And this is really a refection of the state of China due to consumer confidence being dampened by the macro conditions as well as the COVID-19 situation specifically in China. So, we are not immune, right? And it's also good to note Leping that you mentioned there are a lot of new buildings coming up, not just in China, to be honest, because if you go through Southeast Asia as well, I mean, I came back from a recent trip to Southeast Asia.

I also noticed that customers are also very bullish in terms of a new capacity expansion. So, as we always say also in our opening remark, short term, there are headwinds, right, we have to navigate for sure. But in the longer term, we -- the outlook for the semicon industry, whether it's in China or say China remains very, very bright and intact. Now you asked me whether the -- whether which part of the -- which part affects China demand modes, whether is it -- is it a supply chain or the consumer confidence may be, right? We can't pinpoint basically. I think all these factors, supply chain side, the demand side due to consumer sentiment being dampened. I think all these together contributed to the relatively slow demand you see coming from China.

[Romil Singh, IR]

Thanks, Robin. Leping, hope that answers your question. Do you have a second question?

[Leping Huang, Huatai Securities Co.]

It's fine. It's okay for me. Thank you.

[Romil Singh, IR]

Hi, Dylan can I request you to unmute yourself and ask your question?

[Unidentified Analyst]

I have two questions. And first is on the gross margin outlook. I think management highlighted that improving gross margin was due to better product mix and also pricing adjustments. And in view of the dampening demand that management just highlighted, I'm wondering if our gross margin outlook, do we expect our gross margin to stay like similar level compared to right now? Or is there any directional change in the coming quarters? And also, my second question is can we share more color on our customer strength in terms of our OSAT customers and our IDM customers? Because I'm wondering, we have seen some sort of CapEx cuts from OSATs. And I'm not sure if that's the same observation we have, meaning more strength coming from IDM or actually both of them are seeing a similar demand.

[Romil Singh, IR]

Thanks, Dylan for your questions. Let me go on the first question. And for this question, I will request our CFO, Katie to answer. So your first question is basically on the longer-term gross margin outlook. Let me request Katie to provide more color.

[Katie Xu, SVP & Group CFO]

Thanks, Dylan. So we do not provide specific gross margin guidance, as you mentioned. However, I can provide you with some of my thoughts of the margin performance, just to give you some flavor. As I mentioned in the opening remarks, the Group has achieved 5 consecutive quarters with margins higher than 40%. To me, this is a step change or it's our attempt to establish a new positive pattern. As I mentioned, there are 3 main drivers for margin expansion, and I think they're quite sustainable. The first one you implied as well is the pivoting to advanced packaging and auto. 40-plus percent of our bookings for these 2 combined is reaching a material level for the Group and the margin is accretive.

The second is the corporate initiatives that we mentioned. In our prior calls, we have talked about this I think. The Group has engaged in a very transformational program to drive agility and resilience to make the organization future-ready. The program covers all aspects of the operations, spanning across from quality portfolio management, DRM, supply chain management, manufacturing optimization, digitization, et cetera. These initiatives are on ahead of targets. Thirdly, the Group has implemented sensible pricing adjustments on the back of supply chain shortage and price increases in the supply chain.

We have very systematic and targeted approach to raise price and protect and improve margin. So supported by these 3 drivers, we are confident that our margin momentum will continue. However, I have to say that in the same breath, as many of you know, our margin rate also depends on volume, product mix and the segment mix. So, in summary, we are very confident of the momentum of margin improvement, but do caution that the margin does depend on volume, segment and product mix. I hope I answered your question.

[Romil Singh, IR]

Thank you, Katie. Let me repeat the second question. And for the second question, I will request Robin to answer. Dylan, you want to know more color on our customers' strength, particularly with regards to OSATs and IDMs. You highlighted that OSAT side, the CapEx cuts are noticed. And you want to know whether there's more strength from the IDM side. I'll let Robin comment more on this.

[Robin Ng, CEO]

Thanks, Rom. Yes. If we dissect a little bit more of our first half revenue versus say the fall of 2021, I think we say that the IDM customers are more active in the first half of this year compared to last year. I think this is kind of intuitive in the sense that typically in the very high cycle last year, you tend to see OSATs more aggressive in the capacity investment because they have to scale up the capacity in order to meet their customers' requirement. So last years, we had, in general, and this is really more on the semicon side or on the SMT side. In general, for the semicon side, last year, OSATs tend to be more active in terms of investment -- capacity investment compared to IDMs. But this year is IDM taking the lead in terms of investment compared to OSATs.

Now IDMs, maybe I should say that that's the uniqueness of ASM, because we serve a broad-based customer spanning from a OSATs to IDMs and there was a presentation as well as in a press usually, we want to give a picture to the Street that you know our customers are really diverse and that's the strength. So, one sector may be a bit down relatively, the other customer base segment are still very active. And we have been talking about AP and automotive.

So, you can sort of correlate that when IDMs are active, these are the clients that I'm investing in more in all these APs and automotive tools. And we are not just providing them immediate capacity needs. We are also engaging them in terms of technology that they are thinking of 2 years down the road. So, this will bode well. This engagement, this deep engagement, this IDMs that we have in our customer base, that will not only serve us well in this period, but also in the future period to come because once their technology materializes and once they qualify our tools, they will use our tools and solutions for a long time.

[Romil Singh, IR]

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

[Sunny Lin, UBS]

Sure. Can you hear me?

[Romil Singh, IR]

Yes. Sunny, go ahead. Thank you.

[Sunny Lin, UBS]

I just have one quick one. So, if we look at your booking in second quarter and third quarter and for the wire bonder part, do you think the orders have normalized to a more reasonable level? Or do you think there could be incremental downside from here?

[Romil Singh, IR]

Thanks for the question. Let me just repeat. So, looking at the bookings for second quarter and third quarter, you want to know more color on the demand for wire bonders, whether it has normalized or there can be more downside. I will request Robin to answer this.

[Robin Ng, CEO]

Thanks, Sunny. Now typically, for wire bond business last year, I just give you some kind of backdrop. Last year was extremely high year for wire bond business, principally driven by a few sectors in our opinion. One is the consumer market, two, is the communication market. So naturally, when these 2 markets are relatively weak compared to, say, automotive or computers or industrial, is kind of expected that the demand for for wire bonds will come down relative to the other tools. Now unless these 2 segments, see a pickup in the coming quarters, we do not see wire bond volume to pick up substantially from here, right? So that's the color I can give it you, Sunny.

[Romil Singh, IR]

Sunny, do you have second question?

[Sunny Lin, UBS]

So just to quickly follow up. So I understand probably in the short term, wire bond orders grew, so but I wonder if, in general, the order has come down to a more reasonable level if we compare with pre-COVID or is still in the process of normalizing into second half?

[Robin Ng, CEO]

Difficult to answer your question because we precision, to be honest. The supply chain [indiscernible] so you also depend how the macro developer, right, where the consumer sentiment will be further dampened going down the road. Now assuming those factors remain kind of constant, there is no additional downside, I think the wire bond business has always been quite stable. Okay. I hope I give you some color.

[Romil Singh, IR]

Thanks, Sunny. Hi, everyone. We still have some more time. If you guys have more questions, please use the raise hand function. Management is still around. Thank you. I will give it a minute. If in that time, there are no more questions, we will end the call.

Hi, Kyna, yes, please go ahead with your questions.

[Kyna Wong, Crédit Suisse]

Could management elaborate a little bit more on the lockdown impact in China? And we see that the demand is not delaying into the third quarter because the guidance seems to be like lower than our expectations as well. But what's the impact towards the SEMI business and also SMT? I think SMT should be relatively less impact from this lockdown in Q2?

[Romil Singh, IR]

Okay. Thanks, Kyna. Let me repeat the question. I think you want to know more -- I will request Robin to answer this question, you want to know more regarding the business in relation to the lockdown in China. And whether there were delays from 2Q, which went on to Q3 and the impact of all this, both on our SEMI side and SMT side and Robin's view on all this.

[Robin Ng, CEO]

Yes, Kyna, I think as far as lockdown is concerned, the impact is actually quite significant. You think if there's a lockdown, there will be supply chain points, traffic restriction from one area to another area. All these will exacerbate the supply already. I mean, before the lockdown the supply chain in the semiconductor industry is already very tight. So, we add on this lockdown situation in China, so the supply the situation in China is really challenging during this lockdown period.

Moreover, I can give you some color. Typically, customers would travel to our plants to do buy off or customer qualification, right. So during the lockdown, these activities were even not possible. So, resulting in customers not able to buy out our equipment and also assessing our delivery timing and so all this will cause time lag in terms of delivery to our customers. Now that's just the supply side of it.

Now I think someone mentioned in China, there are a lot of factories also being constructed. We also believe in some customers are telling us that they're not ready to accept our equipment because the factories are simply delayed because of lockdown. They cannot construct the factory in time. So, they also cannot accept the delay of our tool. So, the supply side is still very challenging due to the lockdown. Now secondly, the lockdown also impact the demand side of it. You can imagine, right?

So, there are less people traffic in the street, less people going to shopping centers or offices because of lockdowns, so the demand for say for LED. So in particular, LED demand is also affected because of the lockdown in China. So, all this also affect consumer confidence and in turn affect our customers' confidence in taking delivery as well. So obviously, lockdown [Technical Difficulty] just in one region because of our broad-based solutions, we have outside channel demand to sort of mitigate some of these challenges that we face.

[Romil Singh, IR]

Thanks, Robin. Kyna, do you have another question?

[Kyna Wong, Crédit Suisse]

Yes. No more. Thanks.

[Romil Singh, IR]

Thanks, Kyna. Next, can I request Simon to unmute yourself and ask your questions.

[Simon Woo, Analyst]

Yes. Can you hear me? Thank you.

[Romil Singh, IR]

Yes, Simon, go ahead. Thank you.

[Simon Woo, Analyst]

Yes. Thanks again, great presentation and also IR material is very, very helpful. Very quickly, the question on Page 21, when we look at your end market application basis revenue mix, computers, consumer, communication, these parts are around the 50% of your revenue we guess. So, we think that you are of a conservative account for the second half outlook, maybe based on these consumer electronics or smartphone PC-related. So follow-up question is, do you see any immediate or near-term order cancellation for this application-related from the customers?

[Romil Singh, IR]

Okay. Simon, so let me try and repeat your question. Let me know if I'm on the right track. So, based on our end market applications, you noted that for some of the segments, consumer-related ones like consumer and others, we do have a decent proportion and contribution to the revenue. So, noting that the demand is sort of weak for these, you want to know maybe a bit more color on this and whether any near-term cancellation of orders in this PC consumer and related segments. Is that correct?

[Simon Woo, Analyst]

So, negative impact from the deeper macro, the downturn risk.

[Romil Singh, IR]

You noted on this. Let me request Robin to answer this.

[Robin Ng, CEO]

Yes, Simon, I thought I answered your question, but if I don't, you can repeat again, right? So, I think your focus was -- the first one was on consumer market, I believe. Despite -- I mean, despite what we have been saying the consumer market sentiment down, consumer market for first half of this year, still the highest segment, around 22% of our Group revenue mix. I think this is also partly because we have a good demand from consumer market into Q1 of this year before before the macroeconomic conditions appears from February onwards. So the consumer demand was still a big market for us traditionally.

So, if you look -- if we look back for a few years, typically, for ASMPT, the consumer market, the communication market, they tend to be the biggest segment, many years back compared to the other segment. Now because of the sentiment affecting consumer worldwide, we see consumer contribution starting to come down relative to the other segments. So, I hope I answered your first part of the question to give us some idea why the consumer segment is at the kind of level.

Now second, you asked me whether is there any cancellation of orders. I would say very minimal so far, very minimal. There are more pushouts than cancellations. I think that probably is a signal that our customers are -- although they may be a little bit uncertain of the near-term picture, but they do not want to cancel the orders because once if they cancel the orders, if the demand comes back and then they reorder again, they will be to the queue again. So, they want order to be there. The -- sorry, some of these customers maybe tell us that, look, I still want orders, but I don't want it now because uncertainty. That's also cancellation of orders very minimal.

[Simon Woo, Analyst]

Very quick on other question if you don't mind, any rough idea for your revenue mix for automotive and then industrial in Americas and very simple. What could be the mix ratio for SEMIs [indiscernible] SMT for automotive, which accounts for roughly 20% of your revenue. And then the same question for the industrial which you account for 14% of your first half revenue?

[Romil Singh, IR]

Sorry, Simon, let me repeat the question, and let me know if this is correct. You want to know more on our -- more idea on our revenue mix, especially for auto and industrial. Do you want to know breakdown on these in terms of SEMI and SMT?

[Simon Woo, Analyst]

Yes, very simple.

[Romil Singh, IR]

All right. Let me request Robin to give some color on this.

[Robin Ng, CEO]

Okay. Simon, we don't go down to segment level. But certainly, I can give you some qualitative kind of color. Now for SMT, typically, we are very strong in the automotive and the industrial market, right? So, we -- I mean, this is really strength for the SMT. So, we are probably #1 in this area in Europe, in America especially. Now for automotive, SMT is also very front in China. So, I think this will give you some color for SMT side. Now for the SEMI side, we see because of automotive being so strong, we mentioned in opening remarks in our Q&A, we see automotive increasingly becomes -- increase it faster for the SEMI side compared to some quarters ago.

So, automotive becomes a very strong. So far in the first half of this year and the way we see it is going to remain, the momentum will continue in the near future also for the semiconductor side. Now, I alluded to the industrial segment as well. We see industrial segment in the future will come up pretty strongly because a lot of infrastructure supporting the EV ecosystem will have to be up in time to come, especially the China infrastructure. This requires a lot of power devices and power devices solution, we are -- we can provide end-to-end solution for our customers. So, we are hopeful that the industrial solutions would also intend to become a significant market segment for ASMPT.

[Romil Singh, IR]

Thanks, Simon. Next, can I request Patrick to unmute yourself and ask your questions. And this will be the last round of questions. Patrick, can you hear me? Can you unmute yourself and ask your questions.

[Unidentified Analyst]

Hello?

[Romil Singh, IR]

Hi Patrick, we can hear you. Go ahead. Thank you.

[Unidentified Analyst]

I have one question that how about the inventory situation because everyone believes the inventory should be tightening up already? And what is your idea for ask for [indiscernible].

[Romil Singh, IR]

Can you repeat the last part of your question? What's your idea on...

[Unidentified Analyst]

What's your idea for the [indiscernible] to be happening. It's going down or going up?

[Romil Singh, IR]

Okay. So basically, you just want to know more on the inventory situation. Is it piling up already? Or is it going up or down? Is that correct? Maybe let me request our CFO, Katie to answer this question on inventory.

[Katie Xu, SVP & Group CFO]

Patrick, I assume you're asking about the inventory level of the Group, right?

[Romil Singh, IR]

Yes.

[Robin Ng, CEO]

The group or the industry?

[Katie Xu, SVP & Group CFO]

Are you asking...

[Unidentified Analyst]

Yes, yes, yes. The Group or industry, I want to know ASMPT's coming and [indiscernible].

[Robin Ng, CEO]

So Patrick, sorry, just to make it clear, you're asking about inventories position for ASMPT or you're asking about inventory position of the industry as a whole?

[Unidentified Analyst]

Both.

[Romil Singh, IR]

Okay. Yes, maybe we will request Katie to answer on the Group level, and then Robin can sum it up for the industry level.

[Katie Xu, SVP & Group CFO]

Yes. So on the Group side for ASMPT, I think the -- our inventory strategy has not changed. It's just in case inventory strategy due to the continued supply chain constraints. We are watching our inventory level very closely. With the strong revenue, our inventory days actually been improving, but we will -- we do want to make sure that we have the right inventory for our customers when needed.

[Robin Ng, CEO]

Okay. So let me answer the other part of the question, Patrick, on the inventory situation for the semicon industry. Now to be honest, Patrick, this -- probably this question is -- should be directed to our customers, not to us because we are just providing equipment to our customer. We don't really have a direct fee of how they see the inventory position. But since you asked this question, I can just give you some thoughts how we see it, right? So, if you purely judging from the strength of the market segment, right?

So automotive is still doing well. AP is still doing well. I suppose the inventories, the increased set of things at the industry levels should be okay. But for the consumer side, the communication side, the smartphone side, because the way we experience in these 2 segments are relatively slow compared to the automotive, and the AP, probably the inventory situation there is different from the automotive and the AP. I think this is much I can offer you because I -- as I said, this shouldn't be a question for us, but you should put it to our customers.

[Romil Singh, IR]

You have another question?

[Unidentified Analyst]

No, thank you.

[Romil Singh, IR]

Thanks, Patrick. Thank you, everyone. With that, I think we would officially end this call. I would like to thank you all 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, everyone.

[Robin Ng, CEO]

Thank you.

[Katie Xu, SVP & Group CFO]

Thank you.