ASM Pacific Technology Ltd

HKEX:522

Earnings Call Analysis

Revenue Decline and Margin Compression with Q4 Outlook

In Q3 2023, revenue declined to $444 million, 10.9% less than the previous quarter, largely because of weaker demand across industry sectors, especially in semiconductor and surface mount technology (SMT) segments. Bookings fell by 18.3%, and an isolated cancellation occurred for panel deposition tools from a single customer. Gross margins shrank to 34.2% due to unfavorable product mix and volume effects. Adjusted net profit plummeted by 85.3% to HKD 45 million compared to the previous quarter, and adjusted EPS also sank by 85.3% to HKD 0.11. Notably, despite market challenges, the balance sheet remained robust, with a healthy liquidity position. For Q4, the SEMI gross margin is projected to rebound to around 40% with a better product mix, while the revenue forecast is in the range of $390 million to $460 million.

Navigating Through Rough Waters: A Reflective Third Quarter

As we review the third quarter of 2023, we're observing a company that has been weathering a storm. The company's earnings backlog decreased by 7.2% to approximately $922 million indicating softer demand and perhaps challenges in converting bookings to revenue. This quarter's revenue of $444 million, although in line with guidance, marked a significant downtrend both quarterly and yearly, by 10.9% and 23.8%, respectively. This suggests a broader industry slowdown with both SEMI and SMT segments struggling to keep up their numbers.

Profitability Squeeze and Cost Efficiency Measures

The company's gross margin compressed significantly by 594 basis points sequentially to 34.2% and an even steeper 670 basis points year-on-year. This margin contraction reflects the challenges faced in terms of the product mix and the burden of aged inventory provisions. These pains, however, were somewhat mitigated by efforts to control costs, including a targeted, albeit modest, workforce reduction. Nonetheless, the sharp decline in adjusted net profit by 85.3% quarter-on-quarter underscores the magnitude of the squeeze on profitability.

Bright Spots and Shadows in Segment Performance

The company's segments presented a mixed bag of performances. The Optoelectronics business unit experienced a revenue uplift from the wire bonders for conventional displays, but this was dampened by continued weakness in the global smartphone market, affecting the CIS business unit. SEMI's 4.4% quarter-on-quarter bookings growth stands in stark contrast to SMT's 15.4% revenue decline, hinting at sector-specific dynamics and the importance of the product mix influencing margins and performance.

Cautious Outlook Amidst Industry Headwinds

Facing a weakening economy and pressured end markets, the company anticipates further industry-wide inventory adjustments and restrained capital spending from customers. These factors contribute to a guidance of Q4 revenue between $390 million to $460 million, which would represent a 23.2% annual and 4.2% sequential decrease - indicative of a challenging end-of-year ahead.

Optimism for Long-Term Growth Fueled by Structural Trends

Despite short-term hurdles, the company remains bullish about its long-term prospects. Their optimism is anchored in structural industry trends such as automotive electrification, smart factories, green infrastructure, and advancements in 5G, IoT, and high-performance computing, especially as these sectors stand to be revolutionized by generative AI. These trends bode well for anticipated capital expenditure growth, painting a hopeful picture for recovery and expansion post the current slump.

Earnings Call Transcript 2023-Q3

[Romil Singh, executive]

Good morning and good evening, ladies and gentlemen. This is Romil, the Head of Investor Relations for ASMPT, and I will be the moderator for today's call. On behalf of the group, let me welcome all of you to our Third Quarter Investor Conference Call. And thank you for your interest and your continued support in the company. [Operator Instructions]

Let me quickly highlight the disclaimer. 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.

On today's call, we have our group CEO, Robin; and our group CFO, Katie. Robin will begin with a brief discussion and highlight on the -- some of the developments of the group, and then Katie will provide details on the financial performance. This will be followed by an update on the revenue guidance and outlook, and then we will open the floor for Q&A.

With that, let me hand the time over to Robin now.

[Cher Ng, executive]

Thank you, Romil. Good morning, good evening, everyone. It is good to see all of you on our earnings conference call for Q3 2023. Let me start the presentation by providing some of our observations on recent developments in the semiconductor industry and the overall macroeconomic environment before we provide an update of our third quarter performance.

For Q3 2023, the group continued to be impacted by ongoing challenging macroeconomic environment, in particular, tepid consumer spending. Consequently, weak conditions were prevalent in the semiconductor industry with low electronics demand and conservative CapEx investment. Due to this industry weakness, demand/supply dynamics did not turn favorable during this quarter.

As the group navigated these challenging industry conditions, our unique and broad-based portfolio helped to partially mitigate the adverse impact. This can be seen from our SMT business, which continued to deliver higher revenue than our SEMI business for a fifth consecutive quarter even as SMT goes through a normalization phase.

Our SMT business has put strong performance for over 2 years, and it's quite expected that it will undergo an adjustment period as its overall addresses -- addressable market normalizes. For our SEMI business, we are witnessing gradual improvement in factory utilizations by the same customer base, but this has not yet reached optimal levels for strong order flows.

As a result, while SEMI witnessed some sporadic demand, we believe that this was not reflective of a broad-based recovery in the segment. It is interesting to note that on a year-on-year basis, SEMI bookings have been declining at a gradually slower pace in the recent quarters. This indicates that bookings are trending in the right direction, and we believe this is a signal that the market could be stabilizing.

Looking at our unique and broad-based portfolio across both of SEMI and SMT segments and our deep partnership with major customers on their technology road maps. We are well positioned to capitalize on growth opportunities.

In particular, a comprehensive suite of Advanced Packaging solutions continue to witness a growing global demand largely driven by generative AI and High-Performance Computing or HPC applications. I will share more about the progress of our Advanced Packaging or AP solutions in the next 2 slides.

The increasing demand for such applications gives us confidence in the long-term potential of our AP solutions suite. We are deeply engaged with key customers to enable strong growth in generative AI and HPC by meeting high-precision bonding requirements and stringent total cost of ownership criteria.

The group saw continued demand for AP solutions with our Thermo Compression Bonding or TCB solutions continue to contribute the most to both the group's AP bookings and revenue for this quarter. Let me provide more detail about our TCB solutions.

I have highlighted this part in the previous call, but let me repeat that for loading applications, our TCB solutions are enabling both chip-to-wafer and chip-to-substrate processors for major customers. These are critical for heterogenous integration and assembly of the increasingly sophisticated advanced packages.

Thus, logic-related packaging demand continued to drive momentum for our TCB solutions. For the third quarter, orders for the group's TCB solutions or generative AI applications came from a leading foundry and also from OSAT customers. Orders from this leading foundry player were the first international TCB orders secured from them, and we expect more order flow as they expand their AP capacity.

For HPC applications, we saw order flow from a leading logic IDM customer. We expect continued TCB order momentum for logic applications as we continue to work closely with major generative AI and HPC players.

Let me also deal about the progress of our TCB solutions for the high-bandwidth memory or HBM market. We continue to engage multiple memory players to cater to the more demanding packaging requirements for customers' next-generation HBM needs. For these engagements with complex requirements, we are using our next-generation TCB tools featuring green, ultra-fine pitch capabilities.

Next, let me highlight our Mass Reflow High Precision Die-bonding solutions. Even as the TCB gains momentum, our mass reflow solutions remain relevant for such applications. And we saw demand from AI and HPC-related customers. We also deepened our engagements with leading foundry, memory and OSAT customers. And we expect more order flows for mass reflow tools going forward.

Let me also give a quick update about our Hybrid Bonding solution. After winning our maiden order in the second quarter of this year, we secured another Hybrid Bonding tool from another customer. This tool will be useful for 3D integration with delivery expected in the second half of next year. We also continue to engage players and various end-market applicants for our Hybrid Bonding solutions.

Besides this high-precision bonding solutions, other AP solutions in a comprehensive AP portfolio are obvious beneficiaries from increasing demand for generative AI products. Let me highlight about this.

First, our high-end SMT placement tools continue to have robust demand, mainly from AI-powered server customers. I'm also pleased to note that our advanced placement tools are gaining traction for cheap packaging at the substrate level and on orders from a leading foundry customer.

Lastly, an update on Photonics and Silicon Photonics solutions. These solutions are able to meet the significantly high bandwidth transfer requirements of AI-powered data centers. There were repeat orders for solutions from leading generative AI customers for their transceiver expansion plans. And we expect this order momentum to persist as generative AI needs are fueling the expansion of transceivers for data centers.

From this slide, we are trying to highlight some of the key AP solutions benefiting from the global demand in generative AI and HPC applications. On the left of the slide is an example of a high-end generative AI or HPC device that goes into a data center. As these devices get more complex, such packages will require an increasing number of large chiplets and new generation high-bandwidth memory stacking.

This will lead to a significant increase in the number of interconnects required to be bonded by high-precision bonding tools. These also come with more stringent technology and cost criteria.

With that background, I'm pleased to highlight that we have high-precision bonding solutions that are relevant for the different interconnect requirements for such complex devices. In analyzing high-precision bonding requirements along with the total cost of ownership criteria, we strongly believe that the majority of this interconnects can be handled by TCB tools.

This gives us confidence in the long-term potential of our TCB solutions as we continue to work with different generative AI and HPC-related players, including IDM, foundry, OSAT and memory players. You can also see in the slide that Mass Reflow tools remain relevant with our solutions experiencing continued demand.

Our SMT solutions are also able to meet requirements for such devices in data centers. For these complex packages, our advanced SMT tools help to place integrated passive devices or IPDs on the substrate, both between the passive interposer and the substrate and between the substrate and the circuit board.

On the right side of this slide, we mentioned our photonics solutions. Our solutions are required for die placement and lens attach and can even handle 400G transceivers and beyond. These transceivers are experiencing demand growth with increasingly high-value transfer requirements to help efficiently process high-speed optical data in data centers.

I hope that with these highlights, you get a clearer picture on where exactly many of our AP solutions are relevant and obvious beneficiaries with the growing demand from generative AI and HPC applications.

With those highlights, let me now pass the time over to Katie, our group CFO, who will talk about our group and segment performance.

[Yifan Xu, executive]

Thank you, Robin. Good morning and good evening, everyone. Let me take you through the financials. This slide covers the group's key financial metrics for third quarter of 2023.

As Robin has highlighted in his opening, the group was impacted by weak industry conditions and a challenging macroeconomic environment. Our unique broad-based portfolio partially shielded us as SMT continued to deliver higher revenue than SEMI even though SMT has entered a normalization phase. SEMI remained at relatively low revenue base in absence of a broad-based recovery.

Looking at quarter-on-quarter comparisons. Group revenue decreased by 10.9%, while bookings came down by just 1.8% for the third quarter of 2023. Our Q3 earning backlog decreased by 7.2% sequentially to about USD 922 million. Our gross margin of 34.2% declined quarter-on-quarter by 594 basis points, and I will provide a detailed explanation on this decline in the next few slides.

Also, let me highlight that while navigating the challenging environment, the group continued to control cost and drive efficiency. This included a targeted head count reduction in Q3 of a low single-digit percentage of the group's workforce. Since there were restructuring costs incurred, we now use adjusted net profit and adjusted earnings per share metrics. For more information about these non-HKFRS measures, you may refer to the reconciliation section on Page 10 of the group's third quarter 2023 results announcement.

Group's adjusted net profit for Q3 was HKD 45 million, down 85.3% quarter-on-quarter and was adversely impacted by lower sales volume and gross margin. Adjusted earnings per share for the third quarter was HKD 0.11, a decrease of 85.3% quarter-on-quarter. The group maintained a strong balance sheet with healthy liquidation position.

At the end of Q3, gross margin and bank deposits were at HKD 4.17 billion, up from HKD 3.77 billion in Q2, while bank borrowing remained stable at HKD 2 billion. Let me now go through more detailed financials and segment performance in the next few slides.

For third quarter of 2023, group revenue of USD 444 million was almost at the midpoint of our previously guided -- of previous issued guidance. This was a decline of 10.9% quarter-on-quarter and 23.8% year-on-year. Group revenue declined due to prevalent industry weakness with both SEMI and SMT generating lower revenues.

For end market applications, revenue contributions from both Automotive and Industrial continue to contribute to the highest proportion to group revenue. Group bookings were at USD 378.5 million for third quarter, a decline of 1.8% quarter-on-quarter and of 18.3% year-on-year.

Let me now provide some further insight into our third quarter bookings. The group had isolated order cancellation in the third quarter for its panel deposition tools under the SEMI segment. This cancellation came from a leading high-density substrate manufacturer in response to its slower-than-expected digestion of existing capacity. If we exclude this cancellation, the group's third quarter bookings would have been about 6% higher quarter-on-quarter.

For our year-on-year bookings, the decline was mainly due to relatively weaker industry conditions. Please take note that this isolated cancellation was only for one particular customer, and we do not foresee any material cancellation risk for our panel deposition tools for other customers as we continue to deliver tools to them.

Group gross margin of 34.2% declined by 594 basis points quarter-on-quarter and by 670 basis points year-on-year. Gross margin declined mainly due to unfavorable product mix, volume effect and provision for agent inventories. A majority of the gross margin decline came from SEMI, and I will go to it in the next slide.

The group's operating margin and net profit for the third quarter decreased quarter-on-quarter and year-on-year mainly due to lower sales volume and gross margin. For Q3 2023, the SEMI segment revenue was down moderately quarter-on-quarter by 4.9% to about USD 201 million. The IC/Discrete business unit had stable revenue quarter-on-quarter with the highest revenue contribution from TCB followed by Molding and Sintering solutions combined for Automotive applications.

The Optoelectronics business unit recorded higher revenue quarter-on-quarter. Revenue growth was mainly driven by higher revenue from wire bonders for Conventional Displays. The CIS business unit revenue was adversely impacted by continued weakness in the global smartphone market.

Third quarter bookings for SEMI increased to approximately USD 169 million with contributions mainly from AP and Automotive applications. This was an increase of 4.4% quarter-on-quarter. SEMI bookings would have increased by approximately 22% quarter-on-quarter if we exclude the order cancellation for the panel deposition tools I highlighted in the previous slide.

SEMI gross margin was 31.9% mainly due to unfavorable product mix and a provision for aging inventories. The impact on product mix was mainly due to 3 factors. First, it included the phasing out of an older-generation, lower-margin product as part of our planned product upgrades. Second, it included relatively high wire bonder sales under the Opto business unit. And lastly, there was a lower volume of high-end smartphone-related products. Our provision for aging inventories, this was down mostly due to the accounting policy of aging, but these inventories are largely related to active products and it can be utilized in the future.

The SMT segment contributed about USD 243 million or about 55% of group revenue for the third quarter of 2023. This was a decline of 15.4% quarter-on-quarter mainly due to lower revenue from high-end placement and printing tools, but partially offset by revenue growth from SMT Advanced Packaging tools. Automotive and Industrial applications combined contributed to about half of SMT's revenue.

Our SMT business has enjoyed a high level of bookings for over 2 years, and its addressable market is now in the normalization phase. SMT bookings declined about USD 209 million for the third quarter, a decline of 6.4% quarter-on-quarter. Similarly to revenue, SMT bookings were also driven mostly by Industrial and Automotive end markets. Moreover, there was an uptick in demand from AI-related server applications. SMT gross margin decreased to 36% in the third quarter, down by 218 basis points quarter-on-quarter mainly due to volume effect.

Let me now pass the time back to Robin for fourth quarter revenue guidance.

[Cher Ng, executive]

Thank you, Katie. In the short term, weak economy and end market electronics will continue to prolong the industry inventory adjustment and constrain capital spending of our customer base. With these considerations in mind and the seasonality effects, the group expects revenue for the fourth quarter of 2023 to be between USD 390 million to USD 460 million.

At midpoint of USD 425 million, this represents a decline of 23.2% year-on-year and 4.2% quarter-on-quarter. The decline will be mainly due to SMT normalizing, while we expect SEMI revenue to remain stable.

Looking ahead, we continue to remain optimistic about the long-term prospects and growth potential for the group. This optimism is supported by the long-term structural trends of automotive electrification, smart factories, green infrastructure, 5G, IoT and high-performance computing fueled by generative AI growth.

To support this increasingly digitally connected world, more organizations are also preparing for the future with increasingly dynamic global supply chains. We firmly believe that these factors will lead to an increase in overall CapEx spend.

This concludes our third quarter presentation. Thank you, and now we are ready for Q&A. Let me pass it then to Romil to facilitate.

[Romil Singh, executive]

Thank you, Robin. Just want to highlight one correction. For our Hybrid Bonding maiden order, that was received in Q1, first quarter 2023, not second quarter.

[Romil Singh, executive]

[Operator Instructions] With that, can I request Donnie to unmute yourself and ask your questions?

[Donnie Teng, analyst]

Well, can you hear me?

[Romil Singh, executive]

Yes, Donnie. Go ahead.

[Donnie Teng, analyst]

I have 2 questions. The first one is that may I ask your view -- current view on the booking trend by different product lines or applications into fourth quarter 2023 and would like to know a little bit more on the main drivers of TCB in the third quarter and fourth quarter whether it's mainly driven by foundry, memory or CPU companies or more evenly distributed in between these [ noncustomers ]. And this is the first one.

[Romil Singh, executive]

Okay. Donnie, thanks. I think Robin will answer both your questions. The first part of your first question is on the booking trend, and you would want to know how was the booking trend if broken down by application or product side. So let me request Robin on that.

[Cher Ng, executive]

Donnie, thanks for the question. Now in our opening remarks, I mentioned that for third quarter, the orders for group TCB solutions for generative AI applications came from a leading foundry. And these are for chip-to-substrate application. And also, we received the TCB orders also for generative AI from OSAT customers as well.

I wish to highlight that the orders from this leading foundry player, we believe it's the first batch of TCB orders secured from them and we expect more of this order flow as they continue to expand their AP capacity. Also for HPC applications, we continue to see order flow from a leading logic IDM customer. And we also expect -- continue to see order momentum for the project application going forward.

Now as to some Q4 booking color, continue to see AP being -- our AP demand coming from generative AI and HPC applications. For Q4, we believe that the transceivers demand for data centers will pick up. And we are well positioned for that application because we have a suite of very high-precision tools for placing laser diodes and lens attach for the transceiver application.

So part of the AI demand are also coming on the transceivers application area in Q4. TCB will also continue for generative AI, for -- also for the substrate level. As I said, we received the first batch from leading foundry, and we believe that we should continue to receive more orders in the coming quarters. So I hope I've given you some color for the AP bookings in Q3 and Q4.

[Donnie Teng, analyst]

And my second question is regarding to -- maybe it's more for Katie. So for SEMI solutions gross margin, wondering if you or Katie can quantify the percentage point of the impact from unfavorable product mix and provision for aging inventories.

And for the provision of aging inventories, is that more like a onetime issue or we should expect it will continue to be the case in coming quarters? And what is your estimates on reasonable gross margin of SEMI solution if the overall SEMI cycle is back to normal?

[Romil Singh, executive]

Okay. I think you have 3 parts of second question. So first part, I think, I will request Katie to maybe highlight. I don't think she can quantify exactly in terms of percentage breakdown by different, different sides of the factors, what is impacting the gross margin. But maybe I will let Katie give some color, comment on it and also to comment whether it will continue in Q4.

[Yifan Xu, executive]

Thanks, Donnie, for the question. So let me spend a few minutes on margin for SEMI. As we have always communicated, the margin can be influenced by volume, product mix or a combination of 2. And in this quarter, it did play out this way.

So the last negative impact came from product mix. For example, we had a road map to phase out an older generation of wire bonders. And in Q3, we had a significant opportunistic sale for that. For general lighting and other consumer products, there was some sporadic sales. And as you know, Donnie, the mainstream products have relatively lower margins.

Lastly, we had relatively higher volume of high-end products serving the smartphone markets in the previous quarters. So that's kind of the combination of those -- is the product mix, which is the largest driver for the margin decline.

As to the inventory aging, we -- since we have been in the down cycle for more than a year, as per our accounting policy, we need to provide for some old -- for some slow-moving inventories due to aging. However, most of these inventories are still active.

So to answer your question whether repeated -- it will be repeated or not, since we -- as we've been in this downturn, we have subsequently controlled inventory intake. So we do not expect the need for another significant wave of inventory provision. So I hope those answers your question -- answer your question.

[Romil Singh, executive]

So last part of the question, Katie, is can you give a little bit color on -- if we minus off some of these one-offs, what can be like a normalized win for the SEMI side?

[Yifan Xu, executive]

All right. So we do expect that we always say the volume and the specific product mix will continue to influence the margin level for SEMI. But based on our visibility, our -- for Q4, our SEMI gross margin should be around 40% mainly due to better product mix of AP and Automotives.

[Romil Singh, executive]

Thanks, Katie. Next, can I request Gokul to unmute yourself and ask your questions?

[Gokul Hariharan, analyst]

So my first question is on the TCB growth outlook. I think -- last call, I think management mentioned that memory seemed like a bigger opportunity within the TCB for generative AI applications. Is that still the same view that memory is likely to represent a bigger market [indiscernible] market opportunity? Or have you seen more progress on the foundry and the OSAT side?

And secondly, could you talk a little bit more about the wins in the HBM area? I think you talked about 2 customers. Are you already shipping to these customers? Or are you just starting the [indiscernible] booking process? Just to understand where is the progress on the memory [indiscernible] customers for HBM. That's my first question.

[Cher Ng, executive]

Gokul, this is Robin. Concerning our view where the demand for TCB is coming whether it's HBM or logic, if you look at the typical AI package, we said in Q2 you're right, that the -- potentially going forward, the HBM market could be exciting because when we started using TCB.

For ASMPT at this moment, we see order flow more on the logic side that is at this point in time rather than on the HBM side. We did receive some -- a few tools order and we have already shipped them to the memory customer. And we are engaging not just one, but more memory customers for our TCB solutions.

We are targeting to use our next generation of TCB tools with better capabilities for memory, HBM or memory stacking going forward. Now what's the second part of Gokul's question?

[Romil Singh, executive]

I think he just wants to know whether we are shipping out right now or is this still in designing and qualification stage?

[Cher Ng, executive]

Yes. So as I said, we are engaged and I think we already answered part of the question. We are engaging multiple memory players to use our TCB solutions going forward for HBM. Gokul -- actually, Gokul, do you have follow-up questions?

[Gokul Hariharan, analyst]

Yes, I have a follow-up question. So on the memory side or HBM, could you talk a little bit on -- maybe also on overall TCB itself, could you talk a little bit about ASMPT's competitive positioning? You have been pretty dominant in the logic IDM space, but there are a lot of new companies that have come up in the memory, HBM space as well. So could you talk a little bit about where is your competitive positioning right now as you see it?

And secondly, within TCB, there seems to be a migration to flux-less TCB starting to happen for higher precision. Could you talk a little bit about ASMPT's road map on flux-less TCBs as well? And how low can you get down in terms of performance down to maybe 10-micron pitch density levels or even lower than that? What is your road map there?

And also, just wanted to understand competitive positioning. And if you could also talk a little bit about what is your market share that you expect in TCBs currently given a lot of these smaller competition emerging in each applications.

[Romil Singh, executive]

Gokul, I think your question is broken down into 3. Robin will answer all of them. But the first one, we'll start with memory related. And you want to know our competitive positioning in the market, especially for memory related to our TCB.

[Cher Ng, executive]

So I think for HBM, the [ POR ], existing [ POR ] is mainly on Mass Reflow that's what we understand. But increasingly, we see our customer base moving to TCB. So the potential for a TCB application for HBM is definitely there.

As I said earlier, the TCB market for HBM potentially can be significant going forward. But still at this stage, we see our TCB being adopted more for the logic side, so currently for chip-to-substrate applications. Now for chip-to-wafer, I think I can follow on with you. What's the second question?

[Romil Singh, executive]

So second part of the question is more on flux-less TCB, whether we are moving into the same direction and whether we are working on something similar. And in terms of the precision, how low can our next-generation tools go with 10 micron or indication?

[Cher Ng, executive]

Yes. Sure. I think we have a solution for, you call it flux-less but the different terminology -- the other terminology [indiscernible] AOI. Now our solutions are green solutions. They are ultra-fine pitch. You're asking our capabilities. For the AOI, we believe we can -- even for pitch we can even go down to below 10 micron, right? And for accuracy definitely around 1 micron or less.

Now for AOI, we believe probably going forward will be needed for the chip-to-wafer applications because at a chip-to-wafer level, you need higher precision, you need a smaller bond pitch. So AOI going forward, the application we see will be more for the chip-to-wafer.

[Romil Singh, executive]

So last part of the question is, can you comment on the market share of our TCB solution?

[Cher Ng, executive]

I believe we have very good market share because we have been in the TCB market for more than 10 years now. So coming from that perspective, I think we have -- as I said many times, we have a very good experience handling TCB or leading logic and player and now also going into the leading foundry space as well.

[Romil Singh, executive]

Next, can I request Sunny? Sunny, you can unmute yourself and ask your questions?

[Sunny Lin, analyst]

Yes. Could you hear me okay?

[Romil Singh, executive]

Yes, we can hear you.

[Sunny Lin, analyst]

So my first question is also to follow up on your progress in TCB as well on the logic side, any expectation in terms of when this leading foundry client will start to use your TCB for chip-to-wafer? And then for HBM, I guess from a technology side, different memory makers seem to be saying different thoughts about using mass reflow or TCB for next-generation HBM technology. And so could you share with us what's giving you confidence that TCB should be gaining more opportunities over mass reflow in the coming 2 to 3 years?

[Romil Singh, executive]

Okay. Thanks, Sunny. Okay. I'll break down your question into 2 parts. First is more on the progress of our TCB and what are we expecting in terms of potential for foundry orders and whether it's going to be for chip-to-wafer. I will request Robin to comment on it.

[Cher Ng, executive]

Yes. I think generally, we can't comment on any specific customer application. But generally, I think we all understand that for mass reflow versus TCB, mass reflow in terms of pitch, in terms of accuracy is not as fine as TCB. So as packages increasingly become more advanced, they need to pack more chips closer together to enhance the performance of the AI or the HPC packages. I think increasingly, TCB will be the solution rather than mass reflow.

Currently, you're right. I think we still see mass reflow tools being the POR for chip-to-wafer. However, as I mentioned earlier, we have already received the first batch of the TCB tools for chip-to-substrate to handle a large compound die. So I think going forward, we believe the industry will move towards adopting a TCB for chip-to-wafer application for the logic application at the AI substrate level.

Now for HBM, you are right as well. I think the existing POR is using mass reflow. But as the -- again, as the requirement for higher performance is expected from the HBM from 8 high to 12 high to 16 high, we see that would demand the -- more precision. And that's why TCB becomes more relevant as we move into the technology space as our memory players continue to stack more and more memory time for HBM.

[Romil Singh, executive]

Okay. Sunny, I think Robin answered both part of your questions. Do you have a follow-up question?

[Sunny Lin, analyst]

Yes. So my first follow-up on HBM side. So when -- like would you have any initial expectations when would some of your engagement with the key memory makers be converted into the real order win?

And then secondly, on hybrid bonder, how's the engagement with your first key customer? And would you be able to provide us a bit more color on your second customer?

[Romil Singh, executive]

So first question is on HBM side. When are we expecting all these engagements, which are ongoing, to convert into order wins.

[Cher Ng, executive]

We believe some time in '24, but it's exactly -- it's difficult to pin down exactly when in '24 we should see some orders come in for HBM, TCB tools. Second question?

[Romil Singh, executive]

So second question is on hybrid bonding side. We won our maiden order in Q1. Recently in Q3, also announced a second customer for our second tool. So can you provide some more details on these customers or where is it going?

[Cher Ng, executive]

Yes. We can't -- as I said, we have never provided specific details of our customer base, but we are certainly pleased to receive a second order for hybrid bonding. And these 2 are coming from -- these 2 demands coming again also from Asia-based customer.

[Romil Singh, executive]

Next, can I request [ Juan ] to unmute yourself and ask your questions?

[Unknown Analyst]

So essentially, my first question is regarding the SMT business. My first question is, have you seen any shift in discussions, whether it's from the auto, industrial side just in terms of a bit more cautiousness and if you could provide -- if you have seen any just in terms of the geographical market, that would be helpful.

[Cher Ng, executive]

Yes. Okay. I think for auto, we have mentioned also in Q2 that we see overall, I think SMT is normalizing. I think that's quite kind of expected because if you look at the whole process chain, right, we are in back end and then the -- after packaging, the chips need to be put on to the PCB board. So it's a natural progression from back end to SMT, while back -- because back end has been experiencing a prolonged downturn for close a year, so we expect SMT to feel the impact sooner or later.

So SMT is definitely normalizing. And for the fact that our SMT, we are also very exposed also to Automotive and Industrial. So we see Automotive also as a whole normalizing whereas Industrial are still -- the momentum is still strong. So as a result our SMT overall in terms of bookings and revenues are starting to normalize since Q2. Okay?

[Unknown Analyst]

Okay. In terms of my second question, just going back over to your HBM side. I mean, there have been different players saying a high degree of confidence that they will begin to win share in HBM memory. I'm just curious as you move from mass reflow to TCB, do you see space for -- aside from the dominant player as you migrate from mass reflow to TCB, do you see space for 2 or 3 players in these customers? Or do you think the bulk of the orders would be primarily concentrated into?

[Cher Ng, executive]

Generally speaking, our customer base tend to dual source. So we see space for multiple source of a supplier or even for the HBM space, yes.

[Unknown Analyst]

Okay. And lastly, could you just talk about the relative cost of your TCB systems compared to what you currently have for hybrid? And then also in terms of the time to bond of your TCB systems versus hybrid, any percentage difference in numbers would be helpful.

[Cher Ng, executive]

Sorry, we can't -- due to the competitive reason, we can't review the pricing. But we mentioned a few times already before, don't just look at the absolute price of hybrid bond versus TCB. You also have to take into account the whole ecosystem for TCB solution versus hybrid bonding.

So we mentioned many times, TCB at least at this moment in time, in consideration of the technology requirement, TCB is still coming up tops in terms of total cost of ownership versus hybrid bonding. But we also said that hybrid bonding will gain importance as we -- as the industry moves towards more and more final pitch and requiring much more capability in terms of accuracy. So at this moment, TCB still tops in terms of total cost of ownership.

[Romil Singh, executive]

Dylan, can I request you next to unmute yourself and ask your questions?

[Dylan Liu, analyst]

Yes. My first question is also on TCB, maybe 2 parts. One is that I want to follow up on the comment on 12 high migrating to 16 high because my understanding is that some of the industry people they've discussed -- discussing about using hybrid bonding for 16 high potentially. So what is our view on that? Do we think 12 high is a bigger opportunity for our TCB and HBM or 16 high? And why is that? That's the first part.

And the second part should be I remember -- I recall that last quarter, we showed an interesting chart suggesting that next year could be an inflection point for TCB. And for us, ASMPT, do we think it's mainly driven by logic customers or memory customers?

[Cher Ng, executive]

Okay. You're right. I think for HBM as the industry moved from 8 high, which is -- we believe, is using mass reflow to 12 high using TCB, possibly hybrid and 12, hybrid bonding could be the solution because the higher you stack the memory die, you want the memory die to be as thin as possible because TCB is in between a die, TCB is still need copper pillar no matter how small it is, right? Whereas for hybrid bonding die, actually stacking that die without copper pillar. So if you want the die to be as thin as possible, we stack more and more memory die. Going forward, hybrid bonding may be required. Now your second question is on the TCB?

[Dylan Liu, analyst]

Yes.

[Cher Ng, executive]

Yes, for -- yes, we came out with that kind of -- based on industry research last quarter, we came up with a chart that potentially TCB could see an inflection point, the TCB addressable market will see inflection point in 2024 driven by both HBM as well as logic applications.

For ASMPT, we see at this moment the logic applications will be our main driver for HBM. As I said earlier, we could see some order flow in 2024. But we're already seeing order flow for TCB for AI generative package already in Q3.

[Dylan Liu, analyst]

Yes. And I have a second question. Actually, also a follow-up on TCB. Yes, like you mentioned 12 high should be the major targeted market within HBM. And I believe there will be more 12 high variant starting from 2024 for HBM market.

So in our view -- back to the market share question, within HBM, in our view, going forward what will be the market share dynamic? Because you also mentioned that our customer base tends to dual source. So I'm curious about the ASMPT's view in terms of market share within HBM.

[Cher Ng, executive]

Yes. As I mentioned in my opening remarks, we are certainly targeting the HBM application for TCB, right, using our next generation of TCB tool, which are more precise, which can handle [ a finer ] pitch. And as I said earlier also that there's always room for more than one supplier in any application.

[Romil Singh, executive]

Next, can I request Nicolas to unmute yourself and ask your questions?

[Nicolas Guy Gabriel Baratte, analyst]

Yes. My apologies, I don't have any question on TCB and HBM. If we go back to SEMI margins, I understand what you said about the wire bonding one-off orders. But when I read the -- since you say that the weak margin was driven by the mix. When I read the earnings release, it looks like TCB revenues increased, Optoelectronic revenue increased, CIS declined. So does that suggest that TCB and Optoelectronics margins are lower than average?

[Romil Singh, executive]

Let me request Katie to comment on this.

[Yifan Xu, executive]

So Nicolas, the TCB gross margin is accretive to the overall company's margin.

[Nicolas Guy Gabriel Baratte, analyst]

Optoelectronics maybe?

[Yifan Xu, executive]

Opto depends on what in Opto, like, what we said as I mentioned earlier for general lighting, et cetera, right, Opto wise that was the issue. Yes.

[Nicolas Guy Gabriel Baratte, analyst]

Understood. Last quarter, it -- maybe I'm wrong, but I remember that you are expecting SMT to weaken and automobile demand to weaken. And now it seems that as Robin was saying, SMT normalizing, auto normalizing. So is there no more automobile weakness? This is what this means?

[Romil Singh, executive]

Let me request Robin to comment on this. So basically, you want to know under the SMT, some comments on the Automotive side because we did talk about it normalizing. So what do you see?

[Nicolas Guy Gabriel Baratte, analyst]

And last quarter, weakening, right?

[Cher Ng, executive]

Yes, it's normalizing. That's why you see our SMT, both revenue and bookings came down quarter-on-quarter. And going forward to Q4, we believe SMT revenue will also continue to decline while SEMI revenue kind of stable for Q4. Yes.

[Nicolas Guy Gabriel Baratte, analyst]

And industrially strong, Robin, right? I'm still -- you said that last quarter. I think I'm still a bit puzzled by this because from the semiconductor vendor, for example, Texas Instruments last night, they pretty much consistently mentioned weak industrial demand.

[Cher Ng, executive]

Yes. But we don't serve just one customer. We serve a variety.

[Nicolas Guy Gabriel Baratte, analyst]

Even today.

[Cher Ng, executive]

For SMT, they move on the SMT side, right? So we see industry demand. So the customer base for industrial is [indiscernible].

[Romil Singh, executive]

Next, can I request Leping to unmute yourself and ask your questions?

[Leping Huang, analyst]

I also had a question of your margin. So you mentioned the TCB is above the corporate average margin. So is it possible to separate the impact first from the aging inventory and the, how do you say, the change on our product mix and actually which products are facing margin pressure, I think this is the first question.

[Yifan Xu, executive]

Okay. I think your question is also on the margin for different products, right, Leping?

[Leping Huang, analyst]

Yes, yes.

[Yifan Xu, executive]

So in the opening remarks, I mentioned for the products, the modern mainstream products wire bonders, for example, the Opto wire bonders for general display, as an example, right, that has relatively lower margin. And TCB, I just want to confirm that TCB is above the corporate margin.

[Leping Huang, analyst]

For where you run business, so for the SEMI, what should be the normalized margin you are expecting looking for this? Actually 31% -- 32% is quite low even if you look at your history of operations.

[Yifan Xu, executive]

That's correct. And that's why we [indiscernible] to explain the maybe I'll call it the extraordinary or onetime items that happened in Q3. Usually, we don't guide our margin, as you guys all know. But based on our visibility, as I mentioned, in Q4, we think that SEMI gross margin should be around 40%.

[Leping Huang, analyst]

Okay. So the second question is about, I mean, the cycle. So I think your leading foundry customer just last week say that they see some early sign of the recovery. So -- and we see our [indiscernible] Q-on-Q is still slightly declined. Do you [indiscernible] your customers. Do you see any sign of recovery on the consumer side since I was quite surprised that auto and industrial already account for 50% of SMT. So it means consumer's really weak these days, yes.

[Cher Ng, executive]

Yes, I'll answer the question. I think you are right. I think on the consumer side, what we call the high-volume demand area like consumer, which cause -- and also smartphones, for example. So consumer will be things like TVs, for example. So all these are yet to really recover.

That's why we said that we don't see any broad-based recovery because the consumer side is still weak, whereas the Automotive in general for both SEMI and SMT are still at a pretty good level. Industrial is strong [indiscernible]. Automotive and Industrial are 2 segments that continue to do well for ASMPT in addition to Advanced Packaging. Does that answer your question?

[Leping Huang, analyst]

Yes. So [indiscernible]. So do you have any vision or view that when you go to the revenue in 2024, so how big the TCB or Advanced Packaging should be account for the whole group sales?

[Cher Ng, executive]

Too far. We don't have a crystal ball, but all we can say is that the AP will continue to be a strong driver for ASMPT as a whole. We took some pain in -- to describe our optimism of AP solution because we have a comprehensive suite of solutions, not just TCB alone.

As I said earlier, the -- our solution for Photonics and Silicon Photonics are used for transceivers packaging. We see a healthy demand picking up in that area as well.

You need both to work, right? If you look at what goes in the data center, you need an AI chip, right? We have a page just now on our guide. On the left-hand side, we have the AI packaging, right? And also on the right-hand side, we need transceivers as well. So -- and then you also need server bots that go into the data center.

So if you picture the data center, we are playing in multiple areas in the data center. First, at the chip at the substrate level, packing the -- using TCB for memory die or logic die, chip-to-wafer, chip-to-substrate, SMT coming in at -- placing IPD or integrated passive devices onto the substrate.

And then on the right-hand side, we have transceivers packaging using our Photonics and Silicon Photonic tools. And then in the diagram is TCB -- I mean, our SMT placement tools are placing all these AI chips onto a server bot, right?

So all this would go into a data center. So this is really driving a demand for AP solutions in a very comprehensive way for ASMPT going forward.

[Romil Singh, executive]

Simon, can you unmute yourself and ask your questions?

[Simon Woo, analyst]

Okay. Great. Yes. Can you hear me well?

[Romil Singh, executive]

Yes, Simon, go ahead.

[Simon Woo, analyst]

Yes. Great. Yes, great discussion so far, focusing on the AP or TCB. That's just a simple math. If we use the industry average of the TCB from the equipment price, say, $1 million, $2 million, I wonder how the ASMPT enjoy meaningful revenue growth with TCB? The realistic is -- the issue is the equipment prices are so low. So do you agree our view?

For example, based on your previous comment, the -- your ASMPT historical shipment unit since 2012 up to maybe early this year, about 300 units, right? That means the annual shipment maybe recently 40, 50 unit. And then the 7-digit price means maybe $1 million, et cetera. But yes, we appreciate our management efforts. The TCB as you mentioned might increase, but the problem is the price per unit is so low. So how are you going to make meaningful revenue or profit increase with the TCB bonder there?

[Romil Singh, executive]

Simon, before I pass it to Robin, a couple of comments. First thing, we don't really disclose our ASP for TCB, for that matter, the majority of our products.

Second thing is we did highlight about TCB's potential, but we are talking about TCB's potential as part of AP, not really putting as a percentage of the entire group's [ one ] because you know our group's portfolio is pretty comprehensive and is quite vast.

But having said that, let me request Robin to maybe give you some color in terms of how our TCB has progressed and how it can be one of the pillars of growth going forward.

[Cher Ng, executive]

Honestly, nothing much to add to Romil's commentary. I think for TCB, the potential is really on the generative AI packages, right? So if that is expected to take off in a big way from '24, '25 onwards, you can imagine the number of tools, TCB tools that are required for both logic, for both HBM can be significant going forward.

[Simon Woo, analyst]

Yes, yes. Okay, sure. But it is true that your historical shipment unit volume all together around 300 units [ since 2012 ] makes sense?

[Cher Ng, executive]

Roughly there for about 10 years we shipped roughly current amount. So we don't disclose an exact number but there are above, yes. And last quarter, we also mentioned that for the first 10 years, the number of tools that we shipped, and in the next 3 years, from '22 to '24, we believe we'll probably see the same thing for TCB tools in the next 3 years versus the last 10 years.

[Simon Woo, analyst]

Yes, that's great color. But for now, your TCB equipment is mainly for the logic and the foundry customers, just the engagement with the memory makers, right, for now?

[Cher Ng, executive]

Yes, for now yes. The logic for AI, generative AI, for HPC, yes. For memory, as I mentioned earlier, we shipped a few tools already to a memory maker, yes. So we are already -- we're already in memory for TCB, but we are looking for more potential going forward.

[Romil Singh, executive]

Thanks, Simon. With that, I think we'll end the earnings call. Let me thank all of you again for attending today's call, and we hope to see you during the next quarter's call. Thank you. Take care.

[Cher Ng, executive]

Thank you.