ASM Pacific Technology Ltd

HKEX:522

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the ASM Conference Call. Mr. Leonard Lee, please begin the call, and I'll be standing by. Thank you.

[Leonard Lee, executive]

Thank you. Good morning, and good evening, ladies and gentlemen. Welcome to the ASM Pacific Technology 2020 Annual Results Investor Conference Call.

Before we proceed, do note that during this conference call, there may be forward-looking statements with respect to ASM Pacific Technology's business and financial conditions. Such forward-looking statements could involve known and unknown uncertainties and risks that could cause actual results, performance and events to differ materially from those expressed or implied during this conference call. For your reference, the IR presentation related to our 2020 annual results can be downloaded from our website, www.asmpacific.com.

With us this morning are Mr. Robin Ng, ASM Pacific's Group Chief Financial Officer (sic) [ Chief Executive Officer ]; and Ms. Patricia Chou, Group Chief Financial Officer. Robin will begin with a brief discussion about our 2020 annual results with Patricia giving some color to the financial numbers. This will be followed by a Q&A session.

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

[Cher Ng, executive]

Thank you, Leonard. Good morning, everyone, and thank you for joining us today. Before we proceed with the details of our performance for 2020, it's my wish that you continue to keep safe, healthy and well during this continued COVID-19 situation.

Let me begin by highlighting some of the major events that shift our business in 2020 up to the date of this announcement. Despite being initially impacted by the COVID-19 pandemic, the resilience and adaptability of our employees, suppliers and partners across the world enable us to decisively resolve operational constraints and continue delivering on our commitments to our customers. We continue to demonstrate great character and perseverance. It is my privilege to lead this team.

COVID-19 continues to present challenges but also unprecedented opportunity in the form of accelerated digital transformation within businesses, society and global economies. For example, an increase in life-from-home activities of all kinds, work, entertainment, health, learning, social connection and more, along with macro trends such as 5G and advanced packaging technology, are becoming more pervasive and influential. All this resulted in a significant increase in digital requirements and needs that drove very robust semiconductor demand globally and, consequently, helped drive our financial performance in 2020.

Let me give you an example. We just announced today the shipping of our 250th Thermo-Compression Bonder, or TCB, to our customer, a milestone for us and a direct testament to our clear market leadership in this space. TCB is being driven by increasing demand for high-end logic devices that power high-performance computing applications of all kinds such as data center, big data research and analysis, advanced design and more. We stand to ride on the momentum for wider adoption of this technology.

Next, if you recall, during our second quarter earnings in July, we announced the formation of a strategic joint venture for our Materials Segment business unit, which produces lead frames. We are pleased to update that the transaction was completed on schedule on 28 December 2020. ASMPT retains 44.44% ownership of this SJV, which is named Advanced Assembly Materials International Limited, or AAMI. We also have representation on AAMI's Board of Directors. Since completion, AAMI has been operating as an independent entity, and we are confident it will be able to effectively plan and execute relevant growth strategies for greater success. AAMI and its lead frame business continue to be of significant importance to us.

Our focus on growing the business also involves strong industrial partnerships with leading global technology companies. Since the beginning of 2020, we have formed 2 such partnerships that will further strengthen our position. First, we began a collaboration with IBM Research to develop and deliver a suite of integrated solutions for heterogenous integration applications to aid the assembly of complex artificial intelligent chips that will require radically new architectures, materials and manufacturing processes.

Second, in January this year, we inked a joint development agreement with Austria's EV Group to codevelop advanced die-to-wafer hybrid bonding solutions that can also scale well. In transforming die-to-wafer hybrid bonding, the benefit for system designers will be significant. We will be able to mix and match chiplets to design and power new applications in areas such as 5G, high-performance computing and artificial intelligence.

Thus, despite the challenging 2020, I'm pleased that ASMPT emerged relatively unscathed with group revenue for the full year 2020 up 6.3% to USD 2.18 billion. Our fourth quarter group revenue also exceeded the top end of the guidance. All these developments are encouraging signs for our business, underpinned by several long-term growth drivers for our business. I want to highlight 2 of these.

First, we are unlocking the potential of Advanced Packaging and heterogenous integration. Advanced Packaging techniques have revolutionized electronic packaging and manufacturing, rapidly evolving to extend the possibilities for chip manufacturing and innovation. At the high end of Advanced Packaging, customer requirements are scaling up in terms of much more complex and precise specification for packages to meet extremely demanding computing niche. This is a good sign for our comprehensive product portfolio and technical know-how in this space. We are pleased to share that our comprehensive suite of Advanced Packaging tools are currently the process of record for advanced logic packages of various kinds for high-performance computing needs across a range of industries.

Looking forward, there is a great opportunity to strengthen the ASMPT market position in Advanced Packaging by means of targeted and meaningful participation in key market segments. This requires a mix of strategy, blending sustained investment, the necessary deep expertise and resources together with the right partners. ASMPT has all these necessary qualities and is involved in several areas in Advanced Packaging development. For one, we will continue co-developing new solutions with a broader base of Tier 1 lead customers in the logic and memory domains. Our Thermo-Compression Bonder momentum that I shared about earlier is another example of how we are in the right place with regards to meeting the heterogenous integration needs of the future.

Last but not least, we will also continue investing in key enabling technologies. For example, our joint development agreement with EV Group to jointly deliver state-of-the-art die-to-wafer hybrid bonding solutions.

In summary, we are well positioned to continue leveraging our market position and influence to build on current momentum so that we can continue to deliver even more compelling value propositions for our customers. We believe ASMPT will continue to lead in the Advanced Packaging space.

The next area I would like to highlight is the automotive market. We are at a profound inflection point in automotive technologies that we see many more electric vehicles on the roads with China leading this growth. While smartphones and PCs presently remain the largest product drivers for semiconductors, automotive is becoming an increasingly important market for semiconductors with average semiconductor content per vehicle set to rise rapidly. The vehicles of tomorrow will basically have much more electronics content per unit than those of today, driven by an increasing rate of development in automotive electrification and automation that will fuel significant demand for sensors, advanced driver-assistance computing system, power management and automotive camera modules and much more.

Thus, despite a challenging 2020, the automotive market is expected to be a key sustained growth driver for ASMPT. We stand to benefit with a range of solutions ranging from packaging assembly to surface-mount technology in the automotive application space and the ability to progressively incorporate data-driven closed loop machine learning components that will further enhance the path of automotive electrification and automation. Our deep competency has come from working with leading customers and emerging players on a wide range of automotive applications. This puts us in a strong position to continue leading innovation in this growing area.

Let me now describe the outlook for our business in the near term. By most account, the global economy should recover well in 2021, especially on the back of progressively more widespread availability of COVID-19 vaccines. While growth across the world economies will remain uneven, this return to economic growth is expected to spark an expansion of the semiconductor industry.

Industry research focused at 2021 will see a broad-based semiconductor growth of 8%. Accelerated digital transformation exemplified by work from home, home schooling and online retail will drive investment in personal mobility and computing devices, cloud data centers and communications infrastructure. Further, automotive and industrial markets are forecasted to rebound in 2021 from the trough experienced in 2020.

This overall growth should progress in tandem with the progress of the global economy and gradually improving unemployment situation, barring unforeseen circumstances. Technology has seated prominently in much of the global economic growth over the past 10 years. And semiconductors are an increasingly integral part of the technologies of today and the future.

Let me now provide revenue guidance for the first quarter of 2021. Since the beginning of 2021, the Semiconductor Solutions Segment has experienced order intake momentum in an unrepresented pace. Consequently, our first quarter 2021 bookings for the group, that is both Semi Solutions Segment and SMT Solutions Segment, are expected to surpass USD 700 million.

Improving global economic conditions, together with the semiconductor inventory replenishment activities, have resulted in the tightening of global supply chain conditions. While our supply chain was impacted initially, the Semiconductor Solutions Segment is still expected to deliver strong quarter-on-quarter revenue growth, offset by the quarter-on-quarter seasonal decrease in the SMT Solutions Segment's revenue.

For the first quarter 2021, our group revenue is anticipated to range from USD 500 million to USD 550 million. That excludes the revenue from the Materials Segment, which this range will be a first quarter revenue record. We have also aggressively ramped up capacity to meet our delivery commitments to customers over the coming quarters.

On top of our focus on growing revenue, ensuring consistent and sustainable long-term profitability remains a top priority for ASMPT. Last year, we commissioned a comprehensive strategic review with this objective in line, and I'm pleased to note that a number of strategic initiatives will be rolled out across the group in the next few quarters. This initiative will encompass streamlining and enhancing product portfolios, growing market share in both mid- and high-end segments of the SMT equipment market and improving product cost structures across the group. We are confident that this will translate to consistently higher and sustainable long-term profitability for us.

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

[Peifen Chou, executive]

Thank you, Robin. Good morning, everyone. Let me give some highlights of the group's full year 2020 performance followed by fourth quarter 2020 performance and, lastly, dividends.

Our full year revenue was USD 2.18 billion, representing 6.3% growth year-on-year. The group's financial performance in 2020 was driven by several factors. First, the global digital transformation trend accelerated, creating strong demand for personal computing, connectivity and high-performance computing devices. This increased customer demand for both our mainstream tools and Advanced Packaging solutions.

Our AP tools business from both Semiconductor Solutions and SMT Business Solutions Segment experienced a year-on-year revenue growth of more than 50%. Next, the global 5G rollout also increased the capacity and capability requirements among customers. Third, green shoots began to emerge in the hard-hit automotive space in the second half of 2020, benefiting both our Semiconductor Solutions and SMT Solutions Segment. And finally, our Mainland Chinese customers continue to intensify their capacity buildup.

Our relatively strong revenue performance was also achieved in tandem with a strong year-on-year booking momentum growth of 16.7%. This was made even more prominent by our second half bookings exceeding our first half for the first time since 2010. Our Advanced Packaging tools saw a broadening of customer demand from global IDMs, leading fabless and foundry companies, high-density substrate manufacturers and key OSAT companies.

In terms of our full year 2020 profitability, it was influenced by 2 one-off items. First, a gain of HKD 859 million due to the completion of our planned divestments of 55.56% of the Materials Segment. And the second is related to provision totaling HKD 255.3 million resulting from efforts to simplify our product portfolio.

We delivered the full year 2020 gross margins of 33.6%. This excludes the one-off items and represents a slight year-on-year decline of 114 bps. This was primarily attributed to weaker margins from our SMT Solutions Segment.

Full year 2020 net profit was HKD 1 billion, excluding one-off items and related tax impact. This represented a commendable year-on-year improvement of 61.1%. The group's net profit, including one-off items and related tax impact, was HKD 1.63 billion, representing a year-on-year improvement of 162%.

We ended full year 2020 with a strong backlog of HKD 5.93 billion, equivalent to USD 764.8 million, and a book-to-bill ratio of 1.09.

As of 31st of December 2020, we held record cash and bank deposits of HKD 4.46 billion.

I will move now to a review of our fourth quarter 2020 performance. We recorded a revenue of USD 634.4 million representing growth of 10.5% year-on-year and 15.2% quarter-on-quarter. This came in well above the top end of revenue guidance of between USD 530 million and USD 590 million.

Our excellent fourth quarter 2020 revenue performance was driven by the following developments in our businesses. First, the IC/Discrete business unit experienced a strong demand for mobile and personal computing devices and high-performance computing applications. Secondly, the Opto business unit recorded strong demand from conventional display and general lighting customers with growing opportunities in mini LED and micro LED applications as well. Third, the CIS business unit delivered a Q-on-Q revenue rise and improving signs for the application business. Fourth, our SMT Solutions Segment saw continuing strong demand for high-accuracy SMT systems, which are Advanced Packaging tools for SiP, system-in-package, applications. It also saw a strong pickup in its equipment services and spare parts business, particularly for Europe and Americas.

Our fourth quarter bookings of USD 658.2 million represents historical high for our fourth quarter and is an increase of 46.3% year-on-year and 12.9% Q-on-Q. This excellent result bucked the general seasonal trend for our fourth quarter bookings tending to be the lowest of the year.

Our fourth quarter 2020 gross margin, excluding one-off items, was at 33%, a Q-on-Q improvement of 6 bps. This quarter-on-quarter improvement was largely attributable to high gross margins from our SMT Solutions Segment but offset by weaker gross margins from our Semiconductor Solutions and Materials Segment.

Now let me talk about dividends. Since our listing on Hong Kong Exchange in 1989, we have been consistently paying dividends every year through the peaks and the troughs of global economic and semiconductor cycles. For this year, a final dividend of HKD 2 per share is proposed, in addition to the interim dividend of HKD 0.70 per share paid in August of 2020. This represents a dividend per share increase of 35% compared with 2019. This above-average dividend payout ratio of 68% in 2020 was to reward shareholders for the net gain attributable to the one-off items.

Looking forward, the dividend policy of the group is to continue consistent annual dividend payout ratio of around 50%. This is comparable to the average dividend payout ratio of the group from 2011 to 2020.

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

[Operator]

[Operator Instructions] Our first question comes from Donnie Teng from Nomura.

[Donnie Teng, analyst]

My first question is regarding to the gross margin impact in fourth quarter for Semiconductor Solution business. So you mentioned about there are some -- there's a onetime inventory like write-off cost in the fourth quarter for Semiconductor Solution business to still drag down the overall gross margin. If do not consider this kind of onetime issue, the gross margin should be 38%. So I'm just curious about why we -- why we need to do this kind of inventory write-off in fourth quarter when the overall semiconductor business is turning more positive into this year. And if do not consider this kind of impact, what kind of gross margin for our Semiconductor Solution in this year would be, if considering the increase in utilization rate and booking momentum?

And secondly, could you give us some quick outlook, booking outlook for different business segment, including CMOS Imaging Sensor, LED, Back-end and SMT?

[Peifen Chou, executive]

So let me answer the inventory one-off provision first. The reason why for us to make the one-off provision on inventory is for our product portfolio simplification initiative. As all of you know, ASMPT has been very famous in our wide coverage of the product offering. And to focus our resources from R&D and sales marketing onto those higher-potential product items, we kicked off this initiative to simplify our product portfolio. And for those long-tail items in our inventory such as raw materials, WIP and finished goods, we decided to cut off those long-tail items. So we made this one-off inventory provision in Q4 to reflect this immediate financial impact in Q4.

[Cher Ng, executive]

Donnie, just to supplement Patricia, now she mentioned about those long-tail items. After many years of accumulating various product models, we took a hard look at our portfolio and realized that there are some, what we call, long-tail items, small -- long-tail items have very small volumes. But they have to consume a lot of our resources, whether in terms of marketing, in terms of R&D, in terms of manufacturing. And it contributes very little to the profitability.

So we took a hard look and so we made -- conduct -- we cut off all these long-tail, focused on those products that would generate higher returns for the Semi Solution group. So that's just the primary objective behind this exercise.

Now to correct you, just like you mentioned, without the one-off items, the semiconductor gross margin for Q4 is 39%, not 38%. And on the full year, it's 40.7%, yes. Now I...

[Donnie Teng, analyst]

Robin, so how about this year, the gross margin of Semiconductor Solutions business after factoring this inventory provision?

[Cher Ng, executive]

Yes. I think this year, once we write it out, there won't be any provision in the coming year. Now in terms of semiconductor gross margin, now we don't actually provide the guidance, but we can give you a little bit of color. So for the Semiconductor Solutions Segment, now -- so going forward, if you look at 2021, I think the certain key drivers are still underpinning Semi Solutions Segment.

We see the IC/D, the IC/Discrete segment will be -- continue to be strong. There will be also some -- a little bit more contribution maybe from CIS, for example. We believe that aligning with the forecast that the smartphones in 2021 will increase compared to 2020, we think that the CIS business this year will also improve accordingly. And then we are also -- for the semi side, we are also looking at more business coming from the mini LED. We see quite good momentum in the early part of this year. I think AP will continue. I think this trend of HPC, HI, this trend will continue.

So I think with this factor, volume of -- one, I think looking at volumes, I think the volume will increase. And also with the contribution -- higher contribution from CIS, mini, I think the margin for semi as a whole would be better. Although this is not a guidance per se, but this is just giving you a little bit more color.

[Operator]

Our next question comes from Kyna Wong from Crédit Suisse.

[Kyna Wong, analyst]

Congratulations for these results. And I wanted to ask about the booking seasonality because we do see the fourth quarter strong booking. And maybe some of that is already fulfilled in the fourth quarter, but we also see first quarter booking is also very strong. So what do you expect on the seasonality from these above-seasonal fourth quarter to a strong first quarter? And then going forward, what should we expect this pattern to be?

[Cher Ng, executive]

Yes. I think in terms of seasonality, yes, indeed, I think so far, we are already into probably close to 2 months of the year. Really quite unusual. Typically, before Chinese New Year, the order momentum tends to be slow. Typically, customers do not -- are quite hesitant to place orders. But this year, very different.

So that's why in our announcement, we also said that our bookings this year so far for the Semiconductor Solution are really good, very strong momentum and never seen before in our history. So very strong. Now whether this will continue in the near term, hard to say. But basing on the current momentum, there's a chance that this momentum will continue into the next quarter.

[Kyna Wong, analyst]

And also, I want to chat with the automotive business because in the past, we see '18 that automotive is driving the SMT demand, continuing in '19. And 2021, what should we expect the contribution from automotive business? Can we [ see ] percent of the total revenue and margin improvement adjusted in the SMT business? Should we expect that could go back to a peak level in the past for the margin?

[Cher Ng, executive]

Now I think you all know, automotive industry was facing a tough situation in 2020. So we believe from our own experience and looking at our customer base, the automotive market seemed to have bottomed up towards the first half of last year. So it has been gaining quite good momentum throughout the second half.

So we believe -- we're also basing on industry forecast. They say that the automotive industry will recover this year compared to 2020. However, there's a caveat there. The industry experts believe that the recovery will not bring the automotive market to the pre-pandemic level. Probably it will take a little bit more time for the automotive industry to fully recover from the pandemic situation.

Now to your question, yes, we are deeply involved and engaged with very key automotive customers, not just on the SMT side but also on the semi side. With our breadth of portfolio and also the customer base that we are engaging right now, we are confident that when the automotive market recover, we will be also benefiting from this trend for both the semi as well as the SMT side.

[Operator]

Our next question comes from Mr. Chris Yim from BOCOM.

[Seeching Yim, analyst]

Congrats on the strong order outlook. I have another question on the bookings. Given that 4Q and 1Q orders were so strong but 1Q revenue guidance is below the booking number, I was wondering if you guys are supply-constrained or you couldn't -- or is it because your customers are ordering ahead of time, asking for delivery later? And if you can tell us, what is the lead time now? And you mentioned capacity increase. I was wondering if you can give us more color. And lastly, if you can repeat, what is driving your 4Q and 1Q bookings in your Semi Solutions side?

[Cher Ng, executive]

Okay. Let me give you some -- what is driving the bookings, right, you are saying? Now in terms of Q4, we see semi side very strong. We recorded an 85% increase of year-on-year bookings, supported by largely IC/D, the IC and the Discrete segment, followed by the Optoelectronics segment, that means our LED business, and then the CIS business. So those 3 business units within the Semi Solutions segment show very good momentum in terms of bookings in Q4.

Now China, in terms of geographical region, to give you a little bit of color, this is really driven by the China region in Q4, largely. Now in Q1 -- going to Q1, as we announced earlier, the pace of booking for the Semiconductor Solutions Segment was really very, very strong. So that's why it gives us confidence to say that on the whole for semi and SMT, we will surpass the USD 700 million Q1 booking for the whole group.

Now a little bit of color as you requested for the Semi Solutions Segment in terms of booking for Q1. Again, the IC/D led the pack. Still the momentum for IC/D continue into the early part of 2021 and followed by, this time around, CIS, a little bit stronger than the Opto side. So I think what's encouraging is so far, we see CIS momentum coming back compared to the prior year. So that's a good sign for ASMPT.

Now I think your first question is why our revenue guidance is lower than the booking on the surface. A number of reasons. I think you cited a couple of reasons. So it's a combination of those reasons, basically. Certainly, because of the tightness in the supply chain situation due to the improving world economy and also the semiconductor supply chain really actively replenishing the inventory. So all this -- they're all fighting and for the same -- largely the same components and materials. So we are constrained initially. So we have sorted it out. So we believe that with this strong booking in Q1, Q2 -- going into Q2 will be a better quarter compared to Q1.

[Operator]

Our next question comes from Mr. Arthur Lai from Citigroup.

[Arthur Lai, analyst]

Congrats for the good outlook. I have 2 questions. Number one is in terms of industry partnership. You mentioned that you set up the joint venture, a joint development agreement with EVG. My question is how this partnership to bring the opportunity working with the foundry clients because I think the clients -- yes, the clients all know that -- yes, because I think the TSMC announced a very big CapEx on the Advanced Packaging side and clients' question is that how our company grow with this trend.

[Cher Ng, executive]

Yes. Arthur, I think first and foremost, let me give you a little bit more color on the partnership itself. I think what we bring to the table are complementary strengths and expertise. So for ASMPT, we are very good in terms of very high-precision kind of placement technology. So for hybrid bonding, you probably realize it's a step-up process in terms of technology per se compared to TCB. So it's more precise than a TCB [ volume, too, ] can provide. So we will provide -- we will bring to the table our precision technology.

Whereas for EVG, their expertise is really in the precleaning, die preparation phase because for hybrid bonding, you need to be -- you need to be -- the process needs to be done in a very clean environment. So EVG has the technology to do the die prep, including very good cleaning of the substrate and the die before we do the hybrid bonding. So when we come together, okay, we are marrying each other's strength to provide, we think, at the moment, a very good solution for our client base going forward.

Now having said that, hybrid bonding is still a very nascent technology. So we don't think this will take off in a very big way this year. Probably in a couple of years' time. Then we see a bigger volume for this type of solution because it's still very nascent. The technology is still developing. And also, we believe it's -- compared to TCB, it's a much more expensive solution because of the technology involved.

[Arthur Lai, analyst]

Can I ask a follow-up question? I think Donnie has mentioned these margin concerns. I think a lot of investors actually also ask me. We understand now the booking is very strong from ASE or the other packaging company. They already announced a huge CapEx and they also signed a long-term partnership with a major client. But we understand this conventional equipment actually bring the lower margin. So can you explain or can you elaborate how the company can increase the margin through the semi upcycle?

[Cher Ng, executive]

Arthur, can you repeat the question? Because I don't really quite understand where you're coming from. Can you repeat your question one more time?

[Arthur Lai, analyst]

Yes, yes. So the question is the margin because this time, the upcycle looks from -- looks like from the traditional bonders such as ASE, they request a lot of the wire bonder. But can company increase the margin through this traditional bonder business?

[Cher Ng, executive]

Okay. Got you. Thanks, Arthur, for repeating. Now the right answer for the -- what we call the mainstream, the traditional wire bond and die bond, typically, we -- both those tools we sell in volume. So in an upcycle, typically, those tools will have a higher volume mix compared to the other tools.

Now wire bond, in particular, being a very established solution. So typically, wire bond, as you're aware, Arthur, you've been following us for many years, wire bond margins tend to be lower compared to the other bonding solutions, compared to die bond, compared to CIS and compared to the other tools. So it all depends on how our margin developed. It also will depend largely on the mix, whether die bond has a higher mix compared to, say, die bond -- and also whether CIS has a higher mix compared to, say, the traditional mainstream die and wire bonder.

So it all depends. So I can't give you really a very definitive answer. So especially on a quarter-to-quarter basis, it can vary. But if you look -- Arthur, if you look at our full year 2020 Semiconductor Solutions Segment gross margin, it's very stable, actually. If you look at 2019, it was around 41.1%. 2020 was 40.7%. So on the whole year, the fluctuation is not very material. But of course, on the quarter-on-quarter, it does because we are talking about a lower base by itself. So when there's a different mix, the impact on the margin becomes a little bit more significant.

[Operator]

Our next question comes from Simon Woo from Bank of America.

[Simon Woo, analyst]

Okay. Simon Woo from Bank of America. So number one, the -- when we look at the semiconductor chip makers, their CapEx increases mainly for the EV tools or more advanced technologies rather than the traditional -- the semiconductor chip area. But in the meanwhile, you are saying the order -- equipment demand for the wire bonding, even die bonding, is growing. And separately, we are also hearing about shortage for the semiconductor chips. So could you please share your management view of how we can -- the segment, so your [ older segment ] equipment for the semiconductor area for the more advanced technology in the packaging area versus traditional or the wire/die bonding? Which segment offers relatively stronger growth for the March quarter or for the rest of this year? And then I will ask the second question after this.

[Cher Ng, executive]

No. I hope I answer your question correctly because I'm not very sure. But let me give you a short -- if I don't answer your question the way you want, please ask again. Now I think your question is how our traditional bonders will develop alongside our Advanced Packaging. Now it all depends. In an upcycle, like what we are experiencing right now, okay, the mainstream wire and die bonders, okay, typically will occupy a much higher volume mix compared to, say, the other tools, for example, AP or AP tools, for example. So it all depends on the cycle.

So in an upcycle, mainstream wire and die bonder perform very well. So as I said earlier, this will also have an impact on the margin because if our wire bonder tools are very high, it will tend to bring down the margin a little bit compared to if, for example, CIS business tools are higher, then our margin will be higher. So it all depends. It's very difficult for me to give you a specific color at this point in time. So it depends on how, on a quarter-to-quarter basis, the mix develops.

[Simon Woo, analyst]

Okay. Sure, sir. Maybe regarding your -- the SMT business, it even looks like the 5G penetration ratio in China already is very high. For example, the monthly domestic smartphone shipment mix already indicate a 70% range of the 5G penetration ratio. We can use -- maybe your customers have already purchased a huge amount of machines, assembly machines for the 5G. In the meanwhile, the global 5G growth, not sure whether it can be strong because of the power issue, because of the telcos' limited infrastructure for the 5G. So the question is, where do you see the 5G-related equipment demand increase, China versus ex China? And then maybe similar question regarding the auto semi related, which countries are the reason we can see the strong growth momentum for the auto semi related equipment?

[Cher Ng, executive]

Let me answer this way. 5G, in my opinion and also in many expert opinion, is going to be a multiyear driver for both technology -- what we call capacity buy as well as capability buy. Now yes, for 5G infrastructure, if you look at just 5G infrastructure alone, yes, certainly, China has been the leader in this space. But if you look at countries outside of China, I think there's still some way to go for the infrastructure to come online. So that's why we are also very confident. This 5G infrastructure business will continue to be a driver for our business, not just on the semi side but also on the SMT side.

Now 5G is not just infrastructure. 5G, there's a lot of implication downstream as well. So first and foremost, I think the most impact will be the 5G smartphones and the innovation going around the smartphone. As you're probably aware, the 5G smartphone or 4G smartphone has much more semiconductor content. So coupled with the fact that the industry are predicting that 5G smartphones will increase this year, so this will certainly drive growth of the CIS business.

Now 5G are also closely related to automotive as well, right? So automotive electrification going forward will also depend on 5G technology. So if 5G technology becomes more mature, penetration becomes more deep. Then the automotive industry will also, in tandem, benefit from this increased 5G penetration. So that's how we see it. That's why 5G to us is an important growth driver for ASMPT.

[Operator]

Our next question comes from Sebastian Hou from CLSA.

[Sebastian Hou, analyst]

My first question would be to follow on the wire bonding -- wire bonder business. So are you seeing any bottleneck or any limitation to make wire bonder or meet out with customers' demand?

[Cher Ng, executive]

Initially, because of the supply chain constraint, we do see some issue in terms of meeting the customer demand. But that has been largely sorted up. So barring any further supply chain constraint that will emerge down the line, we [ finally ] forecast we see this year the wire bond business will be very healthy.

[Sebastian Hou, analyst]

Got it. What I want to try to understand is that the -- maybe there are some near-term supply chain constraints. But theoretically, there shouldn't be anything that will prohibit you from making any wide bonders. Now it's just that a customer may need to wait for longer. Is that right?

[Cher Ng, executive]

Yes. The lead time -- yes, you're right. The lead time for -- in general for the Semiconductor Solution Segment, the lead time in general are a bit stretched now because the order momentum are so fast and you need to catch up in terms of all this. So the lead time is around 5 to 6 months in general compared to before this steep ramp-up. Typically within a quarter, we could deliver customer demand. But this time around, it has been stretched to around 5 to 6 months.

[Sebastian Hou, analyst]

Got it. Got it. And your very strong booking number in 4Q, I assume that they already have some very strong wire bonding booking inside?

[Cher Ng, executive]

Yes, that is correct.

[Sebastian Hou, analyst]

And do you see the -- I know the company doesn't indicate the booking outlook, but how do you see this wire bonding booking -- or wire bonder booking into Q1 and first half this year? Is the strength continue?

[Cher Ng, executive]

The strength in general continue because as mentioned earlier, for the IC/Discrete segment, the main contribution for this segment are coming from the traditional die/wire bonders. So we see good momentum in these 2 particular areas, the mainstream die and wire bonder.

[Operator]

Our next question comes from Fang Jing from Cinda.

[Fang Jing, analyst]

Yes. I would like to ask 2 questions. Firstly, I read some articles about our cooperation with Cedar Electronics and [ Leyard ] on mini LED. So can you give me some more insights about our progress in the mini LED?

[Cher Ng, executive]

Yes, yes. This year before us, we have been saying for a long time that we have been kind of a first mover in terms of mini and micro LED space. We have been engaging extensive base of customers in the mini as well as in micro LED business area. So we are in our peak. And we are well positioned to take advantage when this area -- when these 2 areas take off in a big way.

Now for mini, we are already seeing good momentum in the early part of 2021. So hopefully, this momentum can continue. For micro, we have been saying, we will take a little bit longer time for it to really come onstream in a big way. But for mini, we are already seeing really a good sign. This area is picking up quite strongly.

[Fang Jing, analyst]

And my next question is about the camera module business. I read our slide and you mentioned the automotive camera module. But I think the camera module for smartphone, the multi-camera upgrade seemed to slow down in 2021. So can you give me some color on the camera module business?

[Cher Ng, executive]

It all depends on really the outlook of the new 5G smartphones. So as we have been saying, the way to distinguish one brand is really topping the capability and the offering of the camera module. So we being a -- we being a very broad player in terms of CIS, providing a lot of good solution for our customer, we believe that when this trend continue, we will benefit from this momentum in terms of smartphone increase.

Now smartphones are estimated, call it, industry sources, right, forecasted to grow double digit year-on-year. So that will bode well. That will bode well for our CIS business if that really comes onstream.

[Operator]

Our next question comes from Wu, Liuyan from Everbright.

[Wu Liuyan, analyst]

We are very excited about the positive adjustment of the company. Hopefully, our management can share more details about the stated outlook in the next 5 years.

[Cher Ng, executive]

Next 5 years, wow, okay. Now in general, equipment business like ours are very much dependent on the volume of semiconductor chips that are being manufactured and consumed in the world. So we have one slide, if you refer to our presentation. We anticipate that perhaps some of you might ask a question like this.

So if you look back, the IC content group over the last maybe 10 years, it has grown at a compound rate of around, say, 8%. And then if we mirror our own compounded growth for the ASMPT group, we are kind of tagging along and moving in tandem with the growth in the IC content. So what we're trying to say is that our business is largely dependent on the number of chips being produced in the world because the more chips that are being produced in the world, our customers will need more equipment like ours to package and assemble those chips and then -- and SMT -- and place those on the PC board using our -- using our SMT tools.

So to answer your question, this is -- to give you some color, so we believe the number of chips in the world -- I mean the semiconductor chips in the world will continue to grow. And that will bode well for the whole industry as a whole, and ASMPT will also continue to benefit from that.

[Wu Liuyan, analyst]

My second question is about our capacity expansion plan, such as how much capacity we expanded in last year?

[Cher Ng, executive]

We have been employing what we call a dual manufacturing or the internal manufacturing as well as external manufacturing. In a strong year, typically, we have to rely more and more on our outsource partner to supplement the internal manufacturing capacity because internal capacity has a limit, right? So the beauty of having external manufacturing wing or outsource model is that we can leverage our outsource partner to provide the additional manufacturing capacity in the upcycle.

[Operator]

We have a following question coming from Kyna Wong from Crédit Suisse.

[Kyna Wong, analyst]

So I wanted to ask a follow-up on the -- I'm going to the gross margin because I am looking into the one-off, the provisions -- inventory provision for those portfolio streamline. And then how much, I mean, margin improvement we expect from this -- for the portfolio streamlining? Because it will help the probability in terms of margin because of -- those are actually lower margin, right? I think this is one question I wanted to follow up.

[Peifen Chou, executive]

Okay. Kyna, in terms of the product portfolio simplification, we expect that after this initiative in the long run, we can definitely get more -- the higher gross margin. And first of all, we do not give guidance on the immediate-term gross margin. However, for the near term, I would say at least 1% increase of the gross margin from this product portfolio simplification initiative. And so in addition to this, you can expect that another, say, 2% to 3% of the increase of the gross margin from the comping out of our Materials Business Segment. So that will definitely help our near-term gross margin improvement, too.

[Operator]

Our next question comes from Mr. Chris Yim from BOCOM.

[Seeching Yim, analyst]

I want to ask a question on Advance Packaging. Like before, you gave us a number on approximately how big the business is in terms of contribution to your back end. I was wondering if you may give us the number for full year or maybe Q4. And one of your, I guess, front end equipment competitors is saying that their packaging -- mostly Advanced Packaging revenue will grow 50% this year. I was wondering, what do you think about this market for you this year? And would the driver be still on the, I guess, TCB side? Or will the driver be more on the mix, the copper RDL side? If you can give us more color, that would be helpful.

[Cher Ng, executive]

Okay. Yes, on the margin -- first question? AP? What's the first question?

[Leonard Lee, executive]

AP is growing at 50%...

[Cher Ng, executive]

So yes, I think you asked about some color on AP contribution, yes. Now this time around, because of the increased business coming from the SMT side for Advanced Packaging compared to prior years, we began to give you guys a little bit more color, our AP mix contribution on the whole group basis rather than just on the semi basis.

So on a whole group basis, both semi as well as SMT as far as Advanced Packaging tools are concerned, we gave some color that this year, 2020 compared to 2019, the revenue has -- the full year revenue for AP contribution has increased more than 50%. So this will give you some color that our AP business are, in fact, progressing very well on a year-on-year basis.

Now on the longer term, we see AP technology will continue to be a growth driver also for ASMPT for one because we have been touting that we provide the broadest range of AP tools for our customer base. So we are confident that as more and more customers adopt AP solutions, we will be up there serving this customer base.

Now it's very difficult for us to forecast on a quarter-on-quarter basis what will be the AP -- largely, on a year-on-year basis, we don't see this trend of AP slowing down. In fact, we see AP will continue to be a healthy growth driver for the industry.

[Seeching Yim, analyst]

I'm sorry, what's that number? 50%, 5-0, year-on-year, 2020 versus 2019?

[Cher Ng, executive]

Yes. More than 50%, yes.

[Seeching Yim, analyst]

More than 50%.

[Operator]

Our next question comes from Sebastian Hou from CLSA.

[Sebastian Hou, analyst]

I have 2 questions, follow-ups. First is if I look at your wire bonding gross margin, I think the -- thanks for the color about that is below corporate average. I think that's understandable. But when we look at the operating line, it is -- the operating margin, it is still below corporate average or -- because they're actually pretty old product, it doesn't require much extra R&D. So on the operating margins, not necessarily below.

[Cher Ng, executive]

Yes, you're right. I think definitely, because this is a mature technology, so in terms of R&D spend compared to, say, AP tools, they are more moderate compared to those AP technology investment that we have to sink in. And also coupled with the fact that wire bond upside tends to be high volume. So there's always this operating leverage for tools like this. So although gross margin may be a tad lower than the corporate average, but in terms of operating margins, they are not too bad.

[Sebastian Hou, analyst]

Okay. My second follow-up question is I think many always have asked about your gross margin. But if I think we compare your 4Q '20 numbers versus the -- some quarter back in 2017 and '18, when you have a similar revenue scale, your semi equipment and SMT margin has -- very obviously, it's below them. So I think -- I'm not sure if it's right to argue that your structural profitability is actually deteriorated. And where do you see it from here, whether we could go back to the previous margin level? Or is this the new norm that it is not reversible?

[Cher Ng, executive]

I don't call this a structural decline, definitely not. As I earlier said, if you compare our 2020 versus 2019, our semi segment gross margin only declined by 0.4% on a full year basis. So it definitely does not have any structural decline. That can be attributed really to the product mix.

Don't forget, ASMPT is a very broad-based company. We offer a whole range of tools, ranging from mainstream to Advanced Packaging to CIS tools. So all this -- the mix -- the interplay of this mix among all these tools will have an impact on the margin quarter-to-quarter, year-on-year. Although on a full year basis, because we're talking about bigger volumes, the impact of mix may be lower. Compared on a quarter-on-quarter basis, the impact of mix will be more significant.

So to answer your question, no, we don't think it's a structural decline, definitely. Now for SMT, let me move on to SMT. Now 2020, gross margin on SMT definitely compared to 2019 are lower by around 3%, maybe around that on a full year basis. Now we already explained that because we have made some very good penetration into the Chinese market, our share of the Chinese market SMT business has increased over the years.

But as a result, because selling to the Chinese market, typically, they don't require a lot of options or more deals to go along with the main SMT tool. So as a result, the ASP for those tools -- I mean, to those customers in China tend to be lower compared to those tools that we sell to Europe or America, whereby they require a little bit more optionality because basically, the markets are quite different. For the Chinese market, they are meaningful. Say smartphones, for example, they are going for this high volume, low mix kind of application, whereas for SMT tools that are being deployed in Europe and America, they are more serving, say, the automotive and the industrial market. So they require more optionality. And as a result, we have -- the ASP for those markets are typically bigger than those serving the Chinese market.

So for year 2020, because of our good penetration in the Chinese market, we do suffer a drop in terms of gross margin. So it's not a structural decline. It's basically depending on the customer and the geographical mix. Now going forward, in 2021, with automotive and industrial market recovering from the low in 2020, we are optimistic that the SMT -- going forward, when these 2 segments recover, the margin for SMT will also benefit from this trend.

[Operator]

Our last question comes from Simon Woo from Merrill Lynch.

[Simon Woo, analyst]

First question should be the mix, your business mix trend. The second question is maybe growth outlook by segment. So regarding the mix trend, when we look at the automotive area, particularly today, you pointed out automotive electrification area. So the question is overall, your automotive-related equipment sales, do you think the growth is more based on the SMT area or more semi equipment related as well? Could you share the color which segment can lead to the automotive-related gross mix improvement? And then I will ask the second question.

[Cher Ng, executive]

Sorry. Just your mic is a bit soft. And maybe can you repeat one more time your question?

[Simon Woo, analyst]

Yes, yes, yes. Your equipment for 2 areas, right, one is SMT area and the other one is the semiconductor related. But regarding the automotive area, which segment can lead the growth regarding the automotive related? SMT versus semiconductor segment?

[Cher Ng, executive]

So I think -- let me try to rephrase your question, yes. So you're saying whether the automotive market will benefit the semi or the SMT. If that's the question, yes, the answer is both. It's both. As we said earlier in our opening remarks, right, we are excited about the automotive market business going forward because both SMT and semi will the benefit from this development.

Let me give you some color for the automotive market. First, I think there are more -- in terms of semiconductor content, it's higher. So there are more semiconductor content going into a car. Like for example, there will be more sensors going into the cars. For example, the battery management system, the power management, IC, there are a lot of electronics going to -- also the MCU, the powertrain. So for electric vehicles, indeed, a lot -- there are a lot of electronic content.

And this requires -- this requires mainstream die and wire bonders, basically, to package those sensors and electronics and chips into the automotive market. And also for SMT, we are renowned for being the premium supplier of SMT tool for the automotive market. That's why we believe automotive market will be a good growth driver for ASMPT going forward.

Not forgetting also for the automotive market, we also supply LED solution for internal lighting as well as external lighting. So when we talk about automotive, we're not just talking about IC/Discrete or SMT side, but the Optoelectronics side will also benefit and also camera modules as well. So we are also supplying our camera module solution to the automotive industry, although we -- that's still a very small segment for us because we are not the first mover there. We are -- we just try to be entering this market only in the recent time. So you take some time for us to develop the CIS -- the market for the automotive segment.

[Simon Woo, analyst]

Yes, yes. Very clear, sir. And then lastly, just a follow-up question. The media already reported some of the global carmakers' problems to get the semiconductor chips. So some of the car assembly lines stopped. So net-net, do you see any negative impact from the carmakers' production disruption because of the chip supply shortage? If that happened already, when do you think this kind of disruption in the auto supply chain can be released? Or any impact on the ASMPT as well?

[Cher Ng, executive]

Yes. I think so far, as we said earlier, as far ASMPT is concerned, we see automotive segment and the power -- because the power management and automotive segment are closely related. So we see these 2 segment momentum -- gaining momentum throughout the second half of this year, and we believe it will go into -- also continue into 2021 because the automotive market is a growing market compared -- in 2021 compared to 2020.

Now this chip shortage, once resolved -- because ultimately, this chip shortage for the automotive industry will be resolved one day, so when that is resolved, I think that will even give a further boost to the automotive business.

[Operator]

Leonard, would you like to wrap up the call?

[Leonard Lee, executive]

Okay. Sure. I think we have a very good session this morning with many good questions. And in the interest of time, I think we would like to conclude this conference call now. And thank you very much for joining us today, and we'll talk to you again next time. Thank you.

[Cher Ng, executive]

Thank you.

[Peifen Chou, executive]

Thank you.