Inficon Holding AG

SIX:IFCN

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, welcome to the INFICON's Q2 results conference call. I am Alessandro, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions]. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Lukas Winkler, Chief Executive Officer of INFICON. Please go ahead, sir.

[Lukas Winkler, President & CEO]

Thank you, Alessandro. [Foreign Language], and good morning, everyone, and thanks for joining us today to review our results for the second quarter of 2020. 2 topics dominated the discussion within INFICON. First, the semiconductor market development and secondly, COVID-19 impact on markets and business processes. Semiconductor market seems to be immune against the COVID-19 virus, and we enjoyed growing order and shipments to semiconductor customers. On the other hand side, the COVID-19 pandemic had a negative impact on all other markets and heavily influenced the way we work and communicate with our customers, partners and employees. Despite losing some efficiency, and higher material and logistics costs, we have been able to effectively keep a somewhat workable relationship with all key players. And knock on wood, we did not have any serious cases in the company so far. With that, let's start using our PowerPoint presentation, which can be found, as always, on the Investor Relations tab on our website. Please turn to Slide #3, where we start with the key figures for the reporting quarter. In total, our revenues reached about the same level as last year's second quarter. Organically, 0.2% lower to be exactly. And we finished with sales of USD 96.2 million, which is 3.9% more than the first quarter of this year. Our book-to-bill ratio was close to 1 for the reporting quarter, and the year-to-date ratio is still above 1. With a similar sales volume, somewhat lower gross profit margins due to COVID-19 inefficiencies, but reduced operating expenses, mostly due to reduced travel expenses again due to COVID-19, we finished the quarter with operating income of USD 16 million or 16.6% of sales compared to USD 15.8 million or 16.3% of sales for the same quarter a year ago. Sequentially, the operating income increased by 14.2%, and net income reached USD 12.9 million or 13.4% of sales. Matthias Tröndle will review the numbers with you in more details later, while I now highlight some important developments in our target markets first. Please turn to the next slide, #4, where you see the sales breakdown into our served 4 key markets as well as the regional sales trends. The pie chart shows a dramatically increased contribution from the Semi & Vacuum Coating market, primarily at the expense of a reduced contribution from the RAC and auto market, mostly COVID-19 related and expected not COVID-19 related reduction from the Security & Energy market. The trends chart on the right-hand side indicates increased sales to Asian customers and a slowdown in America and Europe. Now let's do a quick analysis market by market, starting with the smallest one. In the Security & Energy market on Slide #5, sales decreased 59.7% year-over-year and almost 23% sequentially and reached USD 2.7 million only. On the positive side, we are happy to see that we sell more and more of our new products to energy markets in Europe as well as for landfill monitoring applications in the U.S. On the other hand side, on security market, sales of our flagship product, the HAPSITE were again very low, and we booked only 1 midsized order in the reporting quarter. Looking ahead for the full year 2020, we do not expect an improved market dynamic and therefore, remain pessimistic. But we got positive feedbacks from test labs regarding the capabilities of the new generation of the HAPSITE, which will be available for sales in 2021. On the energy side, we foresee a growing demand from green energy initiatives as well as an increased demand for environmental and gas leaking applications in Europe and the U.S. Moving to the Refrigeration, Air Conditioning & Automotive market on Slide #6, where sales decreased 28.3% year-over-year and 16.5% compared to the first quarter of this year. USD 16.7 million of sales represents the lowest second quarter since 5 years. This market has been heavily impacted by the COVID-19 pandemic. The first quarter, primarily in Asia, now in the second quarter in America and Europe. All main applications, the RAC manufacturers, the after sales services and the traditional automobile manufacturers suffered. Delayed investments, not being able to travel and support customers on-site and low demand as well as shutdowns led to this disappointing result. On the positive side, we gained momentum in the market for lithium-ion batteries all over the world, and we are ready to launch a new product for this application pretty soon. Additionally, we have experienced a strong recovery of our after sales activities, the RAC market at the end of the second quarter after the release of certain COVID-19 related measures. Air conditioning units still fail from time to time and need to be repaired, especially during the heat season despite the COVID-19 virus. We expect an improved second half of the year as we see some investments in manufacturing capabilities -- the capacity, sorry, are still planned, and the service business is picking up again as well as an ongoing growth for lithium-ion batteries. Now let's go to the Semi & Vacuum Coating market, which includes solar, display, optics and semiconductor applications on Slide #7, where sales increased year-over-year by 28.5% and 26.1% sequentially and reached USD 53.6 million, with Asia contributing the biggest part of the sales increase. A breakdown into the 2 main applications shows the same picture as in Q1, a huge increase to the pure semiconductor customers while sales to vacuum coating customers, primarily OLED display and optical coating manufacturers decreased or stagnated. The COVID-19 impact on the semiconductor market has been limited to supply chain issues, but had no negative impact on the overall growing demand for advanced applications such as 5G, big data, artificial intelligence, autonomous driving as well as home office computers and communications appliances. Equipment manufacturers as well as chip makers, continue to invest in the latest below 10-nanometer technologies for memory as well as logic chips. The China semi initiative continues, but the dark clouds of the U.S.-China trade issues become more visible. However, it is not clear yet how exactly the new law will be enforced and how it will impact the semiconductor market in general and our INFICON business specifically. Looking ahead long term, semiconductor market will remain the most attractive growth opportunity for INFICON despite the uncertainty of the technology war between the U.S. and China. New chip designs, new materials and manufacturing processes are asking for more accurate process control and monitoring. We continue to work very closely with OEMs and end users to develop new sensors, solutions and methods to assure high-quality mass production of new chips. So we expect 2020 to be a good semiconductor year. Investments in OLED remain flat, and the optical coating market remains challenging. Finally, we had a weak second quarter 2020 in the General Vacuum market on Slide #8, with sales of USD 23.2 million, which results in a year-over-year decrease of 6.8% and even 12.8% sequentially compared to Q1. As you know, we sell analysis, measurement and control products for many different industrial applications through private label partners primarily vacuum pump manufacturers and via direct sales channels to industrial OEMs and distributors. In the current quarter, we saw a recovery in China but the COVID-19 hit the economy in Europe and the U.S., many of our customers and most universities had a shutdown, and therefore, nobody invests in new R&D and lab infrastructure. Looking ahead globally, we expect a mild recovery only, but Europe and America remains challenging. Before I close my part of the presentation with a 2020 outlook, let me give you an update on where we are in regard to the COVID-19 measures. In Asia, we are back to normal operation in almost all of our regions, except Southeast Asia and India. The main production sites in the U.S., Germany and Liechtenstein are all operational following certain restrictions, of course, with special hygiene and distance rules as well as wearing masks, if necessary. Home office work is still very common, especially in the U.S. International travel has been replaced by video conferences and webinars become -- became a more common tool. Overall, we have been always up for business without any interruptions. Now to our outlook 2020 on Slide #9. The uncertainty has not changed, but we have only 6 months remaining. Therefore, assuming that the COVID-19 pandemic will stabilize and the markets behave as expected, listed as bullet points on this slide, we foresee sales around USD 370 million to USD 390 million and operating income margin of approximately 16%. With that, I'd like to turn over to Matthias Tröndle, who will give you more details about our financial performance. Matthias?

[Matthias Tröndle, VP & CFO]

Thank you, Lukas, and good morning to everyone to our second quarter conference call. I start my presentation with the Q2 financial performance. I will comment the half year results a little bit and close with the guidance for the full year. As always, let me begin with our revenue segmentation for the June quarter. My commentary starts on Slide 11. Revenues for the second quarter came out at $96.2 million compared with $96.6 million in our second quarter of last year. Total sales decreased minimal by $0.4 million or 0.4%, and we had a negative exchange rate effect of 0.2%, which means we had organic sales decrease of 0.2%. Looking at the end market development, and as Mr. Winkler already discussed and explained, the Semi & Vacuum Coating market had a strong performance and increased by approximately $11.9 million or 29%, while the sales in the other end markets declined. On a sequential basis, and as shown on chart -- on Page 11, sales in the second quarter did increase by 3.9% compared to the sales level in previous quarter, Q1. This increase is, as in the year-over-year comparison also exclusively driven by higher sales in the Semi & Vacuum Coating market, all regions did grow in that market. On a geographic basis, on the next slide, Europe reached 27%; North America, 26%; and Asia Pacific ended with 45% of total second quarter sales. As you can see in that chart, Asia sales did increase by approximately 10%, which was mainly driven by the Semi & Vacuum Coating market. Europe developed stable, North America did drop by approximately 15%. Compared to previous quarter, Q1, sales did increase in Asia by a strong 26%. All markets did grow and Semi & Vacuum Coating did grow more than 1/3 compared to previous quarter, North America and Europe both did decline. Let's go to Slide 13. The gross margin for the second quarter reached 47.8% compared to 48.4% in the same quarter of last year. The margin percentage did slightly declined by 61 basis points. The product mix, but also somewhat higher tariffs, transportation costs and some inefficiencies in the operation due to the corona process changes had some negative impact. Moving on to our operating expenses. R&D expense in the second quarter reached $9.4 million. And as we continue to invest and push ahead with our strategic projects increased by 9.3%. SG&A expense did decline by minus 8% or $1.9 million. As a percent of sales, this represents 21.4% after 23.2% last year. The decrease in SG&A expense is influenced by lower variable compensation and commission spend, but also and as well as lower third-party expenses, like travel and entertainment, trade shows, consulting and third-party services. Turning now to the bottom line for the second quarter of 2020, we achieved income from operations of $16 million or 16.6% of sales. This compares with income from operations of 15.8% or 16.3% in last year's second quarter, which means the result it improved slightly by 1.3% compared to last year. Compared to previous quarter, the result improved by 14.2% or 150 basis points. Let's go to the next slide. For the second quarter of 2020, we recorded tax expense of $3 million, which represents an average tax rate of about 18.8%, which is 1.8 percentage points lower, mostly due to our profit mix and reductions in prepayments and accruals. As a result, the net income for this year's second quarter reached $12.9 million or 13.4% compared to $11.8 million or 12.2% in the same quarter last year. The increase of 9.3% is driven by lower foreign currency losses and at a slightly lower tax rate. The second quarter net income equates to earnings of $5.27 per diluted share compared with the net income of $4.84 per diluted share in the same period last year. The increase is in line with the net income development. Now let's move on to the balance sheet highlights on Slide 15. Our net cash position in Q2 was $12.8 million. This compares with $50.1 million at the end of last year, which means a decrease of about $37 million. Main driver for that sharp decrease is the $45 million dividend payment we performed in April this year. The operating cash flow, which you can also see on that slide, it increased from previous year's level and reached with $11 million, a solid level. For the second quarter, our days sales outstanding was, despite higher accounts receivables of about $4 million with 51.5 days, slightly better than the level at the end of last year. Payment morale and behavior of our customers stayed good despite the turbulences and difficulties around the pandemic. Inventory turns reached 2.8, the working capital level increased mainly due to higher accounts receivables and inventory levels, partially compensated by higher accounts payables. Looking at the structure of our balance sheet. The equity ratio reached close to 65% in Q2 after 75.9% in Q4 and a similar 65% level 1 year ago. We have no material long-term liability and a net cash position of $13 million confirms a solid balance sheet structure. With that, I covered our current quarter results. Now I wanted to give some comments also regarding our half year performance of 2020. Net sales for the first 6 months reached USD 188.8 million compared with USD 192.2 million in the same period last year. This represents a 1.8% decrease and includes a 0.3% negative impact from foreign currencies. With that, the sales decreased organically by 1.5%. In the first half of 2020, sales to all end markets, except Semi & Vacuum Coating decreased. From a regional point of view, the majority of sales did go to Asia, where we reached $78 million of sales and approximately 41% of our worldwide sales level. This represents a 5% increase compared to last year. This is solely driven by the sharp half year 20% increase in the Semi & Vacuum Coating market. Second largest region is Europe, where we had $56 million of sales and a slight 1% growth. And in North America, we had a 12% decline and a 28% share of worldwide sales. We reached in the first half of 2020, operating income of $30 million or 15.9%, after $32.5 million or 16.9% last year. This is a decrease of 1 percentage point or 7.8%. Somewhat lower sales, the weaker gross margin percentage, partially compensated by lower operating expense levels did drive this slightly lower result. Our balance sheet continues to show a solid and strong structure, no long-term debt and approximately 65% equity ratio. As mentioned earlier, the complete half year report with some more details is available in our Investors section on the -- of the INFICON website. I'll conclude now my portion of today's call with our guidance for 2020. Last time we talked in March, and in April after Q1 results, we did not issue a formal guidance. Now after Q2, and also many things are still very fragile and hard to predict, we assess the outlook for the current year, cautiously optimistic. Based on that, we expect sales of $370 million to $390 million with an operating income margin of around 16%. Last slide of our deck shows our corporate calendar and the upcoming dates. This concludes now the formal part of the presentation. We are ready to take your questions.

[Operator]

[Operator Instructions] The first question comes from Jörn Iffert from UBS.

[Jörn Iffert, Director and Analyst]

The first one would be, please, on the Intel push out of 7-nanometer. Do you see this to significantly impact your key customer in semi and also your P&L in the next couple of quarters?The second question would be, please, in general. I mean, on the semiconductor memory report. You mentioned you see signs for a pickup. I mean, how big and how long do you expect this to materialize over the next couple of months? And the third question is, please, on the gross profit margin. Understanding there are also impact from product mix, but also some price component cost increased. I mean, may I ask, I mean, how good is your pricing power at the moment? How long do you think this gross profit margin pressure will last as we saw a kind of slight deteriorating trend already over the last couple of years? And the last question, please. In security, can you give us an indication on these low sales levels, what is roughly the EBIT loss for the first half?

[Lukas Winkler, President & CEO]

Thank you, Jörn. Many questions. I try to remember all of them. Now the first one regarding the Intel push out of the 7-nanometer technology, what's the impact on INFICON. We believe there will be little influence because first of all, the -- it has nothing to do with the overall demand. Secondly, Intel might find alternatives to still have access to 7-nanometer technology. The rumors are out there that they might even go to TSMC. And last but not least, on the Intel side, as an end user, we work primarily with them to improve their yield and efficiency. And they are using our FabGuard tool to do that. And that is usually not directly linked with a very specific technology node or very specifically technology. We are designed in for certain processes for their worldwide fabs, and they are using our instruments within those designated processes. So we believe the impact will be very limited. On the memory market side, I don't know exactly how long will it last, but what we see, and I think this is relevant is that even the memory chip manufacturers now start to use the EUV technology, meaning they are going to go to 10- and 7-nanometer for memory chips using this new lithography technology, which basically changed the game and will force almost all memory chip makers to go that direction, which currently cannot be done in China because ASML is not allowed to use -- to ship their AOE tools to China due to the technology war between the U.S. and China. So therefore, I think what we need to look at is what will be the reaction of the China memory chip makers versus the non-Chinese chip makers. Currently, we just enjoy a recovery of this market, and we carefully watch the adoption of the EUV technology in the memory market. On the gross profit question, now how much is price, how much is cost related. I do not know exactly the answer, but I can tell you that from pricing pressure, I think the single biggest price pressure is from China where we usually have to go through a public bidding process for the new semiconductor initiatives, and that usually has an impact, the negative impact on our pricing because we like to get the majority of the market share, which also means from time to time, we have to lower the prices. And if you look at our geographical breakdown with an increased contribution from Asia. And even if you go into Asia, it's primarily from China. This certainly had the single biggest impact on our -- on the pricing side, on the gross profit margin. Cost-wise, we suffered, as I mentioned, due to some material price increases and logistics costs, but those are COVID-19 related, not they hopefully disappear sooner or later. And the long-term run, we still aim to get back to the 50% level. And we believe that it will be possible especially with new products, which usually carry a higher gross profit margin. And secondly, we have more software content, which usually has a higher gross profit margin as well. And your last question was, I think, regarding security market, what is the financial result there. We do not disclose those figures. But for obvious reasons, I think at that low level, you cannot make a lot of money. What we did, and we continue to do so is that we try to concentrate our sales and market efforts to the largest accounts and not -- and using indirect sales channels for the smaller customers to reduce sales and direct sales and marketing costs. On the R&D side, we are close to finish the next-generation HAPSITE. So that will reduce the R&D expenses starting as next year, can be used for other projects. So overall, in 2020, this is definitely not the best business to be in. But we expect with the next-generation HAPSITE, we will go back to the normal kind of sales revenue that we used to have the last 4, 5 years. As I mentioned already in the call, we now sell the majority of products not into the security market anymore. Currently, the majority goes to the energy market and environmental market and that still has a positive trend. And we talk more of products like GC, gas chromatograph-based technology, which are -- which have a lower average selling price than our flagship product, the HAPSITE, which usually is $100,000 or above per system. So currently, we don't make money, but we do not disclose the details.

[Operator]

The next question comes from Michael Foeth from Vontobel.

[Michael Foeth, Executive Director & Head of Industrials Team]

I have also 3 questions. First one on semiconductor. The -- I mean, you're obviously expecting growth also in the second half of the year. But my question is, do you believe that on a sequential basis, you can maintain the very strong Q2 level? And also, if you could give us an indication of what the split between end user and OEM business is currently, is that still around 50-50 as it used to be? And then a follow-up on the gross margin development, do you -- does your guidance imply an improvement in gross margin in the second half? And which of those headwinds that you mentioned transport, component shortage, raw materials are actually sort of the drivers behind getting a higher gross margin again? And then that obviously leads to the question whether your operating expenses will also be able to be remained at the same level in the second half. And then my final question, if I may, regarding your work-from-home practices. Do you still have a lot of people working remotely? And sort of what's your longer-term thinking with regards to those practices? And are there any sort of longer-term efficiency gains or cost savings related to those new practices that you expect?

[Lukas Winkler, President & CEO]

Thank you, Michael. Again, I tried to remember all details of the question. First, regarding semi. How do we see the trend in the second half? And the split between OEM and end user, which, by the way, is still around 50%. And how do we see the second half trend? I personally don't think that we will have the same growth rate again. I believe it will remain at this high level, but not necessarily growing again in the second half. If we see some growth, it will start in -- at the beginning of 2021, but I assume a stabilization at the high level, similar to the first half year for the second half year. On the gross profit margins, what did we include in our guidance, I think the one element that we expect some relief is coming from material cost. It looks like that some of the shortages will be gone soon, so that might help a little bit. On the other hand side, we continue to fight the price war with public options in China. So there, I do not expect some relief. And unfortunately, on some of the COVID measures regarding distance and hygiene and other rules, as long as the COVID new numbers don't go down, I don't expect a relief there. And last but not least, unfortunately, we still pay pretty high -- the more we ship to China, let me say that way, the more we pay the duties. And unfortunately that is now, for the full year is expected to be close to probably USD 2 million or something like that for the full year. I don't see that this is going down in the second half year, it might even go up, so that's the answer. So there is some relief from the material side and eventually from the logistics cost. But on the other hand side, we still have some inefficiencies, and we still have some duty to be paid. On the last one, home office work, long-term implications. Yes, we discussed it a little bit already internally, and we might see some regions in the world where we might go to a more decentralized home office concept, but mostly in sales territories, not necessarily in the manufacturing side. And whenever we have to consider new building infrastructure and expansion of buildings, of course, we now look first into the way of do we really need them? Or can we apply a more sophisticated home office concept? And currently, we do that or we started investigating that in Japan and Korea. How can it be used? In the main manufacturing sites in U.S., Germany and Liechtenstein, we have not established new rules, how we are going to handle home office concepts in the long run. We also expect just to let you know that in the second half, that we will travel a little bit more. We already see that in China. So inside China, our salespeople already travel much more than in the first couple of months. And so eventually, our OpEx run rate in the second half might not go down. And -- but we have -- we believe we might see some improvement on the gross profit side in the second half.

[Operator]

The next question comes from Marta Bruska from Berenberg.

[Marta Kinga Bruska, Analyst]

I have 3 questions. I will say one by one. So the first one, it's short. I would like to just confirm that the HAPSITE device that you now mentioned you expect the first sales in '21 is the one for the civil applications for police department. Is that correct?

[Lukas Winkler, President & CEO]

Yes. That's for the military and for police and fire brigades, yes.

[Marta Kinga Bruska, Analyst]

Okay. Then on the OLED end market. What is driving this new investment? You mentioned there was already some modest improvement, which I believe is a small positive surprise. Is that already the flexible? Or is that still the traditional OLED applications? And also what you see in the micro LED end market, some of the other players exposed in this end market mentioned some large investment upcoming, how do you see the micro LED and OLED, please?

[Lukas Winkler, President & CEO]

In the OLED side, I think some of the surprises at the beginning of the year were mostly from China, where they're still invest in traditional OLED displays for mobile phones and smaller devices. We see some investments for the -- for some of the flexible mobile applications. But on the -- on, let's say, more negative side, we also realized that Samsung might not invest in OLED technology for their big home TV sets. They're going to a quantum DOT-related technology, not using OLED. And the micro LED or MicroLED is still a very, very small business and it's in a phase where we do not expect mass production yet. So it's only a small part of our business. .So there are some positive elements, but also some negative. And we also realized that it looks like right now, there is enough capacity in the market to cover the existing needs for traditional OLED displays either for big TV screens or for mobile phones, but not yet enough for flexibles, but the flexibles have not reached really the breakthrough react. So therefore, for the second half of the year, I'm less optimistic regarding investments in pure OLED technology.

[Marta Kinga Bruska, Analyst]

Okay. But this doesn't mean down? Is this mix -- mean still stable?

[Lukas Winkler, President & CEO]

I actually believe it might -- from a CapEx side, it might even go down a little bit.

[Marta Kinga Bruska, Analyst]

Okay. And then a third one, the last one, please. So I was trying to understand better your guidance the EBIT margin for this year. So it seems to me like 2020 will have a better product mix than 2019 because you will have a higher share derives from the semi end market, which I think it's a higher profitability. And Q2 margins were still higher than the last year despite this extraordinary headwinds. Some of them will be fading somewhat in the second half. So it seems like the worst is over, you have a better product mix, so why it's such a low EBIT margin guidance for the full year? Is that primarily because of those Chinese standards that's also not so much of the new? So can you give us a little bit more the specified maybe or name the main moving parts in which you are a little bit more cautious?

[Lukas Winkler, President & CEO]

I think that's twofold. One is it's clearly not product mix, which is very similar to the 2019. Also, we have a higher exposure to the semi market. Doesn't necessarily mean that all semiconductor products have a better profitability than others. And I think that, as I mentioned, twofold, we suffer from the reduction in the RAC and automotive market. In the RAC market, we have a very high market share. So we enjoy very high profitability, and that market is really down. So that's a negative impact on gross profit. Secondly, you mentioned it already, the China public auction pulls down our gross profit margin as well. And then last but not least, the inefficiencies due to COVID-19 measures will last longer than expected. So the primary reason why we have, let's say, cautiously -- a cautious number on the EBIT line is mainly due to the gross profit challenges that we have, not on the OpEx side.

[Marta Kinga Bruska, Analyst]

Okay. Understand. So basically, I still believe that if you would really want to preserve the margin, you could still cut a little bit on R&D because I see that it's still nice increase in which you are not doing, which gives me then again, a confidence that perhaps as of 2021, things should return to more normal situation. Is that correct?

[Lukas Winkler, President & CEO]

This is probably the last thing that we would do cutting back on R&D because that -- it is our future. And so this is definitely not the highest priority list to, we might see some efficiency gains, one there, one or the other area, but we are not cutting back on our ability to grow in the future, which means on the R&D side.

[Operator]

The next question comes from Alexander Koller from Zürcher.

[Alexander Koller, Research Analyst]

In your opinion, what are the main problems with the security segment? Are they mainly market related? Or do you see that customers waiting for the new generation of the HAPSITE product?

[Lukas Winkler, President & CEO]

I think it's -- in the U.S., it's clearly waiting, first of all. And secondly, no planned huge projects for those types of lab or portable laboratories in the Department of Defense. And in other areas, it's simply a question of priority. And currently, portable laboratories to detect [ warfare agents ] not on the highest priority and for security purposes, for police and fire brigades and not for Department of Defense. The only area where we see some investments are in the environmental side where people are still worrying. But even here, I think the COVID-19 pandemic has pushed out some of the concerns regarding the environment. And therefore, the timing is simply not a good one to invest in those types of instruments under the current circumstances.

[Operator]

[Operator Instructions] The next question comes from Serge Rotzer from Crédit Suisse.

[Serge Rotzer, Research Analyst]

So I have only one question left from my side. In your press release, you speak about gaining momentum in memory. But on the other hand, you say that you are positive for the next quarter. How should I understand this? You're not positive for the rest of the year, so only for 1 quarter. So you expect a decline then going to the end of the year? Or what is the read-through of that?

[Lukas Winkler, President & CEO]

No. I think it's -- we do not disclose this kind of quarterly guidance anyway. But if you look at the last couple of quarters, semiconductor market really enjoyed a nice growth. And I don't think it will continue to grow like that, but it will remain on a very high level. Now we see some shifts going to the memories, especially technology shifts going into the memory market. And now even using EUV technology and that opens kind of new opportunities over the next couple of years, not just a quarter. If you shift from the traditional lithography technology to the EUV, that's a huge step forward. And you don't do that for just enjoy 1 or 2 quarters. This is a breakthrough in technology. And if the same memory market goes the same direction as the logic chip market that opens new opportunities over the coming years, not just 1 or 2 quarters. So from the semiconductor side, we simply -- what I tried to convey is that we believe it will remain at a very high level, but not necessarily growing anymore in the second half. Growth will probably then start again in the beginning of 2021.

[Serge Rotzer, Research Analyst]

Probably a follow-up question, what does it mean that you see growth in 2021? What are the triggers, the main triggers for you then?

[Lukas Winkler, President & CEO]

I believe maybe the first autonomous driving or progress in e-cars and that triggers a new wave. Next, infrastructure wave finally using the 5G, not just Chinese technology, but also other non-Chinese technology. Korea is already thinking of going to 6G. So on the communications side, we will continue to see a nice trend going towards new technologies. And last but not least, Big Data applications seem to be more and more important. And it's not going to stop. So I believe that certainly, the communication infrastructure, Big Data and everything that uses a kind of intelligent pieces, either for augmented reality but also for autonomous driving will drive the growth. Not necessarily coming from new mobile phone because there, I believe the -- there is not the next big wave inside, maybe with one exception that would be the flexible displays. But even here, I believe the problems are not all solved yet to really push this flexible and stretchable display technology into the mobile phone market.

[Operator]

The next question comes from Rolf Renders from Baader-Helvea.

[Rolf Renders, Research Analyst]

2 questions. One is last presentation, you mentioned the danger of knock-on effects from COVID-19. How do you see that today?

[Lukas Winkler, President & CEO]

I wish to say then, I'm still not happy with the situation. Personally, I believe we have to take it more serious and we have to go back to more disciplinary measures to really make sure that we do not have a second wave. And I'm -- and we see already a second wave in certain countries. And I'd like to avoid this type of development within the INFICON world. And so therefore, I'm not 100% sure if the danger is really reduced. I think it's still a very high-risk that we might see more strict measures in the coming months, if we do not use the discipline to really keep a distance and avoid any kind of extraordinary parties and hotspots. And so therefore, I see the risks at about the same level as a quarter ago. Unfortunately, I have to say.

[Rolf Renders, Research Analyst]

All right. And then one other question on the tax rate. I think last time, you mentioned maybe 18% to be a good proxy for this year. Is that still a relevant guess or is…

[Matthias Tröndle, VP & CFO]

Well, we had -- this Matthias speaking. We had a very low tax rate in Q1. And now in Q2, this did show up maybe a little bit more normal, I would say. And overall, for the full year, I would agree something between 18% and 20% is a realistic number, right. It really depends, I always say the same sentence. It's really -- we have 19 different legal entities in many different countries with different tax rates and depending how the situation develops, we have some impacts in there. So it's not always so easy to predict, but 18% to 20%, I think it's a good number.

[Operator]

The next one is a follow-up question from Michael Foeth from Vontobel.

[Michael Foeth, Executive Director & Head of Industrials Team]

Yes. Just 2 short follow-ups in the RAC and auto leak detection market. You mentioned the growth in battery testing, and I was wondering what sort of growth rates are you currently seeing in that market? And how big is that business for you? Is it really -- I mean, already a sizable or relevant contribution to the overall RAC and auto market? And the second one, in security and energy. You said the majority of the business is now in energy and not -- no longer in security, obviously, with the current mix. And you said that you expect the security business to get back to old levels. So previously, you were USD 25 million to USD 30 million annual revenue run rate. But could you maybe give us a little bit of an outlook, 3 to 5 years out, what sort of size of business do you expect for Security & Energy, that would be very helpful in the current context?

[Lukas Winkler, President & CEO]

Okay. So on the RAC auto market, specifically on the lithium-ion battery. First of all, it's still a relatively small business. We talk about small single-digit million dollar figures, but coming from below single-digit. Now it's clearly in the single digit. And so growth in terms of how we see growth is probably more related to the number of projects that are working on not necessarily directly linked to the lithium-ion battery market because it's still a technology that needs to be verified. It's still a high sophisticated approach to test lithium-ion batteries. And as we learn more, the manufacturers learn more as well. And it needs to be seen how exactly, let's say, in a 2- or 3-year time frame, what exactly will be needed to have 100% test done for all lithium-ion batteries. Currently, we work with a lot of equipment manufacturers and integrators to make sure that the real -- not real, they can realize a 100% test for the lithium-ion batteries. It's became more and more obvious that they have to do it on 100% level. And therefore, the growth from a project point of view is huge. The growth from the pure lithium-ion battery market, I don't know exactly because that's not what we actually see. We see just the number of projects that we work on in parallel around the world, by the way. So it will end up as another, let's call it, global niche market. I don't think that we will ever make more than USD 10 million revenue in battery market, but it could be a high single-digit number in a few years. On the security and energy market side, I mean, if this would not be a viable business opportunity in the long run, we would not invest in a new HAPSITE. And so therefore, in the long-term view, we clearly need to reach levels above the $30 million range. Otherwise, it would not make sense for us to be in that market.

[Operator]

[Operator Instructions] We appear to have no more questions.

[Lukas Winkler, President & CEO]

In that case, I simply like to thank all the participants who stayed on the call, being patient, listen to us and realize that you had many questions, and I hope I answered them correctly. Wish you a nice summer time, and we'll talk to you probably in the second half of October when we disclose our Q3 figures. Thank you very much, and have a great day. Bye-bye.

[Matthias Tröndle, VP & CFO]

Bye-bye.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.