Kulicke and Soffa Industries, Inc. (KLIC) Q1 2022 Earnings Report, Transcript and Summary

Hello, and welcome to the Kulicke and Soffa 2022 First Fiscal Quarter Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Joe Elgindy, Senior Director, Investor Relations. Please go ahead.

Welcome everyone to Kulicke and Soffa’s fiscal first quarter 2022 conference call. Joining us on today’s call is Fusen Chen, President and Chief Executive Officer; and Lester Wong, Chief Financial Officer. For those of you who have not received a copy of today’s results, the release as well as our supplemental earnings presentation are both available in the Investor Relations section of our website at investor.kns.com. In addition to historical statements, today’s remarks will contain statements relating to future events and our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a complete discussion of the risks associated with Kulicke and Soffa that could affect our future results and financial condition, please refer to our recent SEC filings, specifically the 10-K for the year ended October 2, 2021, and the 8-K filed this morning. With that said, I would now like to turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.

Thank you, Joe. It’s continued to be a very exciting and transformative time for the company. Our core business is being fundamentally enhanced as the importance of semiconductor assembly increased in most high-volume and the leading-edge semiconductors. Additionally, we continue to make significant progress expanding our market reach as the interest and adoption of our advanced packaging, automotive and advanced display offering are accelerating. Our confidence in these high potential new initiatives is improving as our market engagement are tracking better than expected during our Investor Day in September. I will spend a few minutes to cover each. Within our dedicated advanced packaging business, we continue to gain access into the logic networking and the mobility market. This portfolio, including our lithography, thermo-compression, high-accuracy flip chip and system in packaged flip chip solution are extremely competitive and address the broad and the growing semiconductor assembly market. We continue to drive adoption across this growing portfolio and APAMA, our thermo-compression platform is making significant progress. Heterogeneous integration or Chiplet integration is one of the long-term opportunities that we are pursuing aggressively, although this is not the only market. In addition to Heterogeneous integration, we are also extending access within mobility for both high-volume logic and the next-generation 3D sensing applications and also for co-package optics necessary for ultra-high-speed network communications, such as high bandwidth transceivers. The key benefit for the Thermo-Compression, our TCB process include an efficient solution for higher bandwidth interconnect assembly down to 10-micron pitches, which is well beyond the current interconnect pitch for most leading logic application. Additionally, TCB enable us taking for emerging 2.5 and the 3D architectures. This shifts to emerging multi-chip structures is increasing the value add of packaging technology and is increasingly necessarily to support year at the leading edge. In addition to this fundamental benefit within leading edge logic, TCB also enabled assembly for components, which are heat sensitive including in substrate and optical components used for communication and the sensing. We recently received acceptance and recognized revenue for a high potential silicon photonics application, supporting the optical transceiver market with increasing cellular bandwidth need, network-to-network communication is expected to grow dramatically with high bandwidth optical transceiver expected to grow at a 50% CAGR through calendar 2025. We are very early in this transition and we’re positioned to help enable this growth. The next update is related to our automotive opportunities. The transition to electrification and autonomous are accelerating semiconductor growth in the automotive market at a overprice the industry average. Over the coming year, our high-performance, high-reliability system matched well with this end market. In addition to our historic leadership position, within the automotive semiconductor applications, we have also been developing new battery assembly systems. Over the past several years, we had one core battery solution that was adopted and globally deployed by one customer. While this is a solution was very successful, the market was limited. Today, many more customers are entering this space, and we are working to bring new innovative solution, supporting both cylindrical and prismatic battery opportunities to market. Recently, our engagement and the market interest with our current and new battery offering have expanded dramatically. At this pace, we are tracking better than expectations set during the recent Investor Day. We are currently engaged with over five high potential customers eager to run battery production for the commercial and the consumer vehicle market. We are also experiencing growing interest within emerging industrial applications, such as a battery backup and agriculture. Finally, the third key growth focus area is advanced display. We continue to deliver our market-leading PIXALUX system and our ramping production of several LUMINEX quantification tools. Over the coming quarters, we anticipate within several new LUMINEX qualifications and to gain more visibility on a broader industry ramp. Turning to our results this quarter, we achieved $460.9 million of revenue and a non-GAAP EPS of $2.19. We generated $408.6 million within capital equipment, and the demand remains strong across all end markets. General semiconductor remained very strong, softening by 16% sequentially as anticipated. We in general semiconductor, the more capacity-driven more bonding business declined by 8%. The larger sequential reduction stemmed from very strong September quarter’s demand for our wafer label, logic and the power assembly solution. Utilization rate remains strong across this broad installed base. As a reminder, general semiconductor revenue in the recent December quarter is currently over 50% higher than the same period last year. Within the LED market, we continue to support rapid growth leading advanced display. Advanced display increased by 28% in the December quarter, representing 56% of our total LED revenue, up from 40% in the September quarter. We continue to aggressively work toward expanding our presence in this new exciting area and anticipate advanced display will grow dramatically over the long-term. Next, automotive and industrial remain a long-term growth opportunity for us. In September, automotive demand increased by 92% sequentially and was driven by improvement in our battery assembly, power distribution and sensing solutions. We are very eager to continue participating in the long-term transformation of the automotive space. Finally, demand for our memory solution increased by 17% sequentially from the very strong September quarter. Overall, current market conditions and our long-term outlook are tracking better than expected, and we remain very positive over the coming years. Near-term we are very focused to drive new customer engagements and win new qualifications across advanced packaging, automotive and advanced display portfolio. Over the prior year our focused development efforts have been aligned our business with long-term, technology-driven market opportunities, which we are executing on. While broader industry supply chain and global logistics challenges are part of the current operating environment, we believe they are very short-term and anticipate greater improvement through fiscal 2022. Over the coming years, the future is very bright, and we look forward to sharing our progress over the coming quarters. With that said, I will now turn the call to Lester, who will discuss our financial performance. Lester?

Thank you, Fusen. My remarks today will refer to GAAP results unless noted. During the December quarter, we continued to perform in a very dynamic supply chain environment, and we’re able to recognize revenue of $460.9 million. Considering our above-average LED-related revenue during the September quarter, underlying demand in other end markets remain robust. Gross margins came in strong at 48.4%, which stem from sequential improvements in both capital equipment and aftermarket products and services, and particularly related to a lower amount of expediting and logistic expenses in the December quarter. Non-GAAP operating expenses came in below our expectation at $65.4 million during the December quarter. This is primarily due to a delayed start in a few internal projects, which favorably benefited SG&A and R&D-related expenses. Tax expense for the quarter came in at $17.9 million, and we anticipate an effective tax rate of approximately 15% for the full fiscal year. Non-GAAP net income came in at $138.8 million, generating $2.19 of non-GAAP EPS during the December quarter. Turning to the balance sheet. Working capital has remained efficient. Days of accounts receivable increased from 78 to 84 days, days of inventory increased from 59 to 75 days and days of accounts payable increased from 55 to 56 days. During the December quarter, we generated free cash flow of $92.7 million. Our net cash balance totaled $464.7 million at the end of December. From a capital allocation standpoint, we continue to deliver value in several areas. For the dividend, which was just increased by 21% for the January payout, we intend to continue increasing in a consistent and long-term manner while maintaining a competitive yield relative to our peer group. Separately, we have and are continuing to accelerate the cadence of our open market transactions under the existing repurchase program. During the December quarter, we repurchased over four times as many shares relative to the September quarter. Our total share repurchases in the December quarter were 50% higher than our entire fiscal 2021 repurchase activity. We continue to take a long-term view on the repurchase program and expect to gradually increase our repurchase cadence throughout the current fiscal year. As outlined last quarter, we continue to expect the industry will expand aggressively through fiscal 2022, although at a slightly lower rate than fiscal 2021. In line with our Investor Day assumptions we continue to anticipate above average semiconductor growth will continue through fiscal 2023. We have assumed global logistic challenges improve and industry supply chain constraints begin to ease as wafer production improves in the second calendar half. Under these general assumptions, we currently anticipate revenue to be approximately $1.58 billion in fiscal 2022. For the March quarter, we expect demand to remain strong, and we anticipate approximately $380 million of revenue plus or minus $20 million. We anticipate gross margins to be 48% in the March quarter, plus or minus 50 basis points. Non-GAAP operating expense to be approximately $75 million, plus or minus 2% and non-GAAP EPS to be $1.45, plus or minus 10%. We are very focused on supporting this period of aggressive industry expansion and are also extremely focused on driving new engagements, qualifications and ramping production within the advanced packaging, automotive and advanced display portfolios. Our engagement and new qualification execution throughout fiscal 2022 can potentially drive meaningful upside to the fiscal 2024 targets we shared during our Analyst Day. This continues to be a very exciting period in the company’s history, and we see a direct path to dramatically and sustainably extending our business as we continue to execute on this multifaceted growth strategy. We look forward to sharing additional information regarding these new opportunities over the coming quarters. This concludes our prepared comments. Operator, please open the call for questions.

Certainly. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Charles Shi from Needham & Company. Your line is now live.

Thank you for taking my question. I just want to go back to the sum up comment on OpEx. This is a multipart question. So first off, I want to ask you, given your guidance for fiscal 2022 which seems to imply a flat to slightly up in terms of revenue growth. Is the non-GAAP OpEx going to follow the same trend? And second is, you commented something about the OpEx upside in the fiscal first quarter – some of that you attributed to a delayed start of some of the R&D activities, some projects, if I listened correctly, why was that? And can you please provide some color on that? Thank you.

Sure, Charles. As far as OpEx for FY2022, I think as we are guiding $75 million non-GAAP, I think that will continue through the rest of the fiscal year. As to why Q1 was a little bit lower there was some push-out, some R&D projects as well as some SG&A spend. Part of it was because December is the holiday season for a lot of our R&D sites. I think people actually took time off this year as well as certain recruitment that we budgeted for – in terms of our projects that got delay a little bit. It will be kicking in this quarter as well as in the following quarters. So the reduction in OpEx had no basically effect on our schedule in terms of our R&D projects, it’s still basically tracking where we want it to be.

Thank you, Lester. So the second question, I want to ask you more on the details of your fiscal 2022 guidance. I want to run some quick math here, if you can follow me. So say your fiscal 2022, your revenue is $1.58 billion. The fiscal first quarter revenue was $460 million, and that means you will need to deliver roughly about $1.1 billion over the next three quarters for the fiscal year. But I noticed your fiscal first quarter backlog was already close to $700 million. So basically, you only need to book another $400 million orders and deliver them over the next three quarters to really just meet the $1.58 billion revenue target. It kind of feels a little bit light in terms of the assumption of your booking over the next three quarters because you’ve been running roughly like over $400 million a quarter in fiscal 2021 on average, but that assumption is kind of like you’re assuming a booking kind of less than $200 million per quarter. It seems a little bit low to me. Are you kind of thinking that $1.58 billion revenue guidance is just a worst-case scenario rather than really a base case scenario here. What’s your thoughts here? Is there any more upside to $1.58 billion? That’s it. Thank you.

Well, I think $1.58 billion is what we consider as the base case, right. As you went through the math, right, we did about $840 million, well, between $460 million and then the guidance today is about $840 million for the first half. And to get the $1.58 billion, I think it’s just, again, revenue now is a little bit more linear than we originally anticipated. There has been – because of supply chain issues in the first half as particularly wafer shortages. We think that revenue will be a little bit linear, as I said. As far as is there upside to the $1.58 billion, well, I mean, I think right now that’s our view. There is always possibility for upside, but there also a lot of supply chain constraints out there right now. So I think we feel comfortable with the $1.58 billion.

Got it. Got it. So maybe my last question. I know this may come in your SEC filings in the Qs. Can you provide some color on the puts and takes of the China and non-China part of the revenue for the fiscal first quarter as China is like over 50% of your overall revenue in the past few quarters? Thank you.

Yes. China actually is much higher than 50%. I think this quarter is about – let me take a look. It’s about 70% of revenue. And I think it will continue to be a strong contributor, Taiwan and China always our two strongest markets. Taiwan went down a little bit in Q1, but we expect the rebound in the second half. So I think, again, China and time will always be our two biggest market and has been for a while.

Thank you, Lester. That’s all from me.

Thank you.

Thank you.

Thank you. Your next question today is coming from Krish Sankar from Cowen & Company. Your line is now live.

Yes. Hi, thanks for taking my question. I have three of them, too. First one, Fusen or Lester, last quarter, you kind of specifically called out supply constraints, especially wafer and substrate shortages at your OSAT customers. This time, you did not. Is it fair to assume at the margin, it’s constraints are easing relative to three months ago? Or how to think about it?

Well, so Krish, let me answer this way. You’re talking about OSAT customer, right? So actually, we have a very diversified customer in both OSAT and IDM. And each customer, they can have a very different and unique investment schedule. For OSAT, yes, we did saw also very strong – much stronger in 2021. But at this moment, I think we are seeing strength more in IDM in the first half of 2022 helped by at this moment additional revenue from dedicated AP, advanced display and auto. But we mentioned last time about the shortage of the wafer, not enough coming off from a fab. We also expect stronger OSAT investment will help by improvement of the wafer shortage in the second half 2022, right? I don’t know if this helped or not.

Got it. Got it. All right. And then I just had a couple of quick follow-ups. One is on the thermal compression bonders, how should we think about the revenue opportunity. Is it roughly $40 million this year, $80 million next year is the way to think about it? Any color there would be helpful.

Okay. So Krish, I think our view on TCB, we are quite positive. And we feel like the TCB is in a stage to grow rapidly. And we see the driver from a few areas. One is networking. I mentioned about silicon photonics, optical transceiver. Optical transceiver is the high end of IDM with transceiver. And so one driver is the networking, second one is sensing, a CMOS imaging sensor and the heterogeneous integration or tubular integration, everybody talking about it. We also see mobility logic. We use TCB more and more. We are very bullish on our approach, we call PIXALUX. The pitch down to 30 microns any flux or cause a contamination of course short, right? We have a very proprietary process, and we believe we will make big impact in the TCB market. So if you remember, in our Investor call four months ago, we mentioned – we indicate FY2024 revenue compared to 2021, there will be some upside in three areas, right? One is a dedicated AP, one is the battery EV, one is the display. So you asked about dedicated AP. We actually give that guidance. We might have put additional $80 million. So we indicate maybe $24 million, we will reach $100 million, majority will be TCB. But at this moment, I think we will track much better than that. We probably give you some color in the next one or two quarters.

Got it. Got it. Super helpful, Fusen. Maybe I just wanted to follow-up on that. One of the things it seems like if you look at hybrid bonding with some of your peers in Europe are doing. One of the current issues seems to be lack of a good metrology, like the scanning acoustic microscopy. Do you think that is what is limiting hybrid bonding upside in the near-term? And that’s kind of helping TCB? Or do you think they’re like two separate mutually exclusive issues? And just out of curiosity, if you think you can hit TCB revenues of $100 million in FY2024, what do you think the hybrid market should be there?

Okay. So hybrid bounding, people talking about it, maybe for a pitch below 10 micron. But at this moment, I think 10 micron actually is really very stretched. Part of that maybe people have a problem of a contamination issue for TCB. So we believe our approach is right. The hybrid bonding in our opinion is very niche, right? It’s really a niche market. And I do believe the future for TCB for the next couple of years will be much bigger than what people predict for the hybrid bonding. And heavy bond in layoff you approach, I think at this moment is a little bit complicated process. So we have actually both programs, one’s the frac less, one’s the hybrid bonding, but we put much more effort in this flux TCB funding.

Just to clarify, Fusen, do you think the metrology issue is what is making hybrid bonding in niche market?

Yes. This – yes, metrology is one, but the hybrid bonding, you really got to have a very complicated process. There are two approach. One is really a sequential one. And if you look at it, this is really front-end process, right? It’s a little bit more complicated. So I agree there’s a majority and also it’s inherent. It’s not very easy process.

Got it. Thanks a lot, Fusen. Really appreciate it. Thank you.

Thank you. [Operator Instructions] Our next question is coming from David Duley from Steelhead Securities. Your line is now live.

Thank you so much for taking my questions. As far as your annual revenue target, you bumped it up like $80 million from $1.5 billion to $1.58 billion. Could you help me understand where that upside is coming? Is it coming from the core wire bonder business not going down as much as you thought? Or is it coming from a lot of these new opportunities growing faster than you initially anticipated?

So Dave, could you quickly repeat again? I’m sorry, I just missed a couple of seconds.

I was just curious, you bumped your annual revenue target up from $1.5 billion to $1.58 billion, $80 million increase there. Is that from the wire bonder business going down less or the new stuff growing faster?

So actually, Dave, when we have a new forecast is based on new information come out. We always make sure we can deliver it, right? So let me give you overall of the full year outlook. So I think if you look at it in the past two quarters, really, in order to relieve customers’ capacity shortage, right? There’s a desperate need for a lot of [indiscernible] And we really purposely stretch our capacity, and our targeted maximal capacity was $450 million, but we purposely actually stretch out capacity deliver one quarter is $490 million, one quarter $460 million. So – and together with Q2, Chinese New Year, typically is a soft year, right? So as a result, I think we guide at the midpoint for Q2 is $380 million. And let’s face it, $380 million is still very, very strong compared to historical results, right? So what I try to say is I think the past two quarters really is a purpose we try to reduce the backlog and reduce shortage for the whole industry. And remaining, I think, two quarters, if you look at it, the end demand for the market is still a little bit strong. And we feel maybe we will have additional upside if the wafer start get more capacity come online. We might have a little bit more upside, I think, in the second quarter. So that’s what we see right now. But when we have a more clear picture about wafer shortage improving, I think we will discuss maybe next quarter.

Okay. Could you just talk about – you’ve had really strong gross margins. I think they’re 48% recently through the balance of this calendar year, how should the gross margins trend up or down?

Well, Dave, I think gross margin is – for now, it’s trending between 47% to 48%, right? I think that is a realistic target. I mean, obviously, margin moved from quarter-to-quarter depending on product mix as well as customer mix. I think one thing that has an effect on the margin last year as well as this year is the fact that there’s still real supply chain constraints and that we do actually spend additional dollars in terms of expediting component as well as the – as you well know, the shipping and freight is very, very tight right now. So that cost is also a little bit higher. But I think 47% to 48% maybe a little bit higher than that is probably a realistic target for the rest of the fiscal year.

Okay. And final question from me is I guess it’s two parts, could you just talk about what the utilization rates of the wire bonders are? I think you mentioned that they’re still high, but I didn’t hear a number. And then just highlight for us again what your targets are for revenue in the LED business in this fiscal year and next fiscal year or calendar year. However, you’re characterizing it? Thank you.

So I’ll answer the utilization rate. Utilization rates are in the high 80s. It came off a little bit, but it’s still very, very robust from a historical basis. And so we think that will continue to drive demand throughout the fiscal 2022. And then again, as Fusen mentioned, as the wafer shortages hopefully eases, we believe utilization rate will go up again. As far as LED targets, we actually didn’t provide LED targets going forward into 2023. I think, again, we don’t specifically break out what we have targets in terms of revenue for the different product lines per se. But LED, we do believe it’s going to recover a little bit in the second half. We’re seeing a little bit of that. And Fusen can discussed in his remarks, we have still a very, very strong advanced display, which is a part of our LED revenue.

Thank you.

Thank you. Our next question is coming from Tom Diffely from D.A. Davidson. Your line is now live.

Yes. Thank you for the questions. Lester, just a follow-up on the utilization question. Is there a normal seasonality in utilization rates do they dip off in the holiday season post-China – pre-Chinese New Year?

Yes, Tom, there is a little bit of that. I mean, usually, the March quarter, which Chinese New Year’s in, the utilization does come down a little bit. I mean, China – and also Taiwan, to certain extent, shuts down for a period of time. So I think, yes, there is some seasonality into the utilization rate.

Okay. And Fusen, when you look at the wafer shortages that we’ve had across the industry now for the past year, how much do you think that’s impacted your business? Or how much upside you think was taken away by those wafer shortages that should recover or should come back over the next year or two as we ramp up.

Well, this wafer shortage actually, I think – first of all, I think people need to invest in the front end – and roughly, it will take about a year to two years come out. So, what we are seeing right now is there are some legacy products, a lot of investment is about 18 months to two years ago, mainly, I think, in China areas. So, we expect this front-end finish probably will start to go to up again and then start to increase the wafer capacity. So, we feel like it should go up, but there’s a lot of industry suppression issue, right? So – but go up will be a gradual case. So, we feel like maybe – it’s hard to put a number, but maybe tens of millions dollars. It’s calendar year, right? So if a calendar year, it only hit us fiscal year for those three months. So tens of million dollars, maybe we’ll expect that. But really depending on the many manufactures for the industry.

Okay. That’s fair. And then finally, obviously, Lester, you talked about how 70% of the business or so is in China because that’s just where the chips are packaged, are you hearing more from your customers about plans to bring the back-end, the packaging to the U.S. and Europe to diversify geographically a bit?

Well, I think diversification of the supply chain, I mean, is definitely a hot topic, right, both from a geopolitical basis as well as COVID has shown that you do need a more robust supply chain. So we are seeing some initial discussions about investments in Europe. Again may see in the U.S., U.S. hasn’t really had investment in the back-end for while, but we’re seeing some interest and then also in Southeast Asia as well as Taiwan.

Okay. Thank you for your time today.

Thank you.

Thank you. Our next question today is coming from Dylan Patel from SemiAnalysis. Your line is now live.

Thanks. Lester, I wanted to ask about the timing of orders. Big automotive and trailing edge semiconductor firms like STMicro and Texas Instruments are doubling their CapEx year-over-year in TSMC and UMC and SMIC they’re spending more on trailing edge than ever before. Has this new front-end capacity translated to back-end? Fabs take years to build, so what’s the timing for these back-end assembly investments into wire bonders versus the front-end investment that’s been flooding in this year?

Yes. So Dylan, I think your question is similar to Tom just asked. So let me answer this way. semi unit growth was around 20% in calendar year 2021. So front-end investment continue to fluctuate back-end. Yes, that’s true. But normally, I think it will take a year, sometimes two years depending on what kind of technology and investment scale to reach. For example, investment from two-years ago in China are expected to support wafer capacity growth in the second half calendar year. So I don’t know if I answer your question. So normally, I think it take up probably – it can take up to two years.

Okay. Thank you. And then for a follow-up, I wanted to ask a bit more about the battery business. At the Investor Day, you talked about a laser-based cylindrical bonder system, but we didn’t really get much information about that. There’s a lot of competition in the heavy wire bonder space for automotive. But what is this laser system – what is the advantage here? What does that do for competition?

Okay. So historically, I think we live in the heavy wire wage space within automotive, right? But right now, actually, we have a battery solution, two for cylindrical and one for prismatic. So let me get into a right point why people think about laser compared to wage. I think laser has a much faster process. The super is high, the cost of ownership is low. But it hasn’t demonstrated high-volume production capability. One of the biggest issue I think the process window tends to be narrow. And if process window shift a little bit it can lead to some reliability concept, right? But some people actually – I don’t even know the term, pack assembly – so nobody, I think these laser people use for entry to use in a pack assembly, and it does provide an alternative process for some customers. But I think at this moment, if you look at the best reliable products still come out from the wire bonder. But actually, we have a bold solution. We have three battery solution, two for cylindrical and one for prismatic.

Thank you.

Thank you. Our next question is coming from Craig Ellis from B. Riley Securities. Your line is now live.

Yes. Thanks for taking the question and congratulations on the strong performance guys. I wanted to start with a follow-up on some of the comments around the potential for second – fiscal second half wafer improvement or hopes for that to occur. Can you just talk about what you’re hearing from your customers on what they see as their potential wafer output improvement but then flow through to your volumes. Is it single digits, half on half, double digits half-on-half, high double digits. What is it that you’re hearing that lends confidence that we’ve got wafer improvement and volume improvement coming in the second half of the year?

So I think the reason we put a $1.58 billion was the reason I think the signals already mix. Some people feel like this – okay, so supply chain shortage to us, I think our surprising shortage is a less problem for us. I think the industry-wide problem is really a chip shortage, and this is a wafer shortage. If you ask different people, I think different people have a different degree of scale of suffering on this. So this is our best judgment. We feel like $1.58 billion is right for us. But as the time go on, I think we will get more information. If you remember last year, at the beginning of the year 2021, we gradually guide up. It’s because when we have more confidence I think we are able to change our view. But at this moment, I think the supply can shortage, a lot of people feel like it’s getting worse. And – but some people feel like it gets easy. So we are talking about the whole integration of our industrial shortage. That’s why I think we still need to have a time. But our base judgment really at this moment in $1.58 billion. So we will provide you a little bit more color maybe next time.

That’s helpful, Fusen. And maybe to follow up on that. So the $1.58 billion assuming we have something that’s relatively seasonal in the fiscal third quarter, which would be up quarter-on-quarter would imply something that would be seasonal by the time we look out to the fiscal first quarter of 2023. And so with the order dynamics that you’re seeing the backlog dynamics that you’re seeing, is the business strong, but increasingly taking on a seasonal tone? Or does it seem to be so strong that it could overpower late calendar year seasonality as it seemed to do in fiscal 2020 and a little bit in fiscal – early fiscal 2022?

So if a wafer shortage gets better, we feel like at the beginning, we – the first sign, we only have three months to catch it, right? Everybody believe at this moment will be a calendar year second half and our fiscal year ended in September. So I think we probably need to have a one-quarter to feel it. And if we really come in, I don’t think that will be – like Tom ask probably means of tens of million dollar for us. And we got to see the magnitude then we probably can make a better judgment.

Sure. That’s helpful, Fusen. And then to follow-up on the comments on the automotive business and the engagement expansion, I think it was to five OEMs. The question is when will those engagements start to become more material to revenues and visible to investors? Is that sometime in fiscal 2022? Or is the work with that wider array of OEMs really something that becomes more material to the business that investors would see in fiscal 2023 or sometime thereafter?

So Craig, I think I think it’s a nuanced answer, right? I think some of the five engagements will bear fruit in fiscal 2022. Some are further along and some – their specifications are more similar to what we’ve already done. Some we would have to do more work with them, and there will be a longer call period, so they will come in into fiscal 2023. So I would say it would start in fiscal 2022 and maybe gain more traction in 2023. But again, as we get more visibility, we will update the investors on our automotive. But we are tracking above, as Fusen said, what we indicated during the Investor Day four months ago.

That’s real helpful, thanks Lester. And just to follow-up with a question for you, but in a different part of the income statement on operating expense. Very strong performance in the just reported quarter, and you were clear that some of that may have been hiring that wasn’t able to be realized and maybe it happens in fiscal 2Q or beyond. Can you just give us some color for how you’re thinking about OpEx as we go through fiscal 2022?

Well, I think OpEx through fiscal 2022 is – I mean, again, based on the guide for Q2, I think it’s going to be non-GAAP about $75 million to about $77 million. I think that’s a number that will probably be consistent through Q3, Q4 for the remainder of fiscal 2022.

Got it. And then lastly for me before I hop back in the queue. Extremely robust cash generation in the quarter, so congratulations to the team on converting those strong revenues to cash flow. The question is following the very nice dividend increase that we saw, how is the company prioritizing dividends versus buybacks versus potential inorganic growth as we look through fiscal 2022 and into 2023?

I think for fiscal 2022, I mean, as I said in my remarks, I think for the dividend, we will – our position is that our philosophy is that we want to be consistent, we want the dividend to continue to grow and be competitive among our peers. I think for the share repurchase program, we have increased the cadence. We have purchased more shares and spent more money in first quarter than we did for all of FY 2021. I think the cadence will continue as we go forward. So I think we will be deploying more capital on the share repurchase program. As far as inorganic opportunities, I think we’ve said a few times, we’re always open to it, but it needs to be accretive. It needs to be provided for either new technologies or new products in an adjacency I think that may probably more of an FY 2023 initiatives. But again, there may be some in FY 2022, but there will be more in terms of – similar to what we did with Uniqarta, which is very successful. It helped us accelerate our LUMINEX tool. So I think we will look for somewhat similar things perhaps in FY 2022.

Make sense. Fusen and Lester, thanks very much for the help.

Thank you.

Thank you. Our next question today is a follow-up from Krish Sankar from Cowen and Company. Your line is now live.

Yes. Thanks for taking my follow-up. Fusen, I just wanted to pick your brain on something. When you look at the last six months, your backlog has been coming down lead times are beginning to moderate. I’m just kind of curious and investors are worried about double ordering. So how do you handicap that given, I understand, full year of $1.58 billion for FY 2022, makes sense. But how do you look at beyond that and say, as the supply constraints ease at some point, where do you think is a steady state lead time for the wire bonding business? And what gives you comfort that there’s not a lot of double ordering or last-minute cancellation of pushout that could happen six months down the road or nine months or 12 months down the road when these things ease?

So Krish, actually we probably don’t feel like a double booking is a big issue for us. I mentioned I think in 2021 OSAT actually is quite strong, right? And actually, at this moment, I think the real strong is really IDM. So a lot of capacity – actually OSAT investment is for the whole industry, right? So I think we believe the OSAT probably will come back a little bit stronger in our second half. So at this moment, we really don’t feel big double booking. We tend to talk to customers a lot – of course, double booking happens anywhere, in any period of time, right? But at this moment, we really don’t think it’s the biggest issue for the industry.

Got it. Fair enough. And then just curious on China. You said 70% of total revenue is China. I understand a lot of LED is also China related, like commodity LED, but curious on the general selling side, what is the China split between OSAT and non-OSAT?

I think for the China side, I think its both non-OSAT and OSAT, but there’s quite a lot of OSAT business for us in China, China OSAT.

Got it. Thanks, Lester. Thanks, Fusen.

Okay, thank you.

Thank you. We reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

Thank you, Kevin and thank you all for joining today’s call. As always, please feel free to follow-up directly with any additional questions. Have a great day, everyone.

Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.