Kulicke and Soffa Industries, Inc. (KLIC) Q4 2022 Earnings Report, Transcript and Summary

Greeting and welcome to the Kulicke & Soffa 2022 Fourth Quarter Fiscal Results Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Elgindy, Senior Director of Investor Relations for Kulicke & Soffa. Joseph, you may begin.

Thank you. Welcome everyone to Kulicke & Soffa's fiscal fourth quarter 2022 conference call. Fusen Chen, President and Chief Executive Officer; and Lester Wong, Chief Financial Officer are both also joining on today's call. For those of you who have not received the recent results, the earnings 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 & 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 yesterday. 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. Over the past five years, we have evolved into a more resilient, growth-oriented and dramatically more profitable company by focusing on our corporate culture, strengthening our established positions, and expanding our served available market. In parallel to this fundamental internal effort, semiconductor assembly within both the high-volume and leading-edge markets is now a more significant contributor to the industry’s value chain. Over the past year, we flexed our capacity and overcame broad supply chain disruptions to support customers through a rapid period of industry expansion. In parallel, we executed on multiple advanced development projects and continued our market expansion strategy. Collectively, these efforts have increased our base level of revenue and are clearly represented in our financial results. Through fiscal 2022, we again generated over $1.5 billion of revenue, in line with fiscal 2021, although our non-GAAP earnings per share increased by 21%, over the same period. This higher level of performance increases our resiliency as we look into fiscal 2023. Over recent months, industry leaders and forecasters lowered WFE and semiconductor unit outlooks due to increased uncertainty related to interest rates, global trade tensions, and ongoing supply chain disruptions, which negatively impact both inventory and demand levels across the general semiconductor, LED and memory end markets. Considering this dynamic environment, we recently conducted scenario planning across our individual business lines. Based on this detailed feedback, we currently expect fiscal 2023 revenue to meet or exceed our previous cyclical peak revenue in fiscal 2018. This outlook suggests a more typical seasonal pattern through fiscal 2023, with ongoing digestion in the first fiscal half followed by gradual demand improvements in the second fiscal half. Expected second-half improvements are supported by well-known seasonal dynamics in addition to a heavier weighting of advanced display and advanced packaging revenue. Despite this dynamic macro and industry environment, secular trends in advanced display, advanced packaging and automotive have continued to be very resilient. Lester will provide additional details on our outlook shortly. Over the prior year, we generated revenue of $1.5 billion and non-GAAP EPS of $7.45, representing an increase of more than two times over our prior 2018 peak year, which helps to highlight how our cyclical performance has improved. While semiconductor growth has contributed, since 2018, prudent partnerships, acquisitions and aggressive development expanded our served available market by 51% to approximately $4.7 billion. This change, which excludes our pending acquisition, provides a more sustainable and consistent path for growth going forward. We remain focused on our long-term strategy and outlook over the coming years. Fiscal 2023 is a critical adoption period for our higher-growth solutions supporting Advanced Packaging, Automotive and Advanced Display, which are increasingly aligned with long-term, fundamental technology transitions already underway. Despite the softer environment, customer engagements and interest for our growing portfolio of solutions continues to expand. I will provide an update to these key growth initiatives shortly. In addition to our ongoing organic development efforts, we have been seeking competency-based acquisitions that can further accelerate our growth potential. On September 8th, we announced an agreement to acquire Advanced Jet Automation, AJA. AJA’s technology portfolio will further expand our served available market while also materially increasing our access to the evolving micro and mini LED opportunity. Over the past three years, success with our Assembleon acquisition has allowed us to enter the advanced display market. This access offered the opportunity to identify and engage with innovative providers, including AJA, who are also supporting this emerging, high-growth opportunity. AJA’s unique and complimentary dispense solutions, which provide market-leading placement accuracy and repeatability, already addressed the high-accuracy needs of Advanced Display and are positioned to address the growing complexity of semiconductor and consumer electronics assembly. In total, AJA provides K&S with access of roughly $2 billion total addressable market in dispense, providing an additional layer of growth. This sizeable new market access and impressive competencies in the emerging advanced display space supplement our broad organic growth initiatives. Our existing technical competencies, sales and distribution network and operational strength can help AJA better commercialize new solutions and accelerate growth potential. Turning to our end-markets, we generated $242.1 million of sales from our capital equipment businesses in the September quarter, which represents a 23% increase over our five-year average. Within the general semiconductor market, a softer outlook is expected due to lower consumer spending levels and also indirect effects of new trade restrictions. However, we continue to execute on share gains in the power semi market, Advanced Packaging and soon also within electronics assembly. Our Advanced Display business is progressing better than expected and we significantly exceeded our $80 million advanced display revenue target. Advanced Display represented nearly 60% of our total 22 LED revenue. As we execute on development and further drive adoption across a growing customer base, we expect this market to grow materially. After several quarters of rapid automotive capacity expansion, we have returned to a more reasonable level of demand for our core automotive solutions. We continue to closely support our automotive customers through our leading semiconductor, electronics and battery assembly solutions, which are directly addressing many of the sensing, power management, power storage and power distribution needs for current and future electric and autonomous vehicles. These trends are significant and expected to continue supporting above average automotive semiconductor growth over the long-term. Today, we continue to extend our fundamental strength by supporting our own capacity expansion plans and new product initiatives while delivering on several intimate customer engagements. Our ongoing progress and execution increase optimism into FY 24. Allow me to provide a brief update. First, we now have multiple facility expansion and renovation programs in Singapore and Pennsylvania which are providing critically needed clean-room, lab and metrology space that will enhance our manufacturing and development capabilities. These expansion efforts better support the growing trends and demand for our new advanced packaging and advanced display solutions. Our dedicated semiconductor Advanced Packaging Business has grown by 34% over fiscal 2021 and is projected to continue growing materially over the coming years. Customer interest and feedback for our fluxless-thermocompression systems have increased over the past quarter and we continue to expect this process will address the majority of heterogeneous assembly needs down to a 10 micron pitch. We currently have an industry leadership position in chip to substrate process and have multiple promising new opportunities with key customers in chip to wafer process over the coming year. In addition to our focus on emerging heterogeneous integration opportunities, TCB also supports the high-growth, high-volume, System-In-Package market for emerging logic, processor, mixed signal, silicon photonics and sensing applications. This new access to high-growth opportunities provides specific examples of how we expanded our market reach and are raising our base-level of business. As the value of semiconductor assembly increases, our engagements with multiple fabless companies have also increased. While these are not traditional end-customers, the assembly process is clearly becoming a more significant factor in IC design than in the past. Demand for our new solutions continues to improve across our growing base of fabless, foundry, IDM and OSAT customers and we are working aggressively to support broadening customer engagements. Considering this new momentum, we anticipate thermo-compression to provide meaningful growth over the coming years. To highlight this momentum, our thermo-compression business grew by nearly 5 times, year over year. We have also recently identified specific TCB customer opportunities of over $300 million, cumulatively, through 2025. In addition to Advanced Packaging, we are strategically focused on extending market share through the pending release of our latest electronics assembly system. Looking back, our 2015 acquisition of Assembleon provided several market expanding opportunities for K&S including additional access into the automotive market, new access into the system-in-package flip-chip market and also new access into the emerging mini and micro LED space through the success of PIXALUX. After securing positions in these adjacent markets we are also targeting share gains within the core electronics assembly market. Recent and ongoing development efforts have positioned us well to expand our access within electronics assembly, which represents a served available market in excess of $2 billion. Over the past year, we have developed a new system architecture which addresses the growing accuracy and throughput needs of next-generation electronics assembly. Initial customer feedback has been well received, and we look forward to officially releasing our latest system in the second half of fiscal 2023. The last update is regarding our growing portfolio of advanced display solutions, which continues to track to expectations into fiscal 2023. Sustained development efforts have created multiple advanced display solutions, PIXALUX, LUMINEX and also close customer development programs, which comprehensively address the LED placement requirements of emerging backlighting and direct-emissive applications. At a high-level, LCD technology, which represents the vast majority of display production will benefit significantly from emerging backlighting trends over the long-term. To be clear, LCD technology offers a lower production cost and longer useful life than current alternative display technologies such as OLED. Emerging backlighting trends supported by the success of PIXALUX and growing interest in LUMINEX further optimize the cost/performance tradeoff for LCD technology, specifically with larger-format displays. Alternatively, OLED technology, provides a thinner, higher-quality image, supporting high relative share with smaller-format displays, although image degradation and production costs have limited broad OLED adoption in high-volume, larger-format, display markets. Over the coming years, direct-emissive displays, using only a dense matrix of very small LED’s have the potential to challenge OLED technology from a performance and power efficiency standpoint. This trend is only beginning to play out and we are well positioned to participate through our close customer development initiatives and also the success of LUMINEX over the coming quarters. For both advanced backlighting and direct-emissive approaches to be adopted, lowering production costs is critically important to driving market adoption. While production costs of mini and micro LED will improve, we are most focused on delivering higher throughput solutions which support both of these long-term trends. Our first-mover position and success with PIXALUX has provided us with the largest installed base of ultra-high-speed pick and place tools for advanced display. This level of performance improves with the LUMINEX laser-based transfer method. With LUMINEX, we are on track to achieve three times the productivity benefits of PIXALUX, over the coming months. Our R&D teams are actively supporting several ongoing qualifications in parallel for LUMINEX as they reach this new milestone. We continue to expand our advanced display installed base and pursue multiple LUMINEX engagements while making consistent progress across several customer development initiatives. Customer interest for our latest LUMINEX system remains strong. We have also recently shipped a new customer specific advanced display solution that further increases our optimism and long-term potential with these broad technology trends. While near-term industry growth rates routinely change across the semiconductor market, our positions have fundamentally improved and better correlate with secular trends shaping the future advanced packaging, automotive and advanced display markets. Through ongoing execution of our development programs, integration of AJA, and driving customer adoption, we are well positioned to further enhance our market access, growth prospects and fundamental strength over the near-term. With that said, I will now turn the call over to Lester who will discuss our financial performance and outlook. Lester?

Thank you, Fusen. My remarks today will refer to GAAP results, unless noted. First, I would like to address the recent changes to U.S. trade regulations, which have clearly impacted many front-end solution providers’ ability to support existing production and ship tools to many Chinese companies involved in IC fabrication. While we are still receiving confirmations from customers, we do not anticipate any material direct impacts to demand. The vast majority of the systems we ship into China are simply not restricted. Additionally, none of our products support IC fabrication. Our products only support IC assembly which is excluded from the new restrictions. While we don’t anticipate direct impacts, the new rules will likely create near-term supply chain disruptions which may indirectly impact demand for our products. As Fusen explained in detail, the current macro-environment remains dynamic and we remain committed to expanding our product portfolio and market access in a fundamental, long-term and sustainable way. Our strategic path includes many facets, customer engagements, technology partnerships, development programs, qualifications, and highly-selective acquisitions – which sustainably enhance our technology-oriented growth. As we strategically expand our market access and product diversification, through-cycle operating leverage and free-cash flow generation will continue to improve. Over the past fiscal year, we quickly flexed our manufacturing to meet an unprecedented level of demand for our high-volume ball bonder business, generating revenues of over $1.5 billion, non-GAAP net income of $455.6 million and non-GAAP earnings per share of $7.45. As Fusen mentioned non-GAAP EPS actually increased by 21% year-over-year, despite a similar level of revenue. The largest individual driver to this benefit was due to our 380 basis point improvement in gross margin during fiscal 2022. To be clear, the growing capital-intensity of the semiconductor assembly process is directly benefiting the value proposition and long-term growth rates of our leading ball bonding solutions. Our strengthening positions in advanced display, advanced packaging, automotive and electronics assembly may be easier for investors to digest, although we have also optimized the core, high-volume ball bonder business. While ball bonding has historically been underappreciated, the underlying business has fundamentally improved. Since fiscal 2020, our ball bonder gross margins have increased by 340 basis points, largely due to stronger demand for our high-performance systems which are more capable to run multi-die applications. Specifically, the Rapid series of Ball bonders, our most advanced architecture, grew from representing only 21% of total ball bonder units in fiscal 2020 to representing 69% of total ball bonder units in fiscal 2022. New complex packaging trends enhance our existing leadership position and the longer-term growth rates within this large, well-established process. Turning to our recent results, during the September quarter we generated revenues of $286.3 million, gross margins above 46%, non-GAAP net income of $70.2 million and non-GAAP EPS of $1.19. Gross margins came in slightly below our guidance range largely due to accounting associated with customer-related development efforts. Non-GAAP operating expenses during the quarter came in better than expectations due to immediate cost control efforts, a reduced pace of hiring, and foreign exchange gains related to a strengthening U.S. dollar. Finally, tax expense for the quarter came in at $6.6 million, slightly better than expectations. Over the past year, our total cash position increased by $35.7 million after committing $322.2 million to investors through dividends and share repurchase activities. Working capital days increased to 341 days in the September quarter, representing a sequential reduction in revenue, sequential increase in cash, and a collective decline in accounts receivable, inventory and accounts payable. Through fiscal 2022, we generated $367.4 million of adjusted free-cash flow, highlighting our longer-term earnings potential. Through the September quarter, we repurchased an additional $60.2 million of shares, bringing our fiscal year total to $282.8 million, which represents 5.6 million shares or nearly 10% of our fiscal 2022 weighted diluted share average. At the end of the September quarter, we had nearly $250 million remaining under our repurchase authorization and continue to manage an active, open-market repurchase strategy. In addition to the repurchase activity we have also just announced our third consecutive annual dividend raise, bringing our total dividends per share to $0.76 [ph] annually and maintaining a competitive dividend yield. The ongoing repurchase program and steadily growing dividend, help stabilize our valuation while optimizing our fundamental market expansion efforts on a per share basis. For the December quarter, in line with Fusen’s comments regarding softening macro and industry environments, we anticipate revenue of approximately $175 million, plus or minus $20 million. Gross margins are expected to reduce to 45% [ph] plus or minus 50 basis points, due to product mix, accounting related to our customer development initiatives, additional expediting fees, near-term facility re-sizing effects and also higher than expected inflation. Non-GAAP operating expense is anticipated to be approximately $68 million, plus or minus 2%, due to ongoing expansion efforts in addition to inflation. Over the last month we have reduced our rate of hiring and limited non-critical expenses as we have during prior soft demand periods. Non-GAAP EPS is expected to be $0.20, plus or minus 10%, which considers an effective tax rate of just over 20%. This increase is partially related to regional income mix although is primarily due to the mandatory capitalization of R&D expenses under Section 174 beginning in fiscal 2023. Unless repealed or modified, this provision of the Tax Cuts and Jobs Act of 2017 is expected to broadly affect all U.S. Corporate taxpayers with R&D activity. As we look further out through fiscal 2023, we continue to anticipate a period of capacity digestion to extend into the March quarter, with typical seasonality trends driving more distinct capacity needs in the second fiscal half. It remains a very exciting time for the Company as we have significantly broadened our alignment with fundamental technology change across the semiconductor, advanced display, electronics assembly, and automotive markets. As the industry recovers and we continue to execute, we are well positioned to reach new levels of financial performance beyond 2023. While there are near-term challenges for the entire industry, our fundamental improvements, enviable financial position and active roles enabling several long-term technology transitions will allow us to emerge as an even stronger and more profitable company. This concludes our prepared comments. Operator, please open the call for questions.

Thank you. [Operator Instructions] Our first questions come from the line of Krish Sankar with Cowen. Please proceed with your questions.

Yes, hi. Thanks for taking my question. I had a few of them. First one, Fusen, when you look into the December quarter and subsequently into the march, is it fair to assume pretty much all segments are sequentially down in December and then March, like general semi, memory, auto and LED, or is there trend in any of them into the December quarter?

Well, I think what we are seeing, our revenue in the perspective of the previous quarters, we feel other than the unit growth of related products actually other products hold pretty well. So we feel like Q1 and Q2 are probably [indiscernible] and we could expect situation probably get better after that. And I think, yes I wish I answered your question.

Got it. And then just out of curiosity, what kind of gives you the comfort that your fiscal second half demand will recover, i.e. from the June quarter onwards?

So, there are few things. One is, of course our customer feedback. We continue, however, to talk to the customer. I think our inventory digestion has been of fewer [indiscernible] and people feel like maybe they are more focused actually in the second half. our second half. And also from our point of view, I think, we have Advanced Display and Advanced Packaging, they are more weighted in the second half. And also I think a few market forecasts of your 10-K, probably, I think, after March quarter situation will be better.

Got it. Got it. All right. And then I just had two other quick questions. In the September quarter, what was your percentage of sales to China?

It's just around 50% Krish.

50. So it's kind of been in the same range for a while though now, right?

Yes, but 20% of that actually is not, it's the international customers, but with their factories in China.

Got it. And then a final question, in the past, look, I think you kind of mentioned that in FY 2022, Advanced Display is about 60% of total LED sales. Do you expect that dollar value to decline in FY 2023 for Advanced Display given the LED revenues are right now? Or you actually think year-over-year FY 2023 Advanced Display revenues would grow?

Well, we anticipate that Advanced Display for FY 2023 will be higher about similar to FY 2022, or roughly about $100 million.

So, I think in my script I mentioned all authorities this way. Actually, in 2023 [indiscernible], you will continue this further out with an enlarged area - opened area of project. So that’s the PIXALUX, LUMINEX, we are actually in the multiple [indiscernible] multiple for both direct initiative and also big [indiscernible] And we also are just, shipped product specific customer products and all these are associated together Actually, the downturn also impacted a little bit on this [Advanced display. . But because it is [indiscernible] we actually target 2023 revenue for Advanced Display.

Got it. Got it. Thank you very much.

Thank you. Now our next questions come from the line of David Duley with Steelhead Securities. Please proceed with your questions.

Thanks for taking my questions. I guess first of all, you talked a lot about the thermal compression bonding opportunity. I was wondering if you could just elaborate a little bit more on what you think the size of that market is in dollars on an annual basis and what your market share is? And then your competitor, I think, on one - on their conference call was making a big deal about working with AMD or logic provider. Could you talk about who your key customers are? What end markets your efforts are in?

Okay. So I think TCB in the recent, just recently, I think the prospect actually increased a lot. Part of that, I think also people transferred advanced free chip to advanced thermal compression. So I think in my previous call, we mentioned we have backlog of $80 million. So of course we ship to our customer. In the meantime, we also get the new PO. But our PO I think we have a requirement. It’s not only order, we've got to have a specific delivery time. So sometimes I think, our backlog is not the best judgment. We actually conduct a study after we visit a lot of customers, from [indiscernible] design house, or foundry and many, many customers. We feel like actually this is a very actually promising market. So let me make a clarification. I think TCB, particularly we're talking about fluxless TCB. We have a fluxless because of, when a TCB process enter into above 30 micron, the flux become a contamination. We also have a proprietary, special technology. We are able to make a very clean silicon to silicon content. So when actually the biggest volume at this moment actually is between 30 to 10 microns. So our fluxless TCB differ from hybrid bonding in two ways. Number one, I think hybrid bonding is a focus on pitch below 10 microns. And I continue to say, we are focused on up to 10 micron. So actually, our focus really at this moment is between 30 to 40 microns. And actually, at this moment, it’s a very large market, right? So that's the first difference, is at this moment, these two technology are not overlap. The second difference actually is our fluxless TCB is a pure backend process, but hybrid bonding is assisted with some front end process. So some front end investment is needed, right? So at this moment, it is really not overlap at all. We don't know maybe any later, they will have overlap, but at this moment, we did not claim any market shares from [indiscernible]. So within the TCB, yes TCB actually are still dealing with the two process. One is a chip-to-wafer, one is a chip-to-substrate. We actually are the leader of a chip to substrate. And we actually are shipping a few chip-to-wafer system to significant customers. And we do expect that we will gain market shares for the chip-to-wafer process. And at this moment, I think chip-to-wafer and chip-to-substrate, they are equally large, right? So I hope I answered your questions.

Yes. Just as a follow on to the thermal compression bonding, this is a process that's used mainly with in the logic segment, right as your competitors talked about it. Are there other mark -- is that where you're seeing your success is with logic providers? And are there other markets that would be adopting this technology?

Well, you mean thermal compression, right? Yes, I think [indiscernible] with some memory, of course our people also are talking about, hybrid bonding, we don't have a comment on that. So let me go back. I think we mentioned about identify high potential over $300 million. Previous call, actually we said $80 million backlog. This pretty much will be shipped within 2023. And those $300 million we talked, the majority of which should be in [indiscernible].

Okay. And then I just wanted to clarify, in your prepared remarks, I think you said something comparing your current business levels to 2018. Could you just repeat what you said? I just didn't hear that.

Sure. So let me make this comment. I think that given in our business cycle the upturn actually starts from 2020 to 2021. So our 2020 revenue is 630 I think, if I recall right. And we end 2021 with $1.5 million. So actually the gross rate actually is up 168%. So I think in the downturn up to the second this, the trade restriction to China, actually a lot of people have dialed down the wafer set expansion, about roughly 15% to 20%. So this will also indirectly impact the demand for the back end. So we are positive of that. And in addition, I think the unit gross really also revised down. So therefore it's very difficult to predict how the annual of FY 2023 is going to be ended. But up to the Q2 actually study internally, we feel like we comfortably can meet the 2018, which was a previous cycle pick it's around $900 million. Actually more precise is $890 million. We feel like this is achievable from our side and it's quite difficult. And we feel like we can do at least or better than that. It's quite difficult to predict that we guess. So that's what I think. So we feel like, it's probably 900, probably will be about like the highest sum, 240% down, but the upturn actually brought us about 168% up. And, the worst case scenario we are seeing, probably is something will bring us down about next month.

Okay. Final question from me, Lester you mentioned how you'd seen improvement in the core wire bonded gross margin over the last two years. I think it was 340 basis points, a very robust number. But correct me if I'm wrong, don't you have a new wire bonder coming out next calendar year that should also help improve gross margins? Could you elaborate a little bit more on that?

Yes, we continue to introduce new products into our core business. So we believe that the ball bonder gross margin will continue to remain high and we'll continue to look for ways to increase the margin on our core business in ball bonder as well as wedge bonder.

So David in downturn actually, the demand and the market share and the price is also have some correlation. So we'll do the best to increase the gross margin while also make sure we get enough market share.

Yes, I guess what I was referring to is, in the past you've talked about being able to improve overall margins by 400 or 500 basis points, and I think that was kind of from a 47% level. And I realized you're going into a downturn, so during that period, gross margin improvement is, doesn't happen. But when we get back to, I guess, normal levels at one point or another, do you still think you can improve the overall gross margins to that level?

Yes. Our target has always been 50% gross margins in a non-downturn year, right? And we believe that in 2024 and beyond, we can reach that goal and go higher.

Thank you.

Thank you. Our next questions come from the line of Craig Ellis with B. Riley. Please proceed with your questions.

Hey, thanks for taking the question. And team, congratulations on the dividend increase and cash used to share buybacks and some check focused M&A. So Fusen, I wanted to start just by seeing if you could provide some color around some of the fiscal 2023 commentary. So very helpful to hear that it seems reasonable from the company's view that sales might be down 30% to 40%. The question is, as you look at that and going back to the comments about customer interaction and conviction that they have, that things can move up in the back half of the year, how should we look at trends for general semi, advanced display, auto and industrial and memory? Which of those would be relatively stronger next year, which relatively weaker based on what you're hearing from your customers?

Well I think memory you know, probably is looking at the 2024, but the later part of the 2023, I think we might have some chance. But memory, I think everybody know at this moment is a little weak. For the display, actually in a consumer market, unless, I think and that's why we always need to focus on our high throughput. The display actually is also not a very easy market. So for the consumer part, is going to be impact a little bit, but for the long-term, I think that we are formally deliver that mini LED and the micro LED is here to stay. And we also have a lot of qualification activity with customers. And so it's really not only like a volume related, there's a lot of new project. So in terms of advanced display, we are looking at the 2021, I think our revenue was $80 million, 2022, actually last quarter, we ended the last quarter at $90 million. But after this quarter, the full year I think we are slightly over a $100 million for advanced display. For the 2023, we actually have a target to be $80 million to $100 million at this moment. So advanced display I think is a little weakness. But we have a lot of qualification, customer use it is opportunity for developed products. So advanced packaging, I think we actually cannot ship more than enough and a lot of requests actually we are increase our capacity and try to meet our customers demand. Right? So I hope I answered your questions. And for the unit growth related products, actually we have two, one is ball bonder. We feel like actually already significantly the inventory actually, issue, actually again at this moment we are at the quite low level already. But another one actually is the wedge bonder. Wedge bonder I think in our 2018 only qualified with our first EV customer. The revenue is $100 million. And this quarter actually we are looking very close to $4 million. So this is like in the auto trend, right? So I wish I gave you some color about our customers.

Yes, that's really helpful, Fusen. Thank you for that. Lester, I wanted to understand more about what was happening with operating expense control. I think you talked about slowing hiring and a few other things that happened tactically and then there was some, I think, FX benefit. So can you quantify the FX benefit and what should we expect with operating expense quarter-on-quarter? I'm sure we're down just given the variable cost model, but are there incremental tactical or structural cost savings that are coming into the model as we look at fiscal 1Q?

Yes, so thanks Craig. I think for Q4 we did have about $4 million positive ForEx that helped bring OpEx down. I think the other thing is we are implementing cost control, but as we have always done, we focus on our critical projects. We continue to invest in our critical projects. And I think in Q4, we budgeted in hiring certain personnel in critical projects and R&D. The labor market is still a little bit tight, so some of those hires did not happen. We expect that to happen in Q1. So, of course we will continue to look at the noncritical controllable costs. We'll push it out to the second half if we can or delay it all the way to FY 2024. But for critical projects in Advanced Display and Advanced Packaging, we will continue to invest in Q1 and throughout FY 2023. We believe that that will put us in a very strong position when the recovery comes in 2024 to really ramp and take advantage of that.

That's helpful. Thanks, Lester. And then lastly, the deck talked about some positives that you're seeing in the compound semi part of the business, and I was hoping you could just elaborate on what you're seeing and what investors could expect in fiscal 2023?

I'm sorry, I probably, it's a misunderstanding. I was talking about high power semiconductor, right? So that's really is always high power.

So is that IGBT Fusen or are you talking about silicon carbide?

It is IGBT, yes.

Yep, yep. Okay. And then I think that that's auto related.

I'm sorry? Oh, yes, yes, auto.

Is that an auto related application?

Yes.

That's correct. Power control.

Okay. Thank you very much. I appreciate the help.

Yes, thank you.

Thank you. Our next questions come from the line of Charles Shi with Needham and Company. Please proceed with your questions.

Hey, thank you for taking my questions. I want to go back to your comment on fiscal 2023 revenue number, do you think is going to be closer, or I mean meet or exceed the fiscal 2018 number roughly $900 million? You already guided the first quarter roughly 175, and you also provided that in March quarter you expect a little bit, more like a bottom level run rate quarter. But you expect second half to make up more of the growth to get you to roughly $900 million for the full year. But that would require second half June quarter, September quarter run rate to be somewhere closer to $300 million per quarter. How do we bridge between like your guidance for the first quarter fiscal and second fiscal quarter, something like well below $200 million to something like close to $300 million in the second half? That's my first question. Thank you.

Hi, Charles. Thanks for the question. So, traditionally the second half for us has been much stronger than the first half. In fact, historically it's been 60% plus of the year's revenue is in the second half. And as Fusen did say that yes, the first half is softer. The drop would either be Q1 probably, and Q2, maybe up a little bit, a little bit flat. But we also, as we indicated, based on the macroeconomic factors, which he talked about, right, in terms of within semiconductor or also just general macroeconomic factors improving in the second half of fiscal 2023, we have again, some of the new projects will start providing more meaningful revenue in the second half of 2023. So I think between all those factors, we do believe that the second half will be stronger than the first half, and it does provide us a path for FY 2022 to exceed FY 2018.

Yes. But you are basically assuming, I think you mentioned about capacity digestion. That's going to only last a couple of quarters for you this down cycle, but if I look at it historically, at least the 2018-2019 cycle, yes the digestion probably actually lasted about two years. How do you think this cycle is going to be different from the last down cycle, if you are assuming like a relatively brief capacity digestion here?

Yes, so Charles I think that we are not saying it's going to be at a very, very high level. So at this moment, if you look at the evenly related product, I think it's probably very, very low already. So if we have two quarters of this, so that's what 360? So about 360, right? So let's make a comment. I think historically, I think our second half is about 60%, right? So 60% comes say at $900 million, that's about 540. So you add this up, so actually roughly about $900 million. And we also feel like we probably have strength on some product in the second half. And even $300 million compared to, actually upturn, it was a quarter, I think at the peak we reached was $418 [ph] million. So, I think, this is a very strange cycle. It is because about 2019 was start with our trade pension and when we started to expect to go up, there's a pandemic. And then a lot of things actually inventory higher up in China. So it's very difficult to explain I think our business cycle. But we do believe $300 million before, I think it is not, is not super difficult for us to achieve. If just a little bit pick up of the unit orientative products, I think should be able to achieve that. And coupling with [indiscernible] product with the momentum, I think is achievable for us for the 2018 high cycle. That's our feeling.

Got it. Got it. So you have stopped disclosing quarterly backlog, but I think you are still obligated to disclose your annual backlog number, since this is your fiscal year end. Can you provide what the number is?

531.

How much again? Sorry…

531.

531.

531 million.

Got it, got it, got it. Thank you. So next question, you talked about AJA acquisition. How much of annualized revenue run rate is that business? Can you give us some number there?

Well Charles, I think obviously for FY 2023 we're integrating the business, right? And so, I think as we move forward in FY 2024 and beyond, we think there's significant growth given the size of the dispense market, right? But I think for FY 2023, we're looking at probably a little bit north of $10 million for AJA, but we will not have AJA for the entire fiscal year as Fusen mentioned, we probably just only have it for the second half.

Got it, got it. So may be for the sake of time, my last question and really I want to ask you about OpEx. You've guided, well, first off for your September quarter non-GAAP OpEx was somewhere about $59 million, if my math is right. But you are guiding December quarter non-GAAP OpEx $68 million. I think that's still a big amount of optics from the September quarter level. Given the macro environment should we think about a little bit of more cost control than that, what your guidance implies? Thank you.

Well, Charles, we do have very stringent cost control, as I've already mentioned, right? For non-critical controllable interests, sorry, expenses, we're watching very carefully as we did in the previous soft quarter, and we'll continue to do so. But as I indicated in my earlier remarks or answer to a question, we will continue to invest in the critical projects, particularly in Advanced Packaging, Advanced Display, electronic assembly, as well as our core business, because we believe that those are very exciting opportunities. I think we've already mentioned this, what the positions that we believe we can take in both Advanced Display and Advanced Packaging in 2024 and beyond. And also, when the recovery comes back, I think, with the investments in our core business, we'd be able to increase margins, as I responded to Dave, as well as, gain additional market share. So we are very careful on cost control, but we also understand that, you need to invest in order to be able to grow the business in the future and that's what our philosophy always has been.

Thank you.

Thank you, Charles.

Thank you. Our next questions come from the line of [indiscernible] with D.A. Davidson. Please proceed with your questions.

Thank you for taking my questions, I have a couple. First, what's the underlying assumption for semi unit growth for fiscal 2023? You've given your commentary on 2023 let's say something nearly like nearly 900 or both. What's the assumption for semi-unit growth for that?

We assume semi unit growth for FY 2023 to be about flat to plus or minus 2%.

Got it. Got it. And then I think, so far on that, so given that we think we can do $900 million label top line for 2023, and it seems that we also continue to invest in 2024 and beyond. So it seems like from a bottom line perspective the -- I guess the [indiscernible] number would be probably those and the label in 2018 or any color you can provide regarding the bottom line for fiscal 2023?

Well, Hans [ph] we don't guide beyond the quarter, right? But I think as far as the EPS or the GAAP net income at least for FY 2023, we provided we think we can do revenue better than 2018. I think the gross margin for the year is probably going to be around 46% to 48%, increase to better as we moved into second half of the year. And I think we've sort of given an indication what the OpEx number should be. So I think that based on that, and then we'll also provide some color on in terms of tax. So I think based on those, I think your model should be able to generate what you think the EPS would be.

Okay. Got it. And then, and lastly, so I think last time you kind of talked about the SMT opportunity and I just wonder if there is any update? And then I think, it seems that you are talking about like the share gain story on new generation tool. And then just wondering like what kind of the competitive advantage there allow you to achieve that? And then is that a -- would that be something like a second half 2023 story or more likely in 2024?

Yes, actually Hans, this is a new SMT system, so it is our electronics assembly. There are a lot of competitors over here. We do believe the new innovation is, the head is very, very fast, right, because our multiple per head, we are going to officially read this, probably second half of 2023. So, in terms of revenue impact, probably we are looking at probably 2024, right? But we actually have a quite confident compared to all the existing data, our throughput and reliability I think will be very, very competitive. So that's update. We actually test the market and have very good feedback, but we can only officially it will be the second half of 2023.

Got it. That's helpful. Thank you.

Thank you. There are no further questions at this time. I would now like to turn the call back over to Joe Elgindy for any closing comments.

Thank you, Darrell, and thank you all for joining today's call. Over the coming months, we will be presenting at several investor conferences hosted by Needham, the Susquehanna Financial Group, in addition to the Annual New York City Summit. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day everyone.