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Edited Transcript of 522.HK earnings conference call or presentation 31-Oct-19 12:30am GMT

Q3 2019 ASM Pacific Technology Ltd Earnings Call

Hong Kong Nov 6, 2019 (Thomson StreetEvents) -- Edited Transcript of ASM Pacific Technology Ltd earnings conference call or presentation Thursday, October 31, 2019 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Cher Tat Ng

ASM Pacific Technology Limited - CFO & Executive Director

* Leonard Lee

ASM Pacific Technology Limited - Senior Manager of IR

* Wai Kwong Lee

ASM Pacific Technology Limited - CEO & Executive Director

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Conference Call Participants

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* Donnie Teng

Nomura Securities Co. Ltd., Research Division - Associate

* Flora Lai

Hang Seng Bank Limited - Team Head of Corporate Banking

* Kyna Wong

Crédit Suisse AG, Research Division - Associate

* Lee Meyer

Lord, Abbett & Co. LLC - International Technology Equity Research Analyst

* Leping Huang

China International Capital Corporation Limited, Research Division - Analyst

* Samson Hung

HSBC, Research Division - Research Technology Analyst

* Sebastian Hou

CLSA Limited, Research Division - Research Analyst

* Seeching Yim

BOCOM International Securities Limited, Research Division - Research Analyst

* William Lu

UBS Investment Bank, Research Division - MD and Asia Semiconductors Analyst

* Yu Jang Lai

Citigroup Inc, Research Division - Director & Analyst

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Presentation

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Operator [1]

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Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the conference call. Mr. Leonard Lee, please be informed I will be standing by. Thank you.

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Leonard Lee, ASM Pacific Technology Limited - Senior Manager of IR [2]

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Good morning, and good evening, ladies and gentlemen. Welcome to the ASM Pacific Technology 2019 Third Quarter Results Announcement Investor Conference Call.

Before we proceed, I would like to note that during this conference call, there may be certain forward-looking statements with respect to ASM Pacific Technology's business and financial conditions. Such forward-looking statements may involve known and unknown uncertainties and risks, which could cause actual results, performance and events to differ materially from those expressed or implied during this conference call.

For your reference, the IR presentation related to our Q3 results can be downloaded from our website, www.asmpacific.com.

With us this morning are Mr. WK Lee, CEO of ASM Pacific Technology; and Mr. Robin Ng, CFO of ASM Pacific Technology. Our CFO, Robin, who is also our CEO-designate, will start with a brief discussion about our 2019 Q3 results, followed by a Q&A session.

Without further ado, let me hand it over to Robin Ng.

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Cher Tat Ng, ASM Pacific Technology Limited - CFO & Executive Director [3]

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Thank you, Leonard. Good morning, and good evening, ladies and gentlemen. We appreciate you joining us for our 2019 third quarter investor conference call today. I will just provide you with a summary of the company's performance followed by the Q&A session. All key business segments increased our revenue in Q3 compared with the preceding quarter. These were in line with our projections. SMT Solutions segment revenue at USD 235.6 million saw the biggest increase at 19% compared with the preceding quarter, while revenue of the Back-end Equipment achieved 12.3% quarter-on-quarter growth at USD 232.9 million.

The Materials segment revenue continued its up-trend, achieving Q-on-Q increase of 9.8%, USD 62.8 million. The Group revenue for the quarter was USD 531.3 million, which was an increase of 15.1% over the preceding quarter. This was slightly below the low end of our revenue guidance primarily due to the revenue recognition of some tools being different to Q4 this year.

During the period, bookings for the Back-end Equipment and the Materials segment increased 6.2% and 7.6% against the preceding quarter, respectively.

These were more than offset by a reduction of 36.5% in Q-on-Q in the SMT Solutions segment, but this was because in the preceding quarter, bookings of the SMT Solutions segment were at a high level, close to the record quarterly bookings set in Q3 2018. The Group bookings at USD 513.8 million was a moderate decline in the Q of 14.6% over the preceding quarter. This was partly seasonal and partly a reflection of market sentiment given the uncertainty of the continuing global trade discussions and the world economy at large.

However, we look at the customers in China, seem to be once again leading the market recovery. By geographical distribution, China, inclusive of Hong Kong, Europe, Malaysia, the Americas and Japan were the top 5 markets for ASMPT in the current quarter.

The Back-end Equipment segment in the current quarter maintained a steady growth in the last quarter with billings of USD 232.9 million, representing a growth of 12.8% against the preceding quarter. The segment achieved a gross margin of 43.4% in the current quarter, representing an improvement of 267 bps Q-on-Q. As a result of the aggressive cost-reduction efforts carried over the past 12 months, gross margin in the current quarter only declined by 0.1% year-on-year, while revenue for the segment declined to 23.2%. The Back-end Equipment segment achieved a profit growth of 168.9% Q-on-Q.

At the product level, revenue for Advanced Packaging and CMOS Imaging Sensor equipment together contributed to over 50% of the revenue. Demand for bonders, both die attach and wire bonders also shows signs of stabilization after a long period of contraction. In this application segment, 5G infrastructure, high-end computing, mini and micro LED and multicam modules continue to drive customer demand across the IT industry up to CIS business segment. China contributed to a significant increase of the back-end orders in -- Back-end Equipment orders in the current quarter. This could be due in part to the localization of supply chain within China in response to the imposition of strict tariffs and restriction by its trading partners.

Bookings for the Materials segment have grown consecutively for 3 quarters. It has reached a level similar to that achieved in 2016 and '17. The segment also saw a 9.8% increase Q-on-Q. In this current quarter billings to USD 62.8 million.

The lead frame market is clearly on track for recovery. The segment achieved segment profit margin of 3.7% in the quarter.

The SMT Solutions segment achieved billings of USD 235.6 million, which shows a 19% increase on the preceding quarter. The order book of SMT Solutions segment continues to be underpinned by the 5G infrastructure demand. That was also offset by a very weak automotive application market.

The segment achieved a segment profit margin of 12.3% in the current quarter. The segment achieved a gross margin of 32.7%, which was lower than expected due to our sustained efforts in penetrating the Asian customer base, which has a relatively lower margin. Despite the uncertain market sentiment, ASMPT is still on track to realize revenue resulting from substantial orders for the advanced packaging panel deposition tools for high-volume production and high-end computing devices. Also, our best-in-class packaging and assembly solutions for mini and micro LED has been well accepted by leading players in this space. As the dominant tool supplier for camera modules, we're also poised to benefit from an ongoing migration to multi-cameras and the relentless innovation in camera differentiation features. We are positively optimistic about the longer-term growth potential in advanced packaging, CMOS image sensors, 5G-related applications, IoT, automotive electrification, silicon photonics, mini and micro LED displays, which are expected to accelerate chip demand. And this will in turn broaden our market outreach. With this, we thank you for your attention, and we are waiting to get your questions.

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Operator [4]

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Sir, are you ready to take questions?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [5]

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Yes.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Donnie Teng from Nomura.

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Donnie Teng, Nomura Securities Co. Ltd., Research Division - Associate [2]

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My first question is regarding to your guidance. So (inaudible) Internet help us for booking momentum. Could you elaborate more on different business segment, including IP discrete (inaudible) in the the fourth quarter and probably some color on next year. And my second question is regarding to the gross margin. So SMT gross margin has declined to low 30% level. So when we see that the recovery -- or what kind of products or application can drive gross margins to be higher? And my third question is regarding to WK's retirement. So I think because investors are curious about when have we got this kind of preparation for retirement and whether the company's strategy or future direction will be a little bit different after Robin take over?

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Cher Tat Ng, ASM Pacific Technology Limited - CFO & Executive Director [3]

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Okay. First question on your bookings. Yes, we guided in double digit [in Q-on-Q] in terms of the booking. Now this is -- if you look at the past, this is really seasonal from Q3 to Q4. Typically, the segment, the -- Back-end Equipment [that's more in this] segment. Typically we see double-digit Q-on-Q plus. So it's nothing really exceptional for this coming quarter.

Now in terms of the -- I think the second question, you talked about the SMT low margin. As I state -- I said in our announcement as well. Now seeing the -- you probably know that we have been making good inroads into the Asian customer base. And particularly for the machines that we ship to Asia especially for China and the rest of the Asia they combine a relatively low margin compared to those equipment that we ship to the U.S. and the European segment. So we see that as really the main reason why the margin for Q3 for SMT business has come down by a few percentage points compared to the last quarter. Now as to your question whether how we foresee SMT margin going forward. Surely, I think continuing cost -- continued cross-product, cost reduction is definitely in the cards. So one way to really mitigate this low margin we sell to Asian customer is to really improve on the cost. And I think this is already efforts are ongoing. So this is really something that we will end up. And hopefully, in the future, we see gross margin also improving.

Now we also making a structural change in terms of increasing -- going to increase our production in Malaysia. By the way, our Malaysian additional plant that we have inherited a couple of years ago, has just recently been completed. So we are tooling up the factory. But of course this will take a period of time, probably 1 to 1.5 years before we are fully operational. So I think with the completion of this facility in Malaysia, we will take advantage of the relatively low-cost location in Malaysia to do production, not just for SMT, but also for the rest of the business segment in Materials as well as for the Back-end Equipment. So I think with this plan in mind, and we will also should be able to see progressively the SMT margin improving.

Now the -- another initiative that we've undertaken for SMT to try to improve the gross margin going forward is we also have expanded a small site in Hungary to support our production in Munich. As you know, in the Eastern European country, is also relatively low cost compared to Munich. So I think with this initiative, we also see gross margin for the SMT will continue to improve going forward.

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [4]

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Well, first of all, my retirement. By next year I will be 66 years old. So actually, it's a natural call. I have been working about almost 2 years to prepare for this transition. So also some good research considering both the internal and external candidates. So finally, we can find the bottom line with the conclusion will be just the right course to take. And actually, it's not only growing this time. The whole idea we have is that we'll be together with 3 other senior executives: our CFO that is [Cher Ng]; our CTO, Yam Wong and also Guenter Lauber. He's currently the CEO of this SMT business. So together they will form executive office. So Robin will be supported -- backed up by all these 3 gentlemen. They all have very long and good knowledge in the area. They have been very strong, [they're sure the group]. So I'm confident that these gentlemen will be able to lead the company to a new height. Whereas for your question on whether there will be any future change to the balance, I think I leave discussion to Robin.

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Cher Tat Ng, ASM Pacific Technology Limited - CFO & Executive Director [5]

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Now for the moment there will be a continuity and I mean, there's 4 gentlemen that WK mentioned, we have been working together for a long time. And we have part of the senior management team that, together with WK, formulated long-term strategy of ASMPT. So to your question whether there will be changes, I think the strategy is in place. So I think there will be continuity. So I don't think there should be any concern about that in terms of our strategy going forward.

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Operator [6]

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Our next question comes from Leping Huang from CICC, Hong Kong.

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Leping Huang, China International Capital Corporation Limited, Research Division - Analyst [7]

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My first question is maybe how you look the China opportunity. So I think you also in the speech you mentioned that the [CSLED] and the Back-end Equipment order from China. How you will capture this business opportunity? Seems to me your growth is not that strong as you want to be. Only due to any other markets declining? Or is it because the opportunity for Back-end is coming back, but it's not as strong as the Chinese customer spending?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [8]

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Certainly, I think we had that effect. It's actually seeing the localization effect of the China supply chain because of the ongoing trade tension. So as you're aware, we are -- our Asian market is less and the Chinese market is very strong. And so I think we will -- we should be able to capture opportunity to come along, in that respect. Now what we see in the other market, I think it's also that we trying to give you sort of a [grid]. Now this is China. We also see particularly in Asia closing the gap in terms of catching up in terms of the booking momentum. So of course, the other areas are still relatively weak, for example, Taiwan, Korea, India and the other markets are still weak. But however, it could be a sign. Inflation is closing the gap, and there could be a sign that if the other markets start to pick up momentum then that will be probably a sign of a recovery. But we don't see that in the other markets yet. So far, [only Asian] is really affecting this trend.

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Operator [9]

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

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Yu Jang Lai, Citigroup Inc, Research Division - Director & Analyst [10]

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So I will focus my question on the advanced packaging. So can you elaborate how much of advanced packaging we have of the total IC Back-end? The reason I ask is because we understand there's still a lot of wire bonder or traditional -- the IC Back-end equipment and the investor want to separate it to those 2 parts. So that's my question number one. And number two is, I think last time management talk about there is a significantly backlog on the NEXX Back-end, so it -- Back-end equipment. And we expect to deliver at the end of this year. Can you share with us what's the current progress? If those equipment will be the bidding or in-store at the end of this year?

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Cher Tat Ng, ASM Pacific Technology Limited - CFO & Executive Director [11]

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Now for your first question, the -- in terms of AP contribution. We also have highlighted that the AP contribution, plus the CIS contribution are more than 50% of our third quarter billing. And AP, I would let you know, roughly around 10%. So AP contribution is what, technically is roughly around 20%. Now in terms of your second question on NEXX. Yes, we are on track to realize substantial portion of the bookings that we have in the backlog in the Q4. So that -- on the Q-on-Q basically, you'll see NEXX contributing more than Q3 in Q4.

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [12]

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Maybe I supplement, actually most of them, or I would say, quite a number of those tools actually has already been delivered, okay? However, because of these tools are relatively new so one of the factors contribute to our -- slightly lower guidance -- revenue guidance in Q3, as highlighted by Robin earlier, some of these tools, revenue recognition has been delayed. But these tools have already delivered to customer, already been installed. So we are in a stage of getting those tools buyoff. So before officially buyoff, we can't recognize those revenue. So I think the delay is mainly of this kind later. So the delivery is on track. And actually, we continue -- the players continue to deliver these tools in Q4 and also beyond 2019. So we have strong backlog for all these tools.

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Operator [13]

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Our next question comes from Kyna Wong from Crédit Suisse.

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Kyna Wong, Crédit Suisse AG, Research Division - Associate [14]

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So I have a follow-up questions on top of other questions. So in terms of the later tools, the revenue recognition tools. So it also caused the gross margin to miss -- I mean to decline more in the third quarter. And supposing, right, advanced packaging will have a higher gross margin? And why we should expect like fourth quarter continue to have like a decline in the gross margin, if like some of these tools end up with a higher gross margin to support in the fourth quarter? So of course, maybe there are some other reason from the other product mix, but this is the first question in terms of this delayed revenue. The second question is about the outlook and trending on mini LED and also micro LED because it's also one of the driver, but what do you see how the -- your new machine being recognized by the customer? And how much it will actually contribute to the growth next year? And do you see that mini LED will soon to pick up somewhat from your understanding?

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Cher Tat Ng, ASM Pacific Technology Limited - CFO & Executive Director [15]

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Yes. The first question -- Kyna, thank you. Yes, I think for Q4, we guided the margin to be slightly lower than Q3. Now primarily, as you know, volume is also a factor in terms of the margin because we also have to cost cover. So if the volume comes down, typically, the margin will come down. And yes, you're right. I think for NEXX tools being an advanced packaging tool, typically the margins are better than the traditional tools. So that's the reason why on the group there is -- if we recognize more advanced packaging tools typically, we will give the group margin a lift. But however, because of the volume factor, Q4 we are guiding slightly down in terms of cost margin for the whole group.

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Operator [16]

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We have a following question come from Arthur Lai from Citigroup.

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Yu Jang Lai, Citigroup Inc, Research Division - Director & Analyst [17]

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So on the NEXX equipment, can you share with us which country declines [technician] machine, is it Malaysia, Japan, Taiwan or others? And second small question. I recall several years ago, management told us that Material is a leading indicator of Back-end Equipment orders. And this time, we see the quarter 4, actually, Material getting stronger. So is there any like upside potential of our current booking number?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [18]

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Yes. Now in terms of geographical distribution contribution. Now if you -- if we look at on a 9-month basis on year, all countries were down except for Vietnam and Japan. So these 2 were the only countries that show increase in terms of contribution on a year-on-year basis and the 9 months period. The second question is -- Arthur what's the second question?

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Operator [19]

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Just give me a second, I'll get back Arthur. (inaudible)

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Yu Jang Lai, Citigroup Inc, Research Division - Director & Analyst [20]

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So the -- I've seen about the upside potential of the current booking because we already see the Material, that momentum is really ticking stronger. And I think previous management talk about Material is a leading indicator of the Back-end Equipment. So I'm asking any upside risk of your current forecast?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [21]

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No. You are right. We have been saying the different bookings in Material. So it still is because you can see for the past 3 quarters, we are looking for -- let's say, it has been growing. So I think that it's we get that in the market is recovering, but -- however, having said that, it is the backdrop of the current macroenvironment and uncertainty. So it's kind of difficult, okay, to predict when the recovery will really set in. So we are vigilant and constantly looking at demand signals. So I think we also highlighted that we look at China, China seems to be leading the recovery. Majority of bookings in Q3 actually came from the China bookings. So that could be also another signal.

Now the other signal that we are working carefully is that, [as always, our die and traction on this] have contracted for a period of time. But in Q3, we see stabilization in terms of these 2 particular tools. So potentially, that could also be an indicator that the market could be stabilizing and poised for recovery. And as I mentioned just now, we are also looking at geographic contribution. So Malaysia seems to be ticking up a little bit compared -- relatively speaking, compared to the other region. So I think all in, I think we are looking at all these [different shipments]. We are cautiously optimistic. But however, as I say, it is a factor of this macro uncertainty, we can't really count.

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Operator [22]

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Our next question comes from Sebastian Hou from CLSA.

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Sebastian Hou, CLSA Limited, Research Division - Research Analyst [23]

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So my first question is, I want to ask about the delayed revenue recognition in [SMT tool]. So can you -- are you seeing any abnormal (inaudible) [first quarter (inaudible)

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Cher Tat Ng, ASM Pacific Technology Limited - CFO & Executive Director [24]

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Sorry, can you speak a bit louder? You're breaking up.

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Sebastian Hou, CLSA Limited, Research Division - Research Analyst [25]

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Sure. Can you hear me better?

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Cher Tat Ng, ASM Pacific Technology Limited - CFO & Executive Director [26]

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Yes, yes.

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Sebastian Hou, CLSA Limited, Research Division - Research Analyst [27]

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Okay. So my question is regarding the delayed revenue recognition in SMT tool in the third quarter. So are you seeing any abnormal behavior at your customers? Or this is -- are you seeing this as pretty normal?

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Cher Tat Ng, ASM Pacific Technology Limited - CFO & Executive Director [28]

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By the way, it's not the SMT tool, it's the NEXX tool that we talk about. The advanced packaging tool. So Q4 revenue was down slightly because of the delayed revenue recognition of advanced packaging [and depositions] too. Yes. Q3. Yes, slightly lower than guidance. Okay.

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Sebastian Hou, CLSA Limited, Research Division - Research Analyst [29]

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Also we saw the SMT the booking has also come down quite a bit. So can we attribute the second quarter uptick to be pretty abnormal? And now with respect to the very normal situation?

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Cher Tat Ng, ASM Pacific Technology Limited - CFO & Executive Director [30]

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Yes. I think, yes, on Q2 booking was high, relative high in this current environment. So if you look at the overall, we expected this year, SMT also to come down. So Q2, in a sense, already on a high side. So Q3, I think Q3 will be kind of normal, booking-wise.

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Operator [31]

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Our question comes from Chris Yim from BOCOM.

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Seeching Yim, BOCOM International Securities Limited, Research Division - Research Analyst [32]

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I just have a couple of questions. First one is on mini LED. I was just wondering if you could tell us when mini LED start to ramp up, what type of equipment we see an increase in order. Is it the upgrade in wire bonders? Or are there any other equipment that we should see stronger growth?

My second question is on the CIS. I just want to know if you can give us an update on how the CIS-related orders are looking over the next couple of quarters.

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [33]

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Your first question on mini and micro. Now typically, for mini and micro LED we cannot use the normal packaging tool. It's just too slow. So what we have developed is really a best-in-class mass bonding tool. So typically, this piece tool are high price and also command a better margin than the traditional [tie-in] the wire bonder.

Now the CIS -- the question on CIS. Yes, typically, the first 3 -- the first half of the year typically, we see a higher CIS booking. But however, this year, we see Q3 booking are also particularly strong. But however, in Q4, it will also come down. Now in terms of CIS momentum. I think we'd like to also probably tell you that looking at the momentum in terms of shipment and billing we may even -- of course, depending on Q4 performance in terms of CIS, we may even on a full year basis, be very close to last year, very -- or maybe even surpass it a little bit. So this is to give you an indication that this CIS business is pretty strong compared to the other business segments.

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Operator [34]

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Our next question from comes Kyna Wong from Crédit Suisse.

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Kyna Wong, Crédit Suisse AG, Research Division - Associate [35]

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(inaudible)

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Operator [36]

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Sorry. Our line got disconnected. Can we move on to the next one? [Sunny Lin] from UBS in Taiwan.

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William Lu, UBS Investment Bank, Research Division - MD and Asia Semiconductors Analyst [37]

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This is Bill Lu from UBS. Back to the deferred revenues. I am -- I'm wondering if you can give me some color on the mechanics of how that works. Do you have to meet certain benchmarks? Or what -- how do you get to the revenue recognition?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [38]

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Typically, according to accounting standards, you have to meet a certain criteria. Now for new tool, typically for new tool, customer acceptance is the threshold. So NEXX being kind of deposition tool being a new tool. So we have to meet that criteria. So as a result, in Q3, we only managed to recognize some of it. Some tools were different because those tools that were different have not been bought off yet. Although the ones that we have mentioned earlier, those tools were already shipped to the customer. So typically, that has the pattern in terms of revenue recognition.

I was talking a little bit -- in terms of revenue recognition delay, does not affect any market sentiment. It's not -- people are not, this is enormous change, they want to push back the delivery of those machines. It's not that nature. It's more, as Robin just mentioned, those are new tools. So by accounting standards, we cannot really recognize the revenue after shipment. We have to recognize the revenue after customer acceptance. And those situations, also not we are in a benchmarking exercise completely and are confident, no. We are the only tool over there, but first we have to go through the -- this process because as a new tool, sometimes there are bound to be some unexpected issues coming up. So customers then ask us to clean it up. So we are very confident on those revenue recognition will take place in Q4.

It takes place faster earlier and then we pass the threshold criteria of the new tool. And the subsequent tools, no longer need to be -- I mean, the revenue recognition no longer have to wait until the acceptance. So once we pass through that threshold, then you'll see a higher contribution from NEXX in our billing. So we are expecting -- hopefully, this can happen in Q4, then this will become an upside in both. So it would take place in Q1 next year.

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Operator [39]

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Our next question comes from Donnie Teng from Nomura.

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Donnie Teng, Nomura Securities Co. Ltd., Research Division - Associate [40]

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My first question is from a follow-up to Q4 booking guidance. So we are expecting bookings to decline in 4Q, but if we break down to Back-end and SMT, which one will decline more? And my second question is also a follow-up on the China localization policy. So I have seen that some China wholesale companies are starting to add CapEx or maybe have some CapEx expansion next year. So I'm wondering when will we see some booking from wholesale companies, particularly in China wholesale companies next year.

And my third question is regarding to SMT. So we have seen quite strong 5G infrastructure demand this year. So we provided some [4,] 5G base station as well. But can we say that the 5G infrastructure in terms -- should be continuing into next year? Or probably it's a multiple-year trend? But at the same time, are those SMTs for 5G infrastructure carry the lower gross margin as well? Because in your presentation remarks also mentioned about the customers in China normally have lower than corporate average margin.

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [41]

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Let me take this question. First of all, on the booking trend, actually Q4 typically is a low season. So the booking trend as it comes on is fairly normal, except in the year when customers have a fairly high expectation on the following year, then they will take advantage and try to get all their equipment in advance. So this will be the, I would say, where yes, we will see a very strong booking in Q4. You probably can understand at this point, long term, really, people start to become a little more optimistic about 2020 but cannot be foolish about it yet. So we have not seen that kind of booking event on trend. So as a result, we are forecasting bookings will come down Q4. And we do not see a significant difference in the (inaudible) for -- between Back-end Equipment and also the SMT. I think probably a normal pattern in our premium, whereas Materials probably would be relatively stable. We can't necessarily predict whether the momentum you show a very low single-digit Q-on-Q booking goal or flat or slightly down. I think that our prediction for the midterm booking will be fairly slow. So that's the Q4 effect.

Now for China orders, you see that some customers in China started to increase our CapEx, actually, we do see that. And actually, in Q2, we are being positive growth. So we see some of those other orders start to come in. It's much more obvious in Q3. However, as Robin also have point out, I think it is some other territories start -- continue to show a contraction except Malaysia started to closing the gap. So that's why -- booking effect also there's a strong growth in China, [consume contracts] from the other market. So the offset a little bit from each other. Even in Q1, we continue to see customers in China, I would say, people customer, they continue to give us indication and some of them consider all the new equipment. So we see some positive momentum in the market in China, okay?

So however, we are very eager to see a similar pattern happening overseas market, but there's no obvious gap. With the 4G, 5G infrastructure, we believe this will be a multiple year demand for our SMT because banking infrastructure move out will take quite a number of years. But however, we also expect the 5G infrastructure to come in 2020. So that should be another factor driving our business. Yes, on your question on the margin for the SMT for the 5G infrastructure. So far -- and those equipments are very high-end demand. So because of the very advanced equipment, so the demand was not so -- okay? So -- however, in the China market, when we are selling to a more chain market, that -- those requirements, those are products kept down our margin and not so much on the pricing infrastructure.

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Operator [42]

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Our next question comes from Kyna Wong Credit Suisse.

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Kyna Wong, Crédit Suisse AG, Research Division - Associate [43]

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Can you hear me?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [44]

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Yes.

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Kyna Wong, Crédit Suisse AG, Research Division - Associate [45]

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Yes. So I just wanted to follow up these -- the last question I asked is about the time for -- I just asked to see if you have any idea and also my -- according to get you the contribution in the LED segment. I think we -- you could expect like when do you see the market to pick up because like this is kind of a trend that a lot of difficult and challenged in the equipment or like in the manufacturing process. So this is the first question that if you see or when we could expect that the demand to come? When to -- when could we see the quarters come more mature in the market?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [46]

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Well, I think this is a very interesting market. We have some very good solutions as Robin has highlighted, some mass bonding solution. We have delivered quite a number of tools to a number of customers. These customers are [evening] their prototype than what they have produced as a prototype, very exciting. This kind of confirm our solution, very interesting. So at least one customer is giving us an indication they are trying to secure their own business. So if that's the case, that looks -- the second revenue conclusion to us could happen. And in fact, of course, that part we can't control is the customer side. So whether we are able to do so we're ready to listen to that customer. But in our opinion, probably not too far away because it's not just one technology. So many customers working on it. We see a different people having different solutions using our equipment. So I think it will be in the near future. Not too far away from now.

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Kyna Wong, Crédit Suisse AG, Research Division - Associate [47]

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When could we expect? Which application like is more on the wearables or like mobile device or like TV, et cetera?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [48]

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Looking at our customers' first application, we believe wearable is the first application, easier to be successful at that. Our customers also aiming at the mobile phone, but in our opinion, the challenge for mobile phone, too, will be the calls. Are they able to produce? I mean the micro LED space have competitive calls. So -- but wearable really will be the first application to get out.

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Operator [49]

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Our next question comes from Mr. Lee Meyer from Lord, Abbett.

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Lee Meyer, Lord, Abbett & Co. LLC - International Technology Equity Research Analyst [50]

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My question has to do with your SMT business as it relates to the auto OEMs. You mentioned that in the third quarter, shipments to the auto OEMs may have been a little bit weaker than expected. What's your outlook for SMT to the auto OEMs? And how is that affecting the gross margin on the SMT business right now and in the future?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [51]

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Just to clarify, we didn't mention OEM. What we mentioned is more geographical. So if we shift more to Asian-based customers, China, [Malaysia], I think some of these margins will be lower than those that we ship to Europe and America.

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Lee Meyer, Lord, Abbett & Co. LLC - International Technology Equity Research Analyst [52]

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Okay. Well, was there a mix shift away from auto, more towards smartphone? And has that impacted your margin? And do you have an outlook as it relates to the use of SMT in the auto business and what your outlook is there?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [53]

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Typically, we are very strong in automotive. But unfortunately, for this year, as you're probably aware, the automotive market in general has come down. So as a result, the shipments for the automotive application. And that also -- is also a factor in terms of gross margin.

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Cher Tat Ng, ASM Pacific Technology Limited - CFO & Executive Director [54]

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We are subsidizing it. In terms of margin for SMT equipment, typically we enjoy a better gross margin for automotive applications, communication infrastructure, servers, high-end smartphones. So these are the applications we can enjoy a better margin because these customer demand a very high imaging. Whereas the mid- to lower-end smartphone for the general consumer applications, some industrial applications, some industrial applications high end, but some industrial applications, just normal high SMT. So when -- for that kind of long demanding applicable to the market. So the host equipment deal, as shipment to Asian region. So then the gross margin will go up.

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Operator [55]

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Our next question comes from Samson Hung from HSBC Taiwan.

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Samson Hung, HSBC, Research Division - Research Technology Analyst [56]

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I have a quick question. First one is that on your fourth quarter guidance, just wondering, have you factored in those NEXX revenue recognition? Have you factored that into your Q4 revenue guidance now? Second question is also regarding the mini LED. I'm wondering, can you maybe share some of your thoughts regarding your solutions versus your competitors' solution? And then whether actually you do have a chance on top of this very strong growth for the industry. Can you again further expand your market share in this mini LED equipment space? Thirdly, is that I think yesterday, [ASE] mentioned that for the first quarter next year, they're seeing for the semiconductor space, they're looking for shallower than normal decline in the first quarter. So yes, just as a whole, do you see a similar trend that you can see right now in terms of your Back-end equipment and Materials here?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [57]

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I'll take the first question in terms of whether we have included NEXX tools in the Q, but certainly, we have -- as we also say we are on track to realize a substantial portion of the deposition tools from NEXX in Q4. So we have taken that into our guidance, yes. For the mini and micro LED, I will say, today, you are aware of who are the people, who are the companies making the micro and mini and the samples, then I would say, in very high times, they were using our equipment to produce those samples. So I think that's obviously, but that's what I can share with you.

For Q1, we have not really provide any guidance on Q1. However, in our opinion, looking at future market. We are generally more optimistic about 2020. So we believe the industry cycle has worked its way out. So we should have reached the bottom of our booking for the Back-end, is a clear indicator that we grow consecutive for free contracts. And actually, if you look at our Back-end Equipment booking in Q3 so actually, we are also flat year-on-year. So all this actually gives us confidence. I think the market is turning around. You should have reached the bottom, okay? Well, however, why we guide our booking for Q4. As I mentioned earlier, it's the low season and the last quarter of the year, okay?

Now interesting to note is that China's new year holiday is quite a bit early in -- for the country. So from our traditional wisdom, from our experience, our customers, particularly in China, will be more aggressive in ordering new capacity after Chinese New Year. So if that is the case, that continues to be the case in 2020, I would say 2020 Q1 may not be that bad. But of course, it's too early to give a confident forecast at this point in time.

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Operator [58]

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Our next question comes from Donnie Teng from Nomura.

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Donnie Teng, Nomura Securities Co. Ltd., Research Division - Associate [59]

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So my first question is regarding to mini LED. So could you lever in more on what kind of sales percentage is from mini LED now? And second question is regarding to that tax rate. So basically, in third quarter still like 30%, 36% level, I guess. So how should we look at the tax rate going forward?

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Cher Tat Ng, ASM Pacific Technology Limited - CFO & Executive Director [60]

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So WK mentioned, I think the market for mini and micro are still at an infancy stage. So a lot of customers are still in prototyping. So you can imagine the contribution won't be material at this point in time.

Now for the tax rate, unfortunately or fortunately, depend how you look at it, our SMT has been doing well relatively to the back-end. As you're aware, the tax rate in SMT is much higher than the back-end operation. So as a result, we see tax rate kind of sticky, has not really come down. So we see that the tax rate trending for the whole year will probably be around 30 to mid-30s kind of percentage also for this year.

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Operator [61]

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We have another following question comes from Kyna Wong.

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Kyna Wong, Crédit Suisse AG, Research Division - Associate [62]

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I think Donnie has actually asked about the tax rate question. But -- I mean, remember, you guided around 20% to 25% right. So yes, I can still assume this range for full year?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [63]

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And maybe not -- looking at the Q3 for the development. The share of the SMT profit actually could compare -- also compared to the Back-end. In fact, in terms of segmental level, they are higher than the Back-end segment. So as a result, unfortunately, we cannot bring the tax rate down for that region. So trending wise, I think for the full year, we have, unfortunately, to elevate the tax rate to, as I said, 30%, maybe slightly above 30% level for the full year.

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Kyna Wong, Crédit Suisse AG, Research Division - Associate [64]

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Okay. 30% now or more.

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Operator [65]

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(Operator Instructions) Another question comes from Flora Lai from Hang Seng Bank.

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Flora Lai, Hang Seng Bank Limited - Team Head of Corporate Banking [66]

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The first question I would like to ask is about the distribution of the geographical revenue. I think that there is a growth of revenue in China from 44.8% to 50 point something, 50.2% like in this quarter. And why Malaysia and Vietnam has also experienced quite a growth? So do you think that your company has been benefited by the relocation of the production plant of your clients because of the trade tensions between the Sino and U.S.? This is my first question. And do you think the trend will be going forward? That's why your margin will be improving in the long run? And the second one is, I would like to know percentage of your revenue that is computed by the die attach and wire bonders, which is the traditional part of your business?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [67]

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For the geographical distribution, you're right, China is catching up. I think overall, it's still down compared to last year, but it's starting to catch up, follow Malaysia. Vietnam is because of the -- in the first half of the year, actually, due to some advanced packaging shipment, tools related to advanced packaging and also the CIS, okay? As I said, we do -- we've messed up before so the Korean customers delight to have their subcontractors, their outsource partners in Vietnam. So that's benefiting that. However, we will be linking to customers shooting and managing pace. There's a high pace from China to Vietnam or Malaysia because of trade war, we don't really see that to be honest. So as I mentioned, the customers who install a lot of advanced packaging tool in Vietnam the beginning of this year and also second half of last year, it was a long handed similarly for the Korean customer, the -- there's a high pace Vietnam also have been started way before the trade war, so it's continuous efforts. So we don't really see trade war has taken form, okay?

As far as wire bonder percentage, I would say the percentage is not going to be viable for the past 2, 3 quarters because while the other application continue to grow -- the die one -- die bonder has been contracting for a number of projects until what we continue to do earlier, we start to see stabilizing in Q3. So you can -- we can easily say the die bonding, wire bonder contribution to our pack (inaudible) was below 50% in Q3, okay? But they especially used to be 1% to 50% or slightly above 50% level, say, but unfortunately, in Q3, it has come down. We expect in Q4, it may go up, of course, it also depend on how quickly we can do the revenue recognition with all those ones (inaudible) tools. If the revenue recognition is soon, then we have -- then the contribution to the (inaudible) and [I don't think we'll see it come in] lower.

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Operator [68]

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(Operator Instructions) We have another question from Kyna Wong from Crédit Suisse.

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Kyna Wong, Crédit Suisse AG, Research Division - Associate [69]

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Just wanted to talk about a little more about our CIS outlook. Next year -- because this year, I think in the second half is actually better than expected. So it will not be catching up the revenue and then closing to last year level. But next year, what do you see about the growth momentum? Should we expect that it should be going back to a 2017 level or even higher?

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [70]

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Well, to be honest, this is a difficult question. We see, on one hand, that the foot market trend, this is the multiple camera, feed cameras, sport camera, so this positive trend will control supply the demand for our CIS equipment. And not only the [A&C], but also in the asset increment. Furthermore, we also anticipating the customer will probably introduce a 10x optical zoom cameras. So those will also increase the demand for active alignment refiner. So there, I would say, there are positive factors driving it. We also expect 5G handsets will start to come to the market. And also, some customers also are demanding using a very high-resolution camera over, 100 sensors. So all these are positive factors driving the demand for the CIS equipment.

So we don't -- 2020 we'll see the demand go back to the 2017 level, we are not sure. We also don't go out. We'll continue to grow actually. So 2018 was higher than 2017. If this year, we are very close to 2018. So at this point in time, I would say, not a [possibility] if we will go even further. But of course, at the same time, depends on all these new applications, how quickly, how fast our customers able to introduce this new application. The market acceptance of this. So I also (inaudible) slightly down compared to (inaudible) and certainly we will not see a major adjustment, major correction in the CIS market. So it will be either regular impact or continued growth.

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Operator [71]

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(Operator Instructions) Mr. Lee, there seems to be no further question at this point in time.

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Wai Kwong Lee, ASM Pacific Technology Limited - CEO & Executive Director [72]

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Okay. Yes. Thank you. I think there have been no other questions, I think we would like to thank you for joining us today, and we will take to you again next time.

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Operator [73]

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Thank you for your participation. This conclude your conference. Thank you.