Hello and welcome to the Kulicke and Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Joseph Elgindy, Senior Director of Investor Relations for Kulicke & Soffa. Please go ahead.

Thank you. Welcome everyone to Kulicke & Soffa’s fiscal second quarter 2022 conference call. Joining us on today’s call we have Fusen Chen, President and Chief Executive Officer; and Lester Wong, Chief Financial Officer. For those of you who have not received a copy of today’s results, the release, as well as our supplemental earnings presentation, are both available in the Investor Relations section of our website at investor.kns.com. In addition to historical statements, today’s remarks will contain statements relating to future events and our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a complete discussion of the risks associated with Kulicke & 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. We continue to make significant progress toward our long-term targets and remain well positioned to support significant and fundamental transitions occurring within the Automotive, Semiconductor, and Advanced display markets. I will provide a brief update on each shortly. In parallel, industry growth through calendar year 2022 is still anticipated to remain well above average, creating the ongoing need for capacity expansion across our served markets. We continue to be in a multi-year industry expansion period, which is consistent with market assumptions shared at our Investor Day last September. Before discussing our business performance, I would like to provide our perspective on the Russia-Ukraine war and COVID-related shutdowns. At this point in time, we do not anticipate these events will materially impact our outlook and I would like to provide some additional context. First, I would like to address the humanitarian crisis and express our concerns and compassion for a prompt resolution of the Russia-Ukraine war. We do not expect K&S will have any meaningful direct operational or demand impacts due to this conflict. For the broader semiconductor industry, material and commodities costs for items such as noble gases may increase, although we do not anticipate this to be a major concern for our business. Separately, we wanted to also provide an update related to the Shanghai COVID lockdown. Our consumables facility in Suzhou, China, where we produce capillaries and hub blades, continues to be fully operational. Logistic challenges increased temporarily, but our production and supply-chain teams proactively identified alternative routes, mitigating the impact. To reiterate, we do not anticipate either of these recent events to significantly impact our outlook, and we remain focused on proactively managing our own supply-chain risks very closely, as we have successfully demonstrated over the past two years. Overall, the industry remains very resilient and has overcome many obstacles over the past two years. We believe the prolonged state of industry supply-chain challenges is shifting production strategies from a “just-in-time” approach to a more prudent and long-term inventory management and capital equipment planning approach. Moving on to our March quarter performance, we continue to make meaningful progress toward the specific opportunities outlined during our Investor Day. Customer engagements are proceeding as anticipated, and we remain well positioned to actively support several megatrends impacting the Automotive, Semiconductor, and Advanced Display markets over the coming years. Our near-term ability to develop, qualify, and recognize revenue on our growing portfolio of solutions will help solidify our long-term strategy and position within these key markets. I will briefly explain each. First, within Automotive, semiconductor capacity and battery assembly needs are anticipated to continue growing above-average as the transitions to electric vehicles and autonomous driving continue to accelerate. We have a dominant leadership position within the automotive segments served and continue to expand our offerings and increase customer engagements. Currently, we are aggressively preparing our next generation, laser-based, battery assembly solution for qualification and anticipate acceptance over the coming quarters. In addition to this new system, we are also very engaged in driving acceptance and broadening the base of our proven wedge-bonder battery solutions to a variety of new customers. Secondly, within the semiconductor space we continue to broaden our portfolio and further increase alignment to the market’s renewed focus on assembly. The growing complexity of semiconductor assembly, for both leading-edge and high-volume markets, is creating several new technology-driven opportunities and enhancing our long-term growth prospects. While our primary focus is to develop new capital equipment solutions, as assembly becomes more complex, production challenges increase, driving the need for closed-loop feedback and better process and production controls. Last month, we announced a partnership with PDF Solutions to provide customers with a new analytics platform that leverages the comprehensive real-time data available within our leading assembly systems with artificial intelligence and machine learning capabilities. Ultimately, we anticipate this partnership will directly add value to customers by enabling efficiency and throughput enhancements for both high-volume and leading-edge semiconductor production. Additionally, more complex assembly represents a significant paradigm shift for an industry that historically relied heavily on node-shrink. This shifting paradigm is increasing the technology-driven growth rates within both high-volume and leading-edge semiconductor applications. Growing demand for multi-die packages, new shielding requirements, and new memory opportunities are expanding our core-market prospects and creating the need for additional features and capabilities for advanced wire bonding. In parallel, we are also gaining share in leading-edge and optical markets. During the March quarter, we recognized revenue on seven TCB systems supporting next-generation interconnects for mobile applications processors and high-performance computing. Our TCB order book continues to increase. As we outlined last quarter, the adoption of thermocompression is occurring within both OSATs and IDMs and we continue to pursue both customer groups with a major focus on mobility, sensing, silicon photonics, and heterogeneous applications. We also remain very focused on our fluxless thermocompression solution and recently received a purchase order for several systems, which will ship later this year. Our capabilities of fluxless TCB are very unique and provide an efficient and capable solution for high-performance chiplet integration. This recent purchase order increases our alignment with long-term cloud spending and chiplet trends. Finally, in addition to the evolving semiconductor assembly market, our opportunities in advanced-display continue to expand. We remain extremely committed and are actively enhancing our leadership in both mini and micro-LED applications. Our advanced display engagements and efforts continue to revolve around three areas: near-term capacity expansion for Pixalux, new engagements and qualifications for our recently introduced Luminex system, and long-term ongoing development for next-generation display assembly solutions. During the March quarter, we shipped two Luminex systems for qualification to separate customers and recently also received two purchase orders for initial Luminex systems. These systems address different process steps at different customer sites and represent a significant milestone in our advanced display business. We remain optimistic on our advanced LED opportunities and look forward to providing an update on our long-term targets over the coming quarters. In addition to our growing market access, we continue to improve margins and drive strong operational cash flow at the current level of business. During the March quarter, we achieved $384.3 million of revenues and a non-GAAP EPS of $1.95. Within capital equipment, we generated $333.9 million of revenue. End-market conditions came in largely as expected. The sequential change, driven by general semiconductor, was largely related to our ability to surge production aggressively in support of customers’ expansion plans in the September and December quarters. Additionally, we continue to see supply-chain constraints and global logistical challenges limiting the pace of growth throughout the electronics space. As a reminder, we still anticipate semiconductor growth to remain above-average into fiscal 2023, which is also a view shared by major third-party forecasters. Despite 2022 being an extremely strong semiconductor growth year, it will be relatively lower than the dramatic growth experienced last year. Excess industry capacity in early 2021 provided headroom to enable last year’s aggressive growth. However, at the start of 2022, this excess capacity was no longer available, which created shortages and additional supply-chain headwinds, and is now extending the global chip shortage. To highlight this relationship, the majority of high-volume systems we shipped in the March quarter were related to new fab capacity that has only recently come online. This reinforces our view that broad industry supply-chain challenges should begin to resolve as wafer capacity growth improves later this year. Within our business, product mix is evolving, which is reducing our reliance on industry capacity expansion and better aligning our business with technology and secular growth opportunities in many of our end-markets. This was clearly outlined during our Investor Day and I’ll provide a few examples that highlight this transition. Within General Semiconductor, our thermocompression sales have doubled, and our wafer-level bonding systems have tripled in revenue sequentially. Within the wire bonding market, we are experiencing an ongoing increase in demand for complex, multi-die, wire-bonded packages in high-volume consumer markets and are also seeing an ongoing ramp in wire bonding to improve shielding requirements for 5G applications. Later this year, we anticipate customers to start wire bonding assembly for applications at six nanometers. Again, these trends are increasing the rate of future capacity and also technology needs across our semiconductor offerings. Within LED, advanced display systems have remained consistent and represented 88% of LED sales in the March quarter. At this point, we are already approaching our fiscal year revenue target of $80 million and expect to reach the target ahead of schedule. Within automotive, demand has increased dramatically and is expected to remain above-average over the coming years due to the growing demand for electric and autonomous vehicles. In addition to high-growth markets like battery assembly, we also provide high-reliability IC and power-semiconductor solutions which are essential to this technology-driven change and the broader automotive industry. Finally, within Memory, we are experiencing ongoing demand for our high-performance, market-leading NAND assembly systems. We are also working to develop new cost-effective solutions for stacked DRAM leveraging our wafer-level packaging capabilities. From an end-market standpoint, we anticipate Memory, Automotive, and LED to remain strong. Additionally, the 5G transition and the need for more complex assembly continues to provide long-term tailwinds to our core business. We continue to anticipate wafer capacity growth will improve in the second calendar half through 2024, which will ease industry supply chain challenges, and provide additional visibility to our outlook. In summary, our progress on new growth initiatives and customer engagements remains on track. We are expanding positions across several new markets while also actively participating in a fundamental transition within our core market. With close, long-term development engagements with industry leaders, we have developed several highly competitive systems and are positioned to win new qualifications across the advanced packaging, automotive, and advanced display portfolio over the coming quarters. Our ability to succeed near-term can provide significant upside to our long-term outlook and targets. We look forward to demonstrating this progress over the coming quarters. With that said I will now turn the call over to Lester who will discuss our financial performance, Lester?

Thank you, Fusen. My remarks today will refer to GAAP results, unless noted. As Fusen mentioned, during the March quarter we continued to enhance our fundamentals and growth prospects by executing on internal development goals, driving external partnerships, and returning value directly to shareholders through our increased dividend and aggressive repurchase activity. We believe our business and cash generation potential have improved in a consistent and sustainable way due to our ongoing strategic execution and participation in long-term technology transitions Fusen outlined. In addition, we continue to make progress to achieve our long-term financial targets. During the March Quarter, we generated revenues of $384.3 million and very strong gross margins of 52.5%, up over 400 basis points sequentially. This strong gross margin performance highlights our consistent operational efficiency and improving product mix, which includes an accounting true-up related to a long-term and ongoing customer project. Without this true-up, gross margins would have been just above 51%, in line with our long-term targets. Non-GAAP operating expenses came in at $66.8 million during the March quarter as some of our SG&A plans were re-prioritized, delaying spending to the June quarter. Tax expense for the quarter came in at $13.7 million and we anticipate an effective tax rate of around 13% for the full fiscal year. Non-GAAP net income came in at $121.5 million driving $1.95 of non-GAAP EPS during the March Quarter, significantly above expectations, due to stronger gross margins and lower expenses. Turning to the balance sheet, days of accounts receivable increased slightly from 84 to 86 days, days of inventory increased from 75 to 104 days, and days of accounts payable decreased from 56 to 49 days. During the March quarter, we generated free cash flows of $69.8 million and ended the quarter with a net cash balance of $415.6 million. In early March, we expanded the share repurchase authorization by $400 million and extended the timing through August 2025. Shortly after this announcement, we entered into a $150 million Accelerated Share Repurchase program, which allowed us to immediately reduce share count by an initial 2.5 million shares, equivalent to nearly 4% of shares outstanding. This accelerated program was completed in late April. At this point, we have $340 million remaining on the repurchase authorization, and we intend to resume open market purchasing opportunistically. This remaining balance equates to over 10% of the company’s current market value. Our competitive dividend yield and ongoing opportunistic repurchase activity continue to provide additional paths – beyond our fundamental growth prospects to create and deliver value to shareholders. For the June quarter, we expect demand to remain stable and anticipate approximately $365 million of revenue, plus or minus $20 million, which includes a risk adjustment that considers our current view on COVID-related closures, ongoing global logistics difficulties, and industry supply-chain challenges. For the June Quarter, we anticipate gross margins to remain strong at 49%, plus or minus 50 basis points, due to product mix and the absence of the one-time true-up. Non-GAAP Operating expense is anticipated to be approximately $74 million, plus or minus 2%, and non-GAAP EPS to be $1.53, plus or minus 10%. We are very focused on supporting this ongoing period of industry expansion and are extremely focused on driving new engagements, qualifications, and ultimately ramp production of our new Advanced packaging, automotive, and advanced display solutions. Execution on our development and qualification goals throughout fiscal 2022 can potentially drive upside to the long-term targets shared during our Investor Day. This continues to be a very exciting period in the Company’s history. Over the past two years, our core business and growth prospects have fundamentally improved, and we are aggressively executing on the multi-faceted growth strategy outlined last September. We look forward to sharing additional information regarding these new opportunities over the coming quarters. This concludes our prepared comments. Operator, please open the call for questions.

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

Yes, thanks for taking the question and congratulations on the very strong strategic initiative execution. First, two product related questions. First on the LUMINEX side, can you give us some color on whether the orders you’re receiving are for R&D related use or are those production tools, and can you give us some indication on order size? And then on the NAND side, is it your sense that the demand for NAND is additional layer count work that customers are doing or is it capacity or both?

So Craig, our first generation LUMINEX is a PIXALUX and LUMINEX is the second system that is laser-based and provides much higher productivity. So, I think this is really a huge market in the meantime; customers need to have higher productivity. That’s why we introduced this system. To answer your first question, we actually shipped, we already are in three sides for qualification. Normally qualification will take about six months to nine months to finish, or sometimes it can take a little bit longer, really depending on the complexity on the customer side. So after that, I think even if successful, there will be high volume orders. So LUMINEX is at the initial stage for qualification. We have three qualification sides and the order will also be shipped and then will need to be qualified. So, at that stage, I think many customers are waiting for our system for qualification and hopefully after qualification, we will see higher growth of our revenue related to LUMINEX, probably in the second half of 2023. So that’s our view. So if I missed any other questions?

Got it. Yes. So, one following up in demand drivers for strength; is that layer count work for customers or capacity ads? And then on the financial side, Lester, can you just comment on two items? One, what drove the upside to gross margin, excluding that true-up that you mentioned? And in the past, I think the company identified potential for $1.58 billion in revenues this year. What’s the company’s view on revenue potential this year versus what it expressed three months ago? Thanks, team.

So Craig, I think your question about NAND. I expect even stacked NAND. So actually in my opinion, stacked NAND we have an absolutely leadership position, a dominant position, and we see NAND grows nicely. In my script, I actually mentioned about stacked DRAM. So the stacked DRAM actually, the process for connection between stacked DRAM uses TSV, right? So in this case, we are working with a leading customer to try to actually replace a TSV with vertical wire provided by our actual process waiver label packaging stud bumping process, so as to reduce cost and also for putting all the phone factor of TSV. So that was my remark in the script.

Hi Craig. So as far as the gross margin upside, yes. Besides the onetime accounting true-up, I think the upside was, again, as we talked about many times before, it depends a lot on product mix. So I think both in the ball bonder business unit, we sold less LED bonders and more higher power computing bonders, which gave us better margins. That’s also true in wedge bonder; we also sold higher margin products in wedge bonder for power management. And then also for this quarter, the split between capital equipment and APS was actually a little bit higher percentage this quarter and APS has a higher margin. And finally, we also, besides product mix, what affects the gross margin is customer mix. So our customer mix shifted a little bit more to the IDMs versus the OSATs which generally also gives us a slightly higher margin. So all those factors together, in addition to the onetime accounting true-up, gave us a very strong over 52% gross margin.

Excellent. And then finally, on the full-year revenue view, Lester?

Yes. So Craig, at this moment actually, although we still see some shortages, some little bit headwind for the industry like a shortage in the material mainly are components, I see, and a waiver capacity also COVID related challenges causing some logistics and shutdown on the customer side. But we also still see the wafer capacity will increase in the second half of 2022, this year. So at this moment, for end-market demand, we remain still very strong. So, it’s our view; we still think $1.58 billion is achievable at this moment.

Thanks, guys.

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

Yes. Good morning. Thanks for the questions. So first I just following up on your last comment, what is your expectation for industry unit growth? And perhaps if you can quantify the wafer capacity growth you see for this year as well and where that, how it compares to a normal or typical year?

This year actually I think is less than last year. So we actually already put into our focus. So it’s our view probably wafer capacity will increase a little bit more because we only have our year actually finishing in September, right. So, we probably only have initial three months to probably enjoy if it’s come additional wafer capacity. So actually our view of unit count does not change from beginning of the year, right? But was significantly lower than last year. I think last year was much higher than 10%. Right. So this year is a normal year.

Okay. And I think you made a comment earlier that you thought the wafer growth, you could see it going through 2024. Does that for 10, I guess then for pretty strong unit growth over the next couple of years as well then?

Yes, I think that’s third-party view also; I think the next few years the unit count, I think normal for us probably is above 6%, maybe 6% to 8%.

Okay, great. And then a lot of the equipment guys are seeing fairly mixed business between the leading-edge wafer growth capacity and the trailing edge. From your point of view, is there one of those that is particularly better driver? I know historically the trailing edge has been a better driver of wire bonding, but since you have so many projects now that are near the leading edge, I was curious if that also is going to be a fairly nice driver for you for the next two years.

Well, I think in my remark, I mentioned this quarter the majority of our bounder actually go to the fair; just finish our construction, right? So I think both leading-edge and normal IoT devices, both capacity will expand. Of course, at this moment, I think because of front-end capacity needs to take a much longer time to prepare. Right. So I think probably, investment is a little bit heavy, but at this moment, I think both − again, the front-end wafer advances and the normal wafer actually both capacity will increase in the second half.

Okay, great. And then finally, can you talk a little bit about your partnership with PDF Solutions and the creation of the closed-loop assembly solution? How does that, do you think, impact revenue going forward? Are you going to be able to create some recurring revenue streams just from the data flow or how do you view that longer term?

Right. So I think at this moment, the real-time monitoring, all the information converted, become a closed group is very important because of the process, and everything gets more complex. So the partnership we do believe is adding value to customers in terms of efficiency, throughput, and the analysis. So this, I think at the first one or two years later on after we get enough experience, we probably will help our APS revenue. Right. That’s our view.

Okay. Thank you for your time today.

Okay. Thank you.

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

Hi, thanks for taking my question. I had a few of them. First one, can you guys tell me where the wire bonder lead times are today?

Yeah, so Chris, I think wire bonder lead time is about four and a half months.

Four and a half months. Got it, got it. Okay. And then I think if I remember correctly, I think Fusen kind of, I understand there’s a lot of capacity constraints, etc., but you see okay. With the $1.58 billion number for this year, I’m just kind of curious at what point do you think some of these growth initiatives like automotive, advanced display, etc. will start offsetting your legacy wire bond or is that like a way down the road?

Okay. So Krish, maybe I answer maybe not from a number point of view, right? As you know, ball bonder actually is a big business and used to be very cyclical, but in my view, actually, I think what we try to do is make sure the ball bonder, we have a leadership position and also ensure ball bonder grows on top of any new initiatives we have, right? So overall, I am quite bullish about the future of the ball bonder, right? So let me give you an example: I think the whole ball bonder represents about 65% of a market share for total IC packaging solutions, right? So whatever capacity increase in a war can be high-end, medium-end, or low-end devices. The ball bonder represents 65% of market share for packaging, overall it's IC. So I think ball bonder demand will continue to grow; actually because in addition to yearly semiconductor unit growths, we see the global ball bonder continue to find new applications to grow. I’ll give you a few examples: I think we talk about the multi-die, right? This multi-die actually provides connections between die to substrate but also between die to die. So because of this, it’s also a kind of advance packaging. You put a die, it may not advantage to that, but actually increase transistor density, right? So increase also work, the capital intensity. So we really see the growth of this multi-die. The second application I am telling you is we are entering 5G a lot and there are multi-die in a package between a die to die. There may be different kinds of noise or interference to each other. So industries start to use our ball bonder to build a body wire and become a fence along the die to prevent the interference and also reduce the noise between each other, right? So we see this area also growing and ball bonder is, we see this application. The third one, I think we just mentioned the TSV alone is very mature, but it's very high cost. We are working with the industry leader in DRAM and try to use our stud bumping solution. The vertical wire actually connects between stagnant instead of TSV, right? So later this year, people will start using ball bonders for 6-nanometer. What I try to say is, although the ball bonder is cyclical, the industry is also cyclical. What we believe is the ball bonder will continue to grow and every cycle, high and low will become higher for the next cycle, right? So in the meantime, we try to speed up, our new initiatives as soon as possible to push your LUMINEX and also grow advanced packaging. APS will grow it. So, I think to answer your question, bottom line, maybe in the second half of 2023, all the new initiatives will become much more meaningful to offset the cyclical of the ball bonder, but in the meantime, I think we are bullish on the ball bonder. I think the cycle will take longer right now because the industry is more mature and the ball bonder continues to grow.

Got it. Very helpful, Fusen. Then the last question in the past, you mentioned TCB Thermo compression revenues could be around $60 million to $80 million FY 2023. Is that still a good number to you?

Yes. Actually, we are quite bullish on our TCB. And TCB, actually we are full market, right. We focus on mobile. We also focus on heterogeneous integration. I think in the CMOS imaging sensor and also heterogeneous integration. All these applications will grow nicely. So, I think we — our goal right now is higher than originally we showed during our Investor Day. I think we also mentioned a little bit about this. We believe TCB will continue to grow strongly. But one concern about TCB is fracs of course contamination that will not be able to extend to very fine pitch like below 20 microns. But all fluxless in capability, it’s a very unique process, can actually provide very clean copper to copper surfaces, and we believe it extendable almost to like a 15 micron space, right? So, we actually already have customers in mobile, also in CMOS imaging sensor, silicon photonics, for optical transceivers and also heterogeneous integration. So, I think in 2023, next year, we are actually aiming close to $100 million. I think the numbers should be what we showed to our Investor Day, right? But we do believe TCB provides really significant growth opportunities for us for the coming years.

Got it. Thank you very much, Fusen. Thanks, Lester.

Thank you. Our next question is coming from Christian Schwab from Craig-Hallum. Your line is now live.

Hey, good morning guys. Great quarter. Just a couple quick questions that haven’t been asked. As we ramp the LUMINEX, should we expect that gross margins to be in line with a corporate average, or is that going to be slightly better or slightly worse?

Hi, Christian it’s Lester? We expect LUMINEX again, as we said previously, because it is an advanced display. One of our more advanced products. We believe that actually it’ll be higher than in terms of a little bit higher than the corporate margin. We think it’s going to be one of our higher margin products because we believe it’s going to be one of the leading products in the space. And also, I think there’s great demand for the products in mini and our micro LED.

Perfect. And then, can you remind us, I know you guys talked about this being a substantial market opportunity years by your bonding business, given the acceleration of the adoption of micro LED, and your dialogue. I mean, can you give us a three to four year path about how big you think that business could be again?

So Christian, talking about the advance display right? If you remember, I think 2021 is the first year we enter this high-volume production. In 2021 we guide $80 million. We attribute this year we also guide about $80 million, $80 million to $100 million. We believe this year we will end close to the high end, close to between $80 million to $100 million. In the next year I think we will have most revenue from PIXALUX and LUMINEX, but our goal is LUMINEX, I think should be much higher in the future, but because we are still in a qualification stage, the qualification can take a long time. We are quite bullish; in qualification should do very well. So, second half of 2023, we should have some meaningful revenue from LUMINEX. We expect around $100 million and more. After that, I think it can grow much faster. We will probably share more details in the next few quarters when we have more detailed information.

Okay, great. Thank you for that clarity. And then, as it relates to the aggressive buyback plan, and then a slight follow-up to the partnership with PDF Solutions. Do you think we’re at a stage where there’s limited M&A opportunities to create greater scale for the business through M&A versus just repurchasing stock, or do you think the best way is doing what you’re doing: investing aggressively in what you know and understand in a stock that’s undervalued as well as expanding opportunities through partnerships, but like with PDF Solution versus maybe more consolidation in the backend if you will?

So, Christian, I think we look at all three areas you talked about. I mean, as we’ve shown for capital return, we have a very attractive dividend, which we increased every year, right? In addition to that on a share buyback, we have been very opportunistic in the open market repurchase, which we’ve also been pretty aggressive on. And then, obviously, we did do the ASR of $150 million. So, we do believe that the stock is undervalued currently and definitely undervalued considering all the exciting growth factors that Fusen talked about. As far as partnerships, we’re always open to partnerships, whether with PDF or other people, in terms of providing better solutions to our customers and also monetizing these solutions, and then hopefully these will become more sustainable. But we don’t actually think that M&A is not something we would look at. We’ve always looked at it. I’m not sure whether we look at it from a consolidation standpoint in the back end. I think what we look at is to basically adjacency, particularly in things that, again, we think there are a lot of opportunities in automotive and advanced display along the supply chain for mini and micro LED. We are looking at a lot of different things there, as well as things that enhance our core technologies, and basically accelerate our development, and that was shown for example, in the Uniqarta acquisition. So, I think we consider both capital returns to share repurchase and dividend, definitely partnerships with people like PDF, but also we definitely are not saying that M&A is not something we would consider. We think definitely there are opportunities in M&A.

Great. Thank you for that clarity. No other questions. Congrats on a great quarter, and a great outlook. Thank you.

Thank you, Christian.

Thank you. Our next question is coming from David Duley from Steelhead. Your line is now live.

Yes. Thanks for taking my question. Lester, I was wondering, I think it was at your Analyst Day, you talked about having gross margins improved by about 500 basis points from, I believe a 47% rate. And we just saw that you achieved that gross margin target or rate in this current quarter, but it was mainly driven by mix. As you mentioned, a one-time true-up. I think when you were referring to the 500 basis points improvement of gross margins before it was going to be driven by lower costs and new products, particularly, I think a new wire bonder product. I was wondering if you could give us an update where you are with the new product initiatives, and if the new products continue to come out in the future, will gross margins perhaps grow higher than the 50% or 52% range?

Well, Dave, I think we said 51% to 52%, and you’re correct. You have a great memory. We did talk about the core business. I mean, Fusen’s really driven cost reduction over the last couple of years, and we’re continuing to drive cost reduction down, which will help our margins. I think also we do have new products in our core business, both in ball bonder as well as wire bonder. These new generation products actually, we’ll have very attractive ASPs because with their UPAs as well as their accuracy, the cost of ownership to our customers actually are falling. Therefore, we can maintain healthy ASPs. We look at cost reduction always; we built that in right from the beginning. Now, Fusen has really instilled a culture of cost savings from engineering all the way through supply chain. So, I think going forward, we do believe we will reach a long-term target of the gross margin in the 51% to 52% range. And that’s both from our very strong core business to cost reduction and new products, as well as the new vectors in automotive advanced display and advanced packaging.

Okay. And a clarification question. What should the share count be? Maybe you mentioned this, but I might have missed it. What’s the share count going to be in Q2 and going forward?

Dave, you should use 60.1 million, sorry.

Okay. Excuse me. And Fusen, you mentioned, we’ve talked about this in the past; there’s a higher capital or wire bonder intensity with some of these heterogeneous packages and multi-chip modules. I’m wondering if you could, maybe update us on what you think versus just a standard die, how much more capital intensive you’re seeing some of these newer advanced packages are from just standard parts?

Well, I actually, we don’t have this on hand right now. But roughly, I think we continue to see this multi-die, the growth rate, actually, all of growth majority are focused on a new area. I mentioned in the three new areas. You need to – you like multi-die not only die to substrate; you also need to connect die to die. So therefore, it increases capital intensity. And this new sheer environment after you bond to connect to a substrate, you also need to view a fence or catch a long die to make sure there is no interference to the next die. This also increased capital intensity, right? And continue to find applications. So I think before, say, two or three years ago, our wire bonder maybe dealt with like one soldering wire, and right now we are doing about two soldering wires. So actually if you count the capital intensity, productivity increase probably almost double.

Okay. Could you just remind us of the mix in the wire bonder business between OSATs and IDMs and what would you expect that mix to look like in the back half of this calendar year?

Well, David, I mean, the mix between IDM and OSAT does shift from quarter to quarter, right? So, I mean, it’s been running for ball bonder; sorry, the core business. I think the core business in the last couple quarters because of the huge ramp in capacity, and as you know, when things ramp for based on capacity, the OSAT tends to be more active because they are generally where customers go when they need immediate capacity, right? So, that was close probably to, I would say almost 90% OSAT, 10% IDMs in the most recent quarter, Q2. It shifted a bit; I think it is close now to about 75/25 in terms of OSAT and IDM. The IDMs now have become much more active, particularly again, as the automotive business is very strong, as you know, and the automotive business is quite focused on the IDMs.

Also, David, like to add, I think that we have a very diverse clientele from both OSAT and IDM. And sometimes I think some OSAT may have enough capacity; not necessarily all OSAT have full capacity, right? So, I think we have a pretty good relationship with all customers and we work with the customers and especially I think ball bonder in my opinion is reaching another cycle. I think our next cycle, we believe will be longer and ball bond on a couple of unit growth I think will also grow with the special application. I mentioned like a multi-die, the initial requirement can potentially be used for memory, not only for the NAND, in which we have very, very high market shares. I think different, and we still have much room to go to get the market shares.

Okay. Final question from me, is you talked about, I think I see new volumes getting a bit better in the back half of the calendar year. I was kind of curious how you might be looking at this is, I guess it was my understanding in the middle of this year, you kind of have a 5-nanometer transition, at the big foundry in Taiwan, and that’s definitely going to drive higher units. But I was under the impression a lot of this trailing edge capacity wasn’t going to come online until early next year. What’s your view of both the kind of the front end, advanced and capacity and the trailing capacity and when it will come online? I’m imagining that the trailing edge capacity is more relevant for you as far as a wire bonder opportunity, but maybe not.

That’s correct. I think David, you are right. I just try to, I think, I’ll give an example. I think ball bonder continues to extend, right? Even for 6-nanometers. I think a new application is going to be a big application in the mobile space. A lot of people believe ball bonder actually is a very old technology, but I can just tell you; there are a lot of very sophisticated technologies over there. It continues to extend because ball bonder, wire bonder is the most effective for interconnect, right? We believe a lot of people believe a 20-nanometer, but would be more free chip; but actually, it continues to extend. People are actively working on the 6-nanometer; it might not be high volume production by end of this year. But for sure, the volume will come quickly.

Thank you.

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

Thank you, Kevin. Thank you all for joining today’s call. Over the coming months, we will be presenting at several virtual and in-person investor conferences in New York and San Francisco. As always, please feel free to follow-up directly with any additional questions. Have a great day, everyone.

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