Hello, and welcome to the Kulicke & Soffa 2023 First Quarter Results Conference Call and Webcast. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Joe Elgindy, Senior Director of Investor Relations. Please go ahead, Joe.

Thank you. Welcome everyone, to Kulicke & Soffa’s fiscal first quarter 2023 conference call. Fusen Chen, President and Chief Executive Officer and Lester Wong, Chief Financial Officer are joining us on today’s call. Non-GAAP metrics will be referenced throughout today’s call. The non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, our GAAP financial information. Complete GAAP to non-GAAP reconciliation tables are available within our earnings release filed yesterday, as well as the earnings presentation, which may be found on 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 1, 2022, and the 8-K filed yesterday. With that said, I would now like to turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.

Thank you, Joe. Over the prior quarter, we continued to execute on our development plans and the customer engagements supporting secular trends in the Automotive, Semiconductor, and advanced display markets, as well as our tactical margin optimization and market share gain strategies within the higher volume wire bonding and electronics assembly markets. I will discuss these specific opportunities in more detail shortly. Over the same period, we have been monitoring and internally addressing the recent policy pivot on COVID within China. Over the last two months, we experienced a rapid increase in internal COVID cases within our Suzhou facility. While this had little impact on our production capabilities during the quarter, this wave of COVID in China is broadly impacting the operational capacity of our customers within China. We currently anticipate this effect will create additional capacity uncertainty and will have a slight impact on our near-term outlook, although it will likely support a quicker rebound as China's GDP forecasts have recently improved. We also anticipate this policy shift dramatically reduces the potential for regional lockdowns, which have had both supply chain and demand implications for us over the previous years. In addition to the potential for a swifter macro recovery in China, the Consumer Electronics Show, which took place last month, helps provide a glimpse into the future for existing and new applications such as electric vehicles, artificial intelligence, wearables, and display technology. Our business continues to be very aligned with these long-term trends, and we look forward to supporting them over the coming years. Collectively, our longer-term industry outlook remains consistent. We currently anticipate semiconductor unit growth, excluding LED, will return to a more normal growth rate in calendar 2023, with nearly 10% unit growth in calendar 2024. Additionally, a more normal level of growth for the non-LED semiconductor market is anticipated, while LED units are expected to grow at a 19% CAGR, roughly 300 billion units of production annually through calendar 2025, in support of new mini and micro-LED applications. Also of note, our book-to-bill ratio exceeded one for the first time since June of 2021. While near-term inventory digestion and macro improvements are necessary to support industry growth, these data points provide additional confidence to our outlook. Turning to the December results, we generated $176.2 million of revenue and $0.37 of non-GAAP EPS, coming in ahead of our projections from last quarter. Our total capital equipment revenue was $135.4 million in the December quarter, with the majority of softness stemming from General Semiconductor, as anticipated. While General Semiconductor is typically driven by capacity needs, there are growing technology changes providing additional strength. First, within our high-volume wire bonding market, assembly complexity continues to require more equipment capabilities. These capabilities allow us to enhance our margin profile. Lester will provide some additional information on our optimization focus shortly. The next is within the power semiconductor market, which is represented in General Semiconductor and also our automotive and industrial end markets, and continues to evolve with the growth in both traditional silicon and emerging compound semiconductor applications. These power semiconductor trends have supported multiple record revenue quarters for wedge bonding in fiscal 2022, and allowed us to reach a new record revenue during the December quarter. In addition to our dominant, long-established position within the traditional wedge bonder market, we also address power and compound semiconductor needs, capabilities including clip attach, larger bonding areas, and laser-assisted bonding approaches. Emerging compound semiconductor devices using Gallium Nitride and Silicon Carbide support fast-growing applications such as high-speed vehicle charging, 5G base stations, alternative energy, and high-powered servers. We will provide additional updates on these emerging opportunities over the coming quarters. Additionally, we are pleased to report that we continue to see very strong demand for our robust thermocompression solutions, which support advanced logic applications and are very aligned with emerging Chiplet trends. Our efforts to engage with a broader group of fabless companies over recent quarters have been very beneficial and have positioned us for additional share gains in the logic market. At this point, we are increasingly optimistic about the future of thermocompression and are growing our engagements with key customers. Several new customers have requested systems, and although we remain very supply-chain limited in the near-term, our TCB team is working aggressively to support multiple customer engagements in parallel. Additionally, we had previously anticipated a 10-micron pitch limitation for TCB. We now see the potential to extend this technology below a 10-micron pitch, which can materially expand the size and long-term potential of our competitive TCB portfolio. Finally, regarding TCB, I’m pleased to report that we have received customer acceptance on our first fluxless chip-to-substrate TCB system and have shipped our first fluxless chip-to-wafer TCB system. This will be followed by an additional system shipment to a leading foundry customer. As we highlighted over the past several calls, we continue to expect the majority of heterogeneous assembly needs can be addressed with our growing portfolio of TCB solutions. Moving to the LED market, we remain engaged and are supporting multiple customers with multiple advanced display solutions. We continue to make progress across several different initiatives in advanced display. I’m very pleased to highlight that we have recognized revenue from our first LUMINEX system. Over the coming quarters, we intend on shipping additional systems and earning additional purchase orders for LUMINEX, which supports backlighting applications and large-format, direct-emissive applications. Additionally, we have received interest in utilizing this high-throughput system in traditional semiconductor assembly markets in addition to the growing advanced display opportunity. By the end of fiscal 2023, we also expect to receive acceptance on the next phase of the customer-specific advanced display solution, which we will refer to as PROJECT W going forward. Demand for this system is expected to accelerate into fiscal 2024. Within Automotive, the ongoing electrification and autonomous transitions will continue to benefit our business over the long term. Power semiconductor and compound semi trends are benefiting our automotive customers in addition to some general semiconductor customers. The Consumer Electronics Show last month highlighted new electric vehicles from established and emerging automotive companies, which continue to drive innovation, bring down costs, and broaden market adoption. We are currently preparing to launch our next battery bonder for larger form factors using both ultrasonics and laser-interconnect solutions in addition to supporting the production ramp for vehicles and long-haul trucks. Memory remains soft over the near term, although we anticipate a slight pickup in the second half. In addition to parallel customer engagements and development programs, we remain on track to close the pending dispense acquisition as planned. As a reminder, this strategic acquisition provides additional access to adjacent dispense opportunities in both semiconductor and electronics assembly. Collectively, these two areas represent a $2 billion addressable market and provide a new set of long-term opportunities. In addition to continuing on a prudent M&A path, we are also very focused on scaling our equipment manufacturing capabilities further in fiscal 2023. During our prior fiscal year, we increased our capital equipment manufacturing footprint by 148,000 square feet, or 44% to 485,000 square feet, and remain very focused on building out this footprint through 2023. Overall, despite persistent macro and regional challenges over the past few years, we have consistently executed and have fundamentally expanded our long-term opportunities. There is no shortage of new opportunities and our global teams have remained very focused on supporting our customers by delivering new solutions and driving acceptance. While consumer-driven softness is anticipated to create an ongoing headwind for our high-volume product lines over the near term, we remain very optimistic and continue to anticipate a seasonal recovery in the second half followed by broader capacity and technology growth in fiscal 2024. With that said, I will now turn the call over to Lester who will discuss our financial performance and outlook, Lester?

Thank you, Fusen. My remarks today will refer to GAAP results, unless noted. Outside of the recent and near-term expectations surrounding China’s COVID policy pivot, our broad demand expectations for the year remain largely unchanged from last quarter. Our efforts are focused on driving customer acceptance of our growing portfolio of solutions and growing our manufacturing and development capabilities with our ongoing capital expenditure programs. During the December quarter, we generated $176.2 million of revenue, 50.3% gross margin, and $0.37 of non-GAAP EPS. Gross margins were better-than-expected due to cost control efforts, product and feature mix, supplier rebates, and lower depreciation due to capital expenditure shifts from December into the March Quarter. As Fusen mentioned, we have taken a long-term and strategic view in optimizing the gross margins of our ball bonding business and remain focused on further enhancing our corporate gross margins over the long term. Operating expenses came in slightly higher than anticipated, due to a foreign exchange loss. Finally, the tax expense for the quarter came in at $3.8 million because of a higher mix of interest income in addition to the mandatory capitalization of R&D expenses under section 174, which began in our fiscal 2023 year. We anticipate maintaining a similar effective tax rate throughout the current fiscal year. Turning to the balance sheet, working capital days increased to 536 days in the December quarter, primarily due to a sequential reduction in revenue. In addition, net cash increased by $48 million, and inventory increased by $27 million sequentially to support our longer-lead time products over the coming quarters. We continued to deploy capital to shareholders via our opportunistic repurchase program and recently increased quarterly dividend payments. During the December quarter, we deployed $45.4 million to repurchase just over 1 million shares. Looking ahead to the March quarter, we anticipate revenue of approximately $170 million, with gross margins of 46%. Gross margins are expected to gradually improve to a blended 47% for the fiscal year as we continue to ramp our capital expenditure programs. Non-GAAP operating expenses are expected to be approximately $68 million plus or minus 2%, due to ongoing expansion efforts, employee merit increases, and inflation. We remain very focused on controlling and limiting any non-critical activities, and have recently initiated a hiring freeze and placed limitations on non-essential travel and non-critical project expenses. Non-GAAP net income is expected to be approximately $14 million with non-GAAP earnings per share of approximately $0.25. It remains an exciting time at K&S as we continue to execute and increase our participation across several long-term fundamental trends within the semiconductor, advanced display, electronics assembly, and automotive markets. As we look into 2024, we remain optimistic about broader macro demand trends and remain extremely focused to support the technology needs of our customers. This concludes our prepared comments. Operator, please open the call for questions.

Certainly, we'll now be conducting a question-and-answer session. Our first question today is coming from Krish Sankar from Cowen. Your line is now live.

Yes. Hi, thanks for taking my question. I had a couple of them. Number one, Fusen or Lester, in the past you mentioned FY ‘23 could be roughly around $900 million in revenues. Can you underwrite that revenue expectation? And do you think March quarter is a trough from a quarterly standpoint?

Actually, Krish, to be more precise, I think the last cycle peak was a 2018 revenue of $890 million. So that was the number you just mentioned and the current consensus for FY ‘23 revenue is at $840 million, an average of all the analysts. So, there's a little bit change. Last December, the COVID situation in China created some additional softness in our FY ‘23, but at the same time, same quarter, we see our book-to-bill ratio over 1.0, which points to a potential trough in FY Q2. So, at this moment, we expect our second half will be better than the first half. Overall, I think that at this moment, we are comfortable with the consensus revenue of $840 million, due to the China COVID situation that really had some softness in our ’23, but could impact us in Q2, and we expect it may extend a little bit longer into Q3. So that's my answer.

Got it, got it. No, that's very helpful, Fusen. And then I just had two other questions. On the book-to-bill improvement, I understand you're coming off a lower revenue base, but is that order improvement driven by one specific customer, one specific product, or was it across the board? And then I have a follow-up for Lester.

So the book-to-bill for the last couple of quarters has been about 0.8, right now it's gone up to about 1.3, and I think a lot of our backlog is actually in ball bonders, and most of it will be recognized within FY ‘23. Close to 60% of it will be recognized in FY ‘23. So it's not one specific customer; it is ball bonder, it's also advanced packaging and also wedge bonder. So I think the backlog is across several business units.

Got it. Got it. And then, Lester, just a quick follow-up. The days of inventory and the inventory days payables both are pretty high. So I'm kind of curious what's going on, is it just purely wire bonders that's kind of been accumulated, or what's going on with that high number relative to the past? And what is your lead time today for wire bonders? Thank you.

So the lead time today for wire bonders is about, for ball bonders is about eight to 12 weeks; for wedge bonders is about 16 weeks. As far as inventory is concerned, some of it is the result of, again because of supply chain issues in the past, we actually bought a lot of items to make sure that we will not be short and that we have no supply chain issues going forward. Plus, we also increased inventory because we also bought some long lead items for POs that we see that's falling into the latter part of ‘23 and the beginning of ‘24, for example in advanced packaging as well as in wedge bonding.

Thanks a lot, Lester. Thanks, Fusen.

Yes. Thank you, Krish.

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

Yes, thanks for taking the questions and all the color so far, guys. So I wanted to follow-up on a few of Krish's points. So, Lester, can you provide some additional color on order improvement? You gave us a good sense by products, but can you talk about what the order activity looked like on OSATs versus OEMs? And then any color on end markets would be helpful as well.

Craig, you mean for Q1?

Yes.

So for Q1 actually, as I indicated in my remarks on gross margin. Actually, the majority of the ball bonders were actually purchased by IDMs rather than OSATs, which is unusual and has not happened for many, many quarters. And so, as far as, sorry, what was the second question?

It was color by OEM versus OSAT and then color by...

Yes, that was the OEM, OSAT. Yes, and then end markets, automotive end market actually improved significantly. It grew 41% quarter-by-quarter and as Fusen mentioned, general semi fell significantly about 61% quarter-by-quarter and also memory, to no one's surprise, also fell significantly about 80%. So for the quarter, automotive comprised about 40% of our capital equipment, which is very, very high and general semi is about 50%.

And then lastly on the order line of inquiry, Lester, what's happened quarter-to-date? Are you seeing that same level of strength that gave you the 1.3 book-to-bill in the prior quarter continue, has it accelerated, or what's going on, especially now that we're on the other side of Lunar New Year?

Well, I think we continue to see a lot of inbound inquiries, particularly from China, as you put it from after the Lunar New Year. It's just obviously, just a week after the Lunar New Year, we, as Fusen indicated, do anticipate a much stronger second half of FY '23. So we do see orders continuing to come in.

Yes. And that's very helpful. So I want to move on to gross margins. So the company's execution on gross margins has been really stellar over the last five quarters, I think they're averaging 50%. So can we just take a different look at the guidance for the current quarter, which I think you said was 46%? Why would gross margins be 400 basis points lower than the trailing four to five quarter average? And then, you mentioned capacity; I take it you're saying there is some incremental depreciation that's coming in, but given the strength you've had in gross margin, why wouldn't we see gross margins push above the 47% you mentioned as we move through the year?

Well, I think as we move through the year, we're still aiming for an overall gross margin around 47% for the fiscal year. But obviously, Craig, as you know, quarter-to-quarter it changes. I mean, Q1 the gross margin was a huge benefit in terms of both customer mix as well as product mix. I mentioned IDMs were more than a majority of our ball bonding customers in Q1. We don't see that maybe continuing in terms of the customer mix. I think as you also, as you also mentioned, we right now can continue to invest in some of our growth vectors products, particularly in advanced display and advanced packaging. So, as Fusen mentioned in his remarks, we're expanding our manufacturing capacity by quite a lot. So, in addition to depreciation, I think also there's also operating cost of those facilities, and right now, those facilities, those products for those facilities will really start to ramp in the second half of ‘23 and ‘24, not so much right now. So, those operating costs go into our COGS, which also affects the gross margin overall.

That's really helpful and then lastly from me before I get back in the queue. Really helpful to get all the order color. The question is, as we go back to Fusen's comments that not specific guidance, but seemingly comfort around an $840 million revenue level this year. How does the company currently see linearity in the back half of the year? Do you see growth being fairly equal as represented by current consensus at around 30% per quarter, or would the growth and the revenue levels be more either front-end or back-end loaded? Any color helpful there guys. Thank you very much.

Yes. So I think Fusen already mentioned with the COVID pivot, right, it does affect our Q2 and may affect a little bit in Q3, right? However, the COVID pivot also may drive a much stronger, I guess a quick recovery, but that probably more in Q4. So if I think to give some color, I would say that probably Q3 would be weaker than Q4. So in terms of what the consensus is, I don't think they'll be equal. I think Q3 will be maybe a little weaker than was thought before, but Q4 will be stronger.

Thank you. Next question is coming from Charles Shi from Needham and Company. Your line is now live.

Hey, thank you for taking my question. I have a few; I’ll be mindful of my airtime in case your answer takes longer. So really going back to the question about your full-year outlook Q3, you said it's a little bit weaker than you expected a quarter ago, but Q4 may be stronger, but that does still imply a quite strong uptick in Q4. I'm thinking if you're sticking to let's say $850 million for the full-year, let's say the June quarter maybe you're getting $200 million. But you have to make a $300 million quarterly revenue in Q4. Are you comfortable with that kind of trajectory into the second half of the year? That's my first question. Thank you.

So Charles, I believe it's important to do a calculation together. Let's say $175 million for the first quarter and $170 million for the second quarter, which totals $345 million. Regarding FOT, I think we're looking at $460 million total, which would mean $230 million if we break it down evenly. So for Q3, we expect around $200 million, compared to $260 million last year. I hope my calculations are accurate, but I don't have precise figures.

So Charles, we believe that it's achievable in the second half, right? I mean it may slip a little bit either way, right? There's a push and pull, right. But we think we do see a path there, particularly with the backlog as well as the increased order coming in. So we didn't say it will be $200 million in Q3, right? I just said it would be a little bit softer. But again, it is a little volatile out there, but we do feel comfortable with $840 million in terms of for the year.

Yes, yes. So let me ask the same question from a different angle. I think four years ago around the same time that was right at the beginning of 2019 downturn, you also expressed, sort of, optimism about fiscal second half being higher than fiscal first half, but the actual result was actually your fiscal second half was lower in 2019 than your fiscal first half? I mean by many metrics, so we look at 2023 downturn, it's probably worse, not better than 2019 downturn. My question, maybe from a high level, what gives you the confidence that you're going to do a lot better in this downturn half-over-half perspective than 2019? I know this is the same question, but hopefully we can get some color from a different angle. Thank you.

So Charles, I believe the company has many advantages compared to 2019. In fact, I think we are about 50% larger than in our previous cycle. When we examine this, combined advanced display and advanced packaging is around $200 million compared to the previous cycle, and our gross margin has improved by about 3% to 4%. Additionally, I think our forward-looking trend has proven to be beneficial, especially with the shift from traditional automotive transmission to autonomous and electric vehicles. We believe that advanced display is on a positive path; we didn't have this in previous cycles, but we're also making good progress with TCB. In the last two years, our operating margin has consistently been over 30%, generating around $1.5 billion, with approximately $700 million to $800 million in free cash flow. We also repurchased stock during this period. Therefore, compared to previous cycles, we see a much larger market ahead and anticipate performing better this time.

Yes, thank you. We can discuss more on this offline. I really want to ask the next question on TCB. I think last year, there were quite a couple of products released by Apple and AMD, for example, they are already at your target interconnect pitch somewhere around 25 micron to 35 micron. I believe the Apple M1 Ultra is already being packaged by TSMC with flip chip technology at 25-micron pitch. AMD RDNA 3 GPU I believe is already packaging out at 35-micron pitch with similar technology and I know AFC is probably developing a 20-micron wafer level fan-out really with our bonds, and they are working on hybrid bonding, that's their public technology roadmap? So where does the TCB technology fit in here? I worry it's not quite on the technology roadmap of the two leading companies; could that end up being an Intel-only technology? Or what gives you the confidence that there will be more adoption outside of Intel? Thank you.

Okay, so I think you mentioned we actually in my script, I said we actually talk to numerous famous companies, all major players, I think we actually discuss it. So we are quite confident that TCB is going to have huge growth over the next couple of years. The company you mentioned, I think we also talked to them, and we should not have a surprise.

Got it. So maybe last question on micro-LED…

So Charles, let me randomly answer with two more questions. We are not depending on one customer; I think there are numerous customers who are very optimistic and waiting to receive a system from us. I think we discussed in last quarter and I think we have been discussing since Q3 of ‘22, and we discussed in Q4, we discuss in Q1. I think for the next couple of quarters we think we'll continue to discuss it.

Thanks, Fusen. I want to ask my last question about micro-LED. Can you quantify the total addressable market opportunity for project W, and when do you anticipate a volume increase? Looking at your mini-LED project PIXALUX, which is also customized for a customer, the product launched in spring 2021, and the volume ramp occurred in fall 2020, approximately two to three quarters before the product release. If I’m correct, project W is expected to launch in spring 2025, and I assume the volume ramp will begin in fall 2024. Am I correct about the timeline? That's my first question. The second is how do you assess the total addressable market size for project W, and is the full ramp in 2024 accurate from your viewpoint? Thank you.

So Charles, we don't talk about specific TAMs of specific customer projects. We just don't comment on that, but we do think it will be material in terms of our advanced display revenue, and as far as timing, you're right. I think it will be the latter part of ‘23 and then there will be a significant ramp in ‘24 onwards.

Sorry, I think, I'm thinking about volume ramp is probably the latter part of ‘24, not ‘23, but you think it's a one year earlier than what I think is that…

No, I said, I said most of it will be in ‘24, but it will start in ‘23 as well.

Yes, Lester, thanks for the clarification. Lastly, we did a manufacturing investment you're making here if I understand correctly, your wire bonding manufacturing is largely outsourced to somebody else, not exactly built internally. Can you give us some rationale or some sense why advanced display and advanced packaging you want to build internally and is that 44% capacity increase include, does that include the external capacity for wire bonders or that's a pure internal capacity? Thank you. That's my last question. Thank you.

Charles, I think you're mistaken. We built all wire bonders internally here in Singapore, both ball bonders and wedge bonders, so we don't outsource it. So as far as the additional capacity, as we said, it's all for advanced packaging and advanced display.

Thank you, Lester, appreciate the color.

Thank you. Next question today is coming from David Duley from Steelhead Securities. Your line is now live.

Yes. Thanks for taking my questions. I guess the first one was, you mentioned in your prepared remarks about how you're continuing to see wire bonder intensity increase. And I was wondering if you could just comment, I think in the past you've said it's increased like 10% or 15%. Would you expect that intensity to continue to increase going forward?

Well, I think intensity increase is average cycle, right? Yes, but we do believe complexity actually increases. We do expect intensity actually to increase.

Okay. And then regarding gross margins and wire bonders. I think in the past you've talked about how you improve the gross margins and on this call to how you've improved the gross margins at the core wire bonder business. And I think you have a new wire bonder that should come out with better margins in the roadmap. Is that going to hit in this fiscal year, or when would be the timing of let's say a wire bonder that's got lower costs associated with it?

Well, Dave. You're right, we constantly look at improving our margins in all products, particularly our core products, to our high-volume products like wire bonding, right? So we're continuing to work on cost control. But I think as far as timing is concerned, I think we will be introducing a new suite of wire bonders in the latter part of FY ‘23 and the beginning of FY ‘24, so we should see a margin jump around that point as well.

Okay. And as far as the thermal compression bonding business. Could you just highlight again what size opportunity you think this can be for the overall market, and I think you're probably shooting for 50% market share or perhaps help us understand what your targets are there.

Okay, so David, I think, if you remember I think Q3 ‘22 we talked about having a big lot of $80 million, so this $80 million majority of this $80 million will be shipped within the ‘23 and last quarter Q4 over ’23, we mentioned that we identified for the next couple of years, we probably have an opportunity to move into TCB. So a total of about $300 million up to ’25. So this $300 million majority will be shipped in ‘24 and ’25, right? So I think we expect probably when we exit ‘25, this TCB and all dedicated AP will be about $200 million or higher. So I hope I used a different kind of angle to answer your questions.

I'm sorry, I didn't catch whether the $200 million refers to a quarterly run rate.

No, I mean $200 million for our dedicated advanced packaging.

Okay. And then a final question from me and I think maybe Charles was talking about that was talking about this, so you mentioned a new application for LUMINEX, and I'm assuming that's outside of mini or micro-LED or could you just elaborate a little bit about what the application is.

So LUMINEX actually is advanced display, it is a laser-based transfer technology. We actually participate both in mini and micro-LED and we are also involved in both backlighting and direct emissive applications.

Thank you. Next question is coming from Hans Chung from D.A. Davidson. Your line is now live.

Yes. Thank you for taking my questions. First, I want to clarify the changes in terms of the FY ‘23 revenue, and so, I hear we had some impact from China COVID, so now we're kind of comfortable with $840 million revenue versus $890 million last quarter. So the $50 million gap is that purely driven by just because of the COVID situation.

I think the majority of our issues are due to COVID. Many people got sick, and while some returned to work, overall capacity decreased, leading to some project delays. We anticipate the impact to be felt in Q2 and possibly partially in Q3. Most of the issues are related to ball bonders.

Got it. And so the demand-wise basically, there is no change in terms of the demand.

Right, I think fair to say this COVID caused a short-term weakness, but in the long term it’s fair to say probably this won't be observed in ‘24. So this is like government, I think their new forecast actually reduces ‘23, but actually they believe ‘24 is a bigger year.

Got it. And then can you also elaborate more on the strength in the wedge bonding business and is the, how, I mean how did that perform so well? Does that come from the EV or just overall automotive market and how is that trending I mean in the near future, given it seems like we have seen some weakness in the EV market demand right?

I think EV is one of them and in general, I think wedge bonding is for high current devices, right? The ball bonder is low current, so there’s rather related ball, semi grows and EV, I think is a big part of the contribution. So compared to the previous cycle, our wedge bonder, compared to the previous cycle actually reached a record high in 2022, and even up to ‘23 at this moment actually very strong.

Okay, got it. And then the last one, just regarding the capacity for advanced display and packaging and we're going to add much more in ’23. So just can you give me the color around how much revenue that the new capacity will support, and what's the implication to the gross margin and then, and also the OpEx after we're assuming we're going to have to put that labor in place, right? So just any color around the new capacity for advanced packaging and display.

Well, as I mentioned earlier, the revenue generated from the additional capacity in advanced packaging and advanced display will likely be more substantial in 2024. We are preparing for that in 2024 by expanding our production facilities, getting the tooling ready, and training our staff to operate those facilities. This preparation will negatively impact fiscal year 2023 because it doesn't align with the revenue. However, once the revenue from those products comes in, the margin will naturally increase.

Okay. So our gross margin of 47% for ‘23 that's already factored in the ramps in the new capacity for advanced packaging display, right?

The 47% includes, yes, the manufacturing costs that I was talking about that brought the margin down, so margin will increase into ‘24.

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

Thank you, Kevin. And thank you all for joining today's call. Over the coming months, we will be presenting at several investor conferences hosted by Susquehanna Financial Group, B. Riley Securities, and Craig-Hallum. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone.

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