Earnings Call Transcript - KLIC Q4 2021

Operator, Operator

Hello, and welcome to the Kulicke and Soffa 2021 Fourth Fiscal Quarter Results Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Joe Elgindy, Senior Director, Investor Relations. Please go ahead, Joe.

Joe Elgindy, Senior Director, Investor Relations

Thank you. Welcome, everyone, to Kulicke and Soffa's Fiscal Fourth Quarter 2021 Conference Call. Joining us on today's call is Fusen Chen, President and Chief Executive Officer, and Lester Wong, Chief Financial Officer. For those of you who have not received a copy of today's results, the release, as well as our supplemental earnings presentation, are both available in the Investor Relations section of our website at investor.kns.com. In addition to historical statements, today's remarks will contain statements relating to future events and our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a complete discussion of the risks associated with Kulicke and Soffa that could affect our future results and financial condition, please refer to our recent SEC filings, specifically the 10-K for the year ended October 3, 2020, 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.

Fusen Chen, President and CEO

Thank you, Joe. As many of you are aware, we recently provided a detailed business review and outlook during our Investor Day held on September 23. During this presentation, we highlighted how several key long-term trends such as 5G, assembly complexity, electric vehicles, and advanced displays are driving structural improvements to our business, enabling greater long-term visibility and a consistent level of sustainable cash flow generation in the future. Throughout today's discussion, I will highlight several specific milestones, which demonstrate our ongoing progress toward this fundamental enhancement. First, I would like to explain our view of the supply challenges affecting the industry today, which we have been navigating. Recently, there have been disruptions to the global supply chain, including power outages in China, COVID challenges in Southeast Asia, and freight challenges globally. Specifically, within our industry, additional constraints more recently relate to substrate and wafer capacity shortfalls, which are constraining the rate of industry growth. We ultimately expect this near-term bottleneck will gradually improve. Specifically, we anticipate improvement in wafer starts towards the end of fiscal 2022, which aligns with our expectation of a multiyear industry expansion period. It's also critically important to understand that this bottleneck ultimately stems from a short-term inability for industry capacity to meet end-market demand as we transition into the new data era of semiconductor demand. In addition to this new layer of end-market demand, favorable technology transitions, which we are directly involved in, are well established and set to accelerate over the long term. This structural dynamic includes a higher level of capital intensity for the assembly process and access to the emerging advanced LED market, 5G adoption, and the transition to electric vehicles, along with more semiconductor-rich consumer devices. This longer-term trend enhances our visibility and growth potential. Looking ahead, this outlook is aligned with the long-term target we showed during our recent Investor Day. We continue to anticipate that fiscal 2022 will be another very strong year, and we also anticipate wafer capacity to improve at a faster rate beginning in the second half of 2022. With that said, I will now discuss our September quarter's performance. We again exceeded our revenue guidance, which anticipated a $465 million midpoint. We generated just over $485 million of revenue during the September quarter, which was a significant effort for our manufacturing, supply chain and engineering team. This effort has allowed us to temporarily stretch our capacity in support of our customers during this rapid pace of industry growth. Within the September quarter, our capital equipment revenue increased by over 16% sequentially to $431 million. This was due to ongoing strength in the general semiconductor market, improvement in memory, and ongoing charting and execution of our advanced LED program. We are pleased to report several new wins for our dedicated advanced packaging tool, specifically upon our thermal compression system, Katalyst; our high-accuracy flip chip system; and also LITEQ 500, our lithography stepper. This specific win highlights our direct connection to this evolving landscape and the growing need for more complex, higher-value semiconductor assembly processes. This win also emphasizes our competitiveness and the potential for share gain in several specific leading-edge assembly applications, including mobile processing, image sensing, and silicon photonics. During the September quarter, we also recognized revenue from our initial LITEQ 500 laser-enabled lithography solution. This system has been well received due to its good wafer handling, performance, stability, and ease of operation. The need for an advanced lithography system for the end processes will accelerate with assembly complexity in the features. Our fiscal 2021 revenue related to these three platforms increased by over 200% from fiscal 2020. These systems are highly competitive, and we anticipate demand to grow at a similar rate through fiscal 2022. We remain very focused on driving new engagement and qualifications. The need for more complex assembly isn't only limited to our new equipment solutions, but it's also occurring throughout the high-volume semiconductor market. Our most advanced ball bonder platform, the RAPID series, offers key features such as real-time process monitoring, defect detection, and advanced looping that enhance productivity for complex assembly. The RAPID series represented only 39% of our total ball bonder sales in the fiscal first quarter of 2021 and has grown to represent 74% of our ball bonder business during the fiscal fourth quarter of 2021. This market-leading tool enhances corporate-level gross margin. We continue to focus on new development opportunities within the electronic assembly market. As we explained during the Investor Day, the electronics assembly market represents a sizable and largely untapped opportunity for K&S. I look forward to sharing additional details as we prepare to bring this new solution to market over the coming quarters. Regarding LED, I'm pleased to report that we have recognized revenue of just over $80 million in advanced LED solutions throughout fiscal 2021, representing nearly half of our total LED revenue. During the September quarter, we recognized an additional portion of system and services revenue related to our customers' needs and ordering schedules. This is another key milestone for the company, which serves as a testament to our leadership in the most advanced, exciting, and direct-emissive display technologies and highlights our execution and progress toward the long-term financial targets established during the Investor Day. Additionally, we issued a press release on September 22 highlighting our initial LUMINEX shipment and broadening market adoption. LUMINEX is our next-generation mini and micro-LED solution, which targets the emerging advanced display opportunity. LUMINEX has expanded our market access as it provides additional process steps such as pitch adjust sorting and billing, in addition to increasing our customer engagements. The first LUMINEX system was delivered with an initially reduced throughput in September. By October, we provided a software update that enabled 10,000 hertz through the scan function. To clarify this release, that means 10 solar placements per second. At this speed, LUMINEX provides unique production advantages that will help accelerate broader advanced LED adoption and our ultimate market reach. Over the coming quarters, we look forward to sharing new milestones and additional customer engagement with this high-potential system. Next, automotive and industrial demand continue to remain strong and above our long-term average. We remain very positive on the long-term transition, which is increasing semiconductor content per vehicle. Over the coming years, semiconductor growth in automotive is expected to be significantly above the historical growth rate of general semiconductor. In March of 2021, we enhanced our portfolio of automotive-focused solutions with our POWER-C system release. POWER-C specifically targets the growing need for advanced power semiconductor assembly, a critical application required for the electric vehicle transition. During fiscal '21, we shipped nearly 400 POWER-C systems, generating over $45 million of revenue. In addition to this structural growth, driving higher semiconductor content per vehicle, we have recently expanded our market access through our new battery assembly solution. We continue to work closely with several customers who are pursuing battery assembly solutions for the cylindrical market, utilizing both our ultrasonic and laser-based battery assembly solutions. We have also recently delivered our newly introduced prismatic battery assembly solution. Electric vehicle battery production is anticipated to fuel growth at a 30% CAGR through fiscal 2025, providing ongoing and long-term equipment opportunities. Lastly, within memory, revenue grew by over 90% sequentially to $36.9 million for the September quarter. This sequential growth was supported by a strong demand for our leading NAND assembly solutions and steps from several memory-focused customers. I wanted to reiterate our optimism as we look beyond fiscal 2022. Over the past four years, we have worked closely with our clients to solve challenges within the display, automotive, and semiconductor assembly markets. This close relationship with industry leaders has allowed us to take calculated risks and pursue multiple development initiatives in parallel. Today, these past investments are beginning to generate returns. Over the years, we have introduced and driven market adoption of several high-potential systems that directly support high-growth opportunities within the automotive, semiconductor, and advanced display markets. These systems are at different stages of maturity, providing ongoing opportunities to create value for investors. We have made many organizational refinements, which have enhanced this value creation process. We continue to have a funnel of new opportunities that provide additional upside to our long-term targets. I look forward to providing additional details on the status of our recent product releases and the new development initiatives over the coming quarters. With that said, I will now turn the call to Lester Wong, who will discuss our financial performance.

Lester Wong, CFO

Thank you, Fusen. My remarks today will refer to GAAP results unless noted. As Fusen mentioned, our global operations, manufacturing, and engineering teams have overcome many supply chain-related challenges this quarter. We were able to stretch our capacity during the September quarter and continue to anticipate ongoing supply chain challenges over the near term. For the fiscal year, we were very pleased to have recognized revenue of $1.52 billion, generating non-GAAP net income of $390 million and free cash flow of over $275 million. During the September quarter, we recognized revenue of $485.3 million, up nearly 15% from our most recent record revenue in the June quarter, able to meet this level by managing external supply chain challenges closely and stretching our own capacity to support customers' aggressive expansion plans. In addition to stretching capacity, we also recognized an additional portion of advanced display revenue based on our customers' shipment and delivery schedules. In addition to this significant top-line achievement, we're also able to deliver strong gross margins of 47.7%. This strong margin performance was due to a higher mix of advanced facility systems, which deliver a higher value proposition for our customers. This gross margin strength, combined with greater operating leverage, allowed us to deliver a non-GAAP operating margin of 33% in the September quarter. We continue to maintain our quarterly operating expense model, which represents roughly $48 million of fixed expenses, plus 5% to 7% of variable expenses tied to revenue. Tax expense for the quarter came in at $21.6 million, driving our effective tax rate to 13.9% in the September quarter. As expected, our full-year effective tax rate came in below our long-term target, largely due to the release of valuation allowances related to the successful introduction and market adoption of our PIXALUX system. Over the long term, we continue to maintain the 18% effective tax rate target. Non-GAAP net income came in at $138.3 million, representing $2.17 of non-GAAP EPS during the September quarter, which again reflects the inherent leverage in our model and long-term cash generation potential. Turning to the balance sheet, working capital has remained very efficient. Days of accounts receivables stayed consistent at 78 days, days of inventory improved slightly from 60 to 59 days, and days of accounts payable decreased from 57 to 55 days. During the September quarter, we generated free cash flow of $118 million. Our total cash and investment balance increased by over 16% to $738.9 million. On October 18, we announced a 21% increase for our upcoming dividend, which is payable on January 10. As a reminder, we initiated the dividend program with our first payment of $0.12 per share in July 2018. We then raised the quarterly payment by 16.7% or $0.02 ahead of our January 2021 payable date and will pay $0.17 per share during January 2022. As explained during the Investor Day, the dividend allows us to provide a consistent return that our long-term shareholders can plan for. While consistency is one of our guiding principles, we also want to keep our dividend competitive relative to our close semiconductor equipment peers. Additionally, we continue to believe our market valuation remains undervalued and have prioritized our open market repurchase program by increasing recent activity. During the September quarter, we repurchased just over 60,000 shares for $3.8 million, which represents nearly 40% of our total repurchase in fiscal 2021. As a comparison, during the first six weeks of fiscal 2022, we repurchased 148,000 shares for $7.9 million, which is equivalent to over 75% of our fiscal 2021 activity. We continue to face regional cash constraints in the near term, although expect by the second half of fiscal 2022, we will have better access to our global cash balance. We intend to continue tactically taking advantage of market misperceptions through the use of our open market repurchase program. For the December quarter, we expect demand to remain very strong and anticipate approximately $460 million of revenue, plus or minus $20 million. Considering our efforts to stretch capacity and deliver additional advanced display solutions during the September quarter, this December quarter outlook reflects fairly consistent linear demand for the majority of our products. This continued strength supports our view of a multiyear industry expansion period and keeps us well on track to reach and potentially exceed our long-term financial targets. We expect gross margins to be 47% in the December quarter, plus or minus 50 basis points, due largely to ongoing manufacturing efficiency and strength of higher-margin products. Non-GAAP operating expenses are expected to be approximately $77 million, plus or minus 2%, and non-GAAP EPS to be $1.88, plus or minus 10%. We continue to anticipate that supply chain challenges will contribute to overall industry growing pains. Looking further out, increased wafer starts should ease these constraints and continue to support above-average semiconductor growth through fiscal 2023. This is very aligned with our long-term target established during the Investor Day. Over the coming quarters, we are very confident in driving new market adoption and customer wins, specifically with our advanced display system supporting the mini and micro LED transition, as well as our APAMA and Katalyst advanced packaging systems, which support high-performance computing and mobile applications. This continues to be a very exciting period in the company's long history, and we see ongoing potential to dramatically and sustainably extend our business as we continue to execute on this multifaceted growth strategy. We look forward to sharing additional information regarding these new opportunities over the coming quarters. This concludes our prepared comments. Operator, please open the call for questions.

Operator, Operator

Our first question today is coming from Craig Ellis from B. Riley Securities.

Craig Ellis, Analyst

Congratulations on the very robust quarter and strong outlook. Fusen, I wanted to start just by digging into one of the disclosures in the release regarding the backlog at $787 million. What I was hoping to do is have you help us understand the composition of that backlog. One, how distant are orders in the backlog? To what extent is it giving you visibility beyond the fiscal first quarter into the second and third quarters or maybe beyond? And then with regards to the breadth of products that are in backlog, would it be similar to what we've been seeing? Or is there a significantly different composition of systems than what we recently reported in the fiscal fourth quarter?

Lester Wong, CFO

So Craig, this is Lester. Let me address that. I believe the backlog remains exceptionally strong. In terms of the composition, I expect it will be similar to the fourth quarter. While the mix might vary slightly, we continue to see robust sales of our higher-margin RAPID products and LED, which may even increase a bit. Additionally, we anticipate strong sales of advanced display products in the future. So, the mix is fairly comparable, though not exactly the same. Regarding visibility, we've made progress; the lead time is now approximately 6 to 7 months, which is an improvement from nearly 8 months, double our historical average. We've worked hard to achieve this by doubling manufacturing capacity since the beginning of fiscal '21 to meet our customers' demand. We expect FY '22 to remain strong, although there may be fluctuations due to industry-wide supply chain challenges, particularly wafer shortages that many are currently facing. We believe, as Fusen mentioned earlier, that these issues will ease somewhat in the second half of the year.

Craig Ellis, Analyst

That's really helpful, Lester. And then the follow-up question is somewhat related to the color you provided. We would typically expect the business to have a seasonal profile to it in the December quarter and then in the March quarter, either flat or accelerating a little bit. But it seems like the December quarter's outlook is really bucking that given that the midpoint is only down $25 million or 5% or so sequentially. So to what extent do you think you are seeing seasonality in the business versus just seeing the continued strong demand for your products, including all the new products, really power right through that seasonality?

Fusen Chen, President and CEO

Actually, Craig, I think the strong September and December quarters, we believe, is due to a long lead time and people actually booking ahead, and we don't have the maximum capacity to deal with that. That's why originally, maximum target capacity is actually around 450. Actually, we stretched the capacity to deliver what customers need. So I think at this level, we're really beyond. We probably don't expect every quarter we need to run beyond our maximum target capacity. Thus, we might see some seasonality from this point.

Craig Ellis, Analyst

That's really helpful, guys. And then I'll just ask one more before hopping back in the queue. Fusen, I was interested in your comments regarding products for EV battery assembly. And I'm wondering if you can talk about the engagements that you have with potentially customers or customers' customers, whether the engagements are more with the battery makers themselves or with the OEMs or both?

Fusen Chen, President and CEO

We work with both battery makers and OEMs. You might recall that we established a partnership with a key industry leader quite early on. Recently, many players have reached out, and they are eager to collaborate with us. We have broadened our product range, starting with cylindrical types and then moving on to prismatic. To enhance our competitiveness, we've segmented our offerings into high-end and more cost-effective options, particularly aimed at the Chinese market. Overall, this area presents a significant opportunity for us, and we’re consistently recognized as a leader in this field. I hope this addresses your question.

Operator, Operator

Our next question is coming from Krish Sankar from Cowen & Company.

Krish Sankar, Analyst

Congrats on executing well in a tough environment. I have three questions, too. The first one is, is there a way to quantify how much the revenues in the September and December quarters would have been if you're not supply constrained?

Fusen Chen, President and CEO

Well, Krish, I don't understand the question. The revenue is the product we deliver, right? So can you ask again?

Krish Sankar, Analyst

Let me ask you another way. With the December quarter, what would the December quarter revenues or guidance have been if you are not supply constrained?

Lester Wong, CFO

Well, Krish, I think the December quarter revenue, the supply constraint is not as big a factor there. I think the point we're making is that we kind of stretched capacity in the September quarter to meet our customers' demand. However, demand is still strong. But I don't think if there was infinite supply capacity, it would not be a $500 million or $600 million quarter, if that's what you're asking.

Krish Sankar, Analyst

Got it. That's super helpful, Lester. And then second question is, I might have missed it, but Fusen, did you give an FY '22 revenue guide? Or should we assume it's going to be similar to FY '21?

Fusen Chen, President and CEO

Well, actually, we are quite positive on the end market demand for '22. We are feeling right now that '22 revenue will be comparable to '21. That's what we communicated during the Investor Day. So that means we expect fairly comparable figures. At this moment, I think what we see is maybe slightly upside compared to '21 in our memory and also auto business. But Krish, as you know, this industry, we also have a global supply chain challenge. Something we focus on and many people focus on is wafer shortage, which is a current concern in industry growth. But we anticipate new wafer capacity will come online in the second half. So it's going to provide a comparison revenue over '21. Again, we are very positive about '22, and we will provide more information about '22 revenue expectations over the coming quarters as we see more clearly how this wafer shortage goes.

Krish Sankar, Analyst

Got it. Helpful, Fusen. And then final question. Obviously, very strong advanced display revenues in the September quarter. Are they all for mini LED? Or is anyone beginning to look at micro LED? Along the same lines of Lester, the December quarter gross margin is pretty strong too. Should we assume that somehow, there's going to be another strong advanced display quarter?

Fusen Chen, President and CEO

Okay. Let me answer the first part of your question. Krish, mini and micro LED are categorized according to size, right? Many people categorize mini LED as micro LED. From my point of view, I think the size is, of course, a mini LED more at this moment. But there is significant engagement with many customers, and we are currently dealing with a very small size. To answer your question, I think mini LED is the majority of our revenue at this moment.

Lester Wong, CFO

And then, Krish, for the margin, yes, we are calling for very strong margins for Q1 at over 47%. There is quite a mix of the advanced display solution in the Q1 revenue as well.

Operator, Operator

Next question is coming from David Duley from Steelhead Securities.

David Duley, Analyst

Congratulations on the great execution; 33% operating profit is a great achievement. Just a couple of questions. Lester, as far as operating expenses go, do you think that the variable and fixed expenses that you just outlined are the right numbers going forward? Or should we be adjusting operating expenses given the outlook?

Lester Wong, CFO

No. I think it's still the right number. I mean at $48 million to 5% to 7% and non-GAAP for this quarter at about $77 million. Obviously, Dave, there are push and pulls within OpEx at any one time, right? But I think it's in the right ballpark. As we move forward with some development programs and as things change, we'll update the model as needed.

David Duley, Analyst

Okay. And then my second question is, I think at your Analyst Day, you talked about a 500 basis point gross margin improvement over the next several years. I realize there are lots of factors behind that improvement. But if you could help us understand where you are, as far as if this is a 9-inning ball game, how many innings are you in to that gross margin optimization program? I realize it might take a couple of quarters to see the gross margin improvements because you've got to work through the inventory. With all that in mind, could you help us understand how far you are along in adjusting things to get to that 500 basis point gross margin?

Lester Wong, CFO

Gross margin improvement is always a work in progress for us, and it's something we always drive towards, not just towards the 500 basis points, but we want to push it beyond. To answer your question specifically, I think we're probably one-third to halfway through that journey. We have worked very hard to maximize manufacturing efficiency through supply chain, operations, and engineering, to redesign and maximize cost savings. The other thing that makes a big difference, and it will take some quarters to kick in, is product mix. As Fusen indicated earlier, we migrated many ball bonders to the more complex, higher-margin RAPID series. Additionally, in LED, we have also increased the margin because we introduced a new tool. We will also have more advanced display and advanced packaging tools, which carry higher margins. I think you will see margin expansion over the next couple of quarters and definitely towards the target we set during Investor Day.

David Duley, Analyst

Okay. Final question from me is, Fusen, you mentioned some customer wins in the advanced packaging area, both within the thermal compression bonder and the flip chip. Could you elaborate a little bit more on the potential for those wins and when you would expect the revenue from those particular wins you're referring to to start to contribute?

Fusen Chen, President and CEO

Yes. We established our TCB base stuff from OSAT customers. If you look at it, at this moment, we have engaged with a lot of customers. From OSAT to CMOS imaging sensors to silicon photonics to AR/VR, we are very encouraged. The technology we provide to the industry is well recognized, and we do expect the TCB will grow strongly into this year. Of course, we expect it will double again in '23. We are very positive about our TCB. We have a lot of internal programs for the flip chip. While we already have several customers, we're in a high-productivity and high-acuity feature. We believe at this moment, TCB has much more momentum, but flip chip is picking up.

Operator, Operator

Your next question is coming from Charles Shi from Needham & Company.

Charles Shi, Analyst

I want to start by going back to the question about fiscal '22 outlook. Obviously, investors hear things through from your largest OSAT customers; looks like the consensus view seems to be that OSAT spending on wire bonders may moderate a little bit next year. Yet you are seeing something like a comparable outlook for next year. I wonder whether there's a little bit of a growth driver shift away from OSAT to IDMs next year. Is that the case? And if you can tell us a little bit more in terms of the OSAT contribution to revenue in fiscal '21 and what you expect in fiscal '22?

Fusen Chen, President and CEO

Okay. At this moment, we do see some OSAT customers delay their delivery schedule due to wafer shortages. Many have mentioned this. But we also see some customer pull-in due to our diverse customer base. When scheduling is delayed a little bit, we have others wanting to expedite their orders. Overall, we still see very healthy demand, and we believe fiscal '22 will be another strong year for us. To answer your question, OSAT accounted for almost close to 90% of shipments in fiscal '21. Historically, OSATs have accounted for around 65%. So we think in fiscal '22, we don't have a forecast for OSATs. As Fusen said, we have a broad spectrum of customers. Thus, if there is a slight slowdown from OSAT, we will still have demand from others.

Lester Wong, CFO

To highlight Charles's point, we believe, as Fusen mentioned, there is a broad spectrum of customers at this moment to serve. This means that even if there is a slight slowdown from OSAT, others can help cover the demand.

Fusen Chen, President and CEO

A little delay from OSAT is primarily due to wafer shortages. The industry demand is really strong, especially in the end market. However, the wafer starts are not catching up with this demand rate. This expectation for a new wafer start in the second half is the industry's hope.

Charles Shi, Analyst

So my next question focuses on the electric vehicle part of your growth driver. I believe electrification means not only battery assembly, but also power devices. You highlighted the POWER-C product adoption, momentum, and pricing strength. I wonder, going into next year, how can we quantify that part of the growth in terms of the power devices side and the battery assembly side? Is the investment potentially strong or concentrated in China, or do you have more global exposure on both power device and battery assembly sides?

Fusen Chen, President and CEO

Actually, I think it's almost a China-centric market. A year ago, it was quite weak, but Europe is now coming back. In terms of power devices and EV, we are actively engaging with customers across regions.

Charles Shi, Analyst

Got it. So maybe my last question is about TCB wins. I want to ask about your potential opportunity with leading logic IDM in the U.S. Obviously, that particular customer seems to be ready to ramp major advanced packaging potentially in Malaysia during the second half of 2022. I wonder whether that's a contributor to your TCB business. If it's the case, is it something you would see in fiscal 2022, or is that more like a fiscal '23 event?

Fusen Chen, President and CEO

It's difficult for us to comment about single customers. However, I can tell you that all our engaged customers are showing positive results, and as the ramp comes, it will certainly benefit us. We cannot comment on specific customers, but we are optimistic about our TCB prospects.

Lester Wong, CFO

Again, we do not comment on specific customers, but we anticipate advanced packaging revenue, particularly through TCB, coming in fiscal '22, not just in '23.

Fusen Chen, President and CEO

Yes. Compared to fiscal '21, TCB is anticipated to grow significantly. Our expectation is for it to double in '23. The end demand is very strong across the industry with our drive through technology. However, the new wafer capacity has not yet caught up with this strong demand. That is why we are currently experiencing some industry pain. We believe new wafer starts will come online in the second half, which will benefit everyone in the industry. The current wafer start rate is about 4%. Industry expectations are for a rise to 6% by the end of '22 and beyond.

Operator, Operator

Our next question is coming from Tom Diffely from D.A. Davidson.

Tom Diffely, Analyst

Fusen, you talked a lot about industry wafer supply constraints. I think that's well understood. But are you seeing the bigger impact at the leading edge or the trailing edge? And does it impact your core ball bonder business more or advanced packaging business?

Fusen Chen, President and CEO

Of course, I think that the impact on capacity is not very concentrated on 10-nanometer and below. However, we are also working with our customers to test their limits. We see positive results with using mobile devices beyond the 10-nanometer process. So at this moment, Tom, our ball bonders support advanced packaging even at the 10-nanometer level. To answer your question, I believe the industry currently is impacted more by trailing edge products.

Tom Diffely, Analyst

That's helpful. And then moving over to the display business. With the success you've had with PIXALUX and the rollout of LUMINEX, how do you think this will impact each other over the next couple of years? Are there specific applications for which we will see synergies?

Fusen Chen, President and CEO

At certain points, they will be complementary, but at other points, it can also become competitive. Let me clarify. PIXALUX serves one application, it's final placement, at about 50 hertz. The LUMINEX not only focuses on final placement but can also address many LED manufacturer needs in sorting and pitch adjustment. The customer base for LUMINEX will be wider and speed will also be increased. For assumptions like an 8K TV, we can see LUMINEX potentially taking center stage in direct applications. We think we will start seeing early revenue by the end of the fiscal quarter. By summertime, we should receive initial revenues and position for mass production when customers see our results. While most revenue in '22 will still come from PIXALUX, beyond '23 we anticipate LUMINEX will ramp quite quickly.

Tom Diffely, Analyst

That makes sense. And then finally, Lester, you mentioned there are constraints on cash flow from certain locations. You mentioned those might ease in a few quarters. What approaches are you taking to repatriate that cash?

Lester Wong, CFO

It's quite complex and involves tax considerations. We're trying to bring it back using the most tax-efficient methods to avoid leakage. We expect to be able to access this cash by the second half of the year.

Tom Diffely, Analyst

So, just to summarize, what do you think the costs will be to you to bring that cash back or repatriate it?

Lester Wong, CFO

It should not be significant.

Operator, Operator

Your next question today is coming from Christian Schwab from Craig-Hallum.

Christian Schwab, Analyst

Great quarter and great outlook, guys. I guess most of my questions have been answered, but just one last one. Fusen, as we look at the tight supply environment, with wafers opening up in the second half of calendar '22, this will drive increased demand for advanced packaging solutions as the market moves towards supply-and-demand equilibrium. Would you agree that this cycle appears different than others for you, particularly that it may be stronger for much longer as the wafers come online next year, potentially extending into '23 for advanced packaging strength? At that point, mini and micro LED adoption will likely become much clearer, and we may be on our way to significant growth in silicon photonics and carbide markets as everyone races to make electric vehicles faster than their competitors. Is that the correct assessment? And is this why you're increasing the dividend and buying back stock at these levels, knowing that we were buying back shares not long ago at materially lower levels?

Fusen Chen, President and CEO

We are quite positive about the company's prospects. We are no longer a single-product company. '21 has been strong, partially due to many working from home, leading to increased bookings. The end market demand is very strong, but wafer capacity cannot keep pace with strong end demand. Once wafer starts increase, as I mentioned earlier, we should see 6% annual growth instead of 4%. This means a strong end demand will continue, supporting our core products. Our company is well-positioned for growth in advanced packaging, flip chip, and advanced display applications. I believe we are industry leaders, and with our LUMINEX system, we will also gain traction.

Operator, Operator

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

Joe Elgindy, Senior Director, Investor Relations

Thank you, Kevin. Thank you all for joining today's call. We will also be presenting at the CEO Summit in person in San Francisco on December 8; D.A. Davidson Virtual Semicap, Laser and Optical Conference on December 15; and also the 24th Annual Needham Conference during the week of January 10. As always, please feel free to follow up directly with any additional questions. Have a great day, everyone.

Operator, Operator

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