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Benjamin Poh: Good morning. Ladies and gentlemen, this is Ben Poh, the Head of Investor Relations at ASMPT. And today, I'll be moderating the call for the first time. On behalf of ASMPT Limited, welcome to our third quarter 2025 investor conference call. Thank you all for your interest and continued support. [Operator Instructions] During the Q&A session priority will be given to the covering analyst. Before we start, let me go through our disclaimer. Please note that there may be forward-looking statements about the company's business and finances during this call. Such forward-looking statements could involve known and unknown uncertainties and risks that could cause actual results, performance and events to differ materially from those expressed or implied during this conference call. On the call, unless stated otherwise, all references to gross profit or margin, operating profit, segment profit and net profit are on adjusted basis as described in our MD&A. For your reference, the Investor Relations presentation on our recent results is available on our website. On today's call, we have the Group Chief Executive Officer, Mr. Robin Ng; and the Group Chief Financial Officer, Ms. Katie Xu. Robin will cover the group's key highlights for the third quarter, guidance and outlook for the next quarter, while Katie will provide details on the financial performance for the third quarter. Now I will hand it over to our Group Chief Executive Officer, Robin.
Cher Ng: Thank you, Benjamin. Good morning and good evening to everyone today. It is a pleasure to have you all on our earnings conference call for the third quarter of 2025. Now let's start with the key highlights of the third quarter. This quarter, we continue to experience strong momentum driven by AI. The group's Advanced Packaging and mainstream businesses continued to benefit from sustained AI adoption. The group's strong Advanced Packaging momentum has been driven by Thermo-Compression Bonding or TCB. We remain dominant in advanced logic, have made rapid inroads into high-bandwidth memory or HBM and more recently have a first mover advantage in HBM4. At the same time, AI infrastructure comprising data centers, data transmission and power management contributed to demand in the mainstream business. In China, demand was also driven by EV and high factory utilization across OSATs. Now let me talk about our technology leadership in TCB. We have further solidified our leadership in HBM. The group's HBM TCB solution have achieved better yields versus the competition. And as I said above, we are leading in the transition to HBM4. In addition, our proprietary fluxless active oxide removal technology provides superior scalability for HBM 16-high and above with the lowest cost of transition. In logic, the group's ultrafine pitch TCB for chip-to-wafer with plasma AOR solution has successfully passed final qualifications for quality and reliability at a leading foundry and is ready for high-volume manufacturing. Notably, plasma-based technology has been endorsed by this leading foundry, underscoring this technological advantage over other processes. Turning to TCB orders. Encouragingly, the group achieved recurring orders from both memory and logic customers in the third quarter. In memory, our TCB solutions for HBM4 12-high became the first to secure orders from multiple HBM players. We expect to remain as a primary supplier, demonstrating our technology leadership in the rapid transition to HBM4. In logic, the group continued to win orders as a process of record for chip-to-substrate applications for key customers. As the market transition to a larger compound dies, we are well positioned to secure sizable orders in Q4 2025 and beyond from the OSAT partners of a leading foundry. As a business, we remain confident in the outlook for TCB demand. As to the other updates, in hybrid bonding, the group continued to ship hybrid bonding tools in Q3 2025. Our second-generation hybrid bonding solutions are competitive in alignment precision, bonding accuracy, footprint efficiency and units per hour. In photonics, we continue to dominate the optical transceiver market, reinforcing our leadership as a key supplier of 800G transceivers while also actively engaging industry players on next-generation 1.6T photonics solutions. Moving to SMT. Bookings were better than expected in the third quarter, demonstrating signs of recovery in the business. SMT's AP solutions achieved strong bookings year-on-year growth in the third quarter and won sizable Systems-in-Package orders from IDMs and OSATs for RF modules for base station to support AI growth. SMT also continued to win orders for the next-generation chip [ SMT 2 ] in advanced logic smartphone applications from a leading foundry and OSAT partners -- and OSAT players. In our mainstream SMT business, the demand came mainly from EVs where we remain a leading player in China. Before I conclude this section, I want to highlight that we have delivered a profitable quarter, excluding the strategic restructuring costs from the voluntary liquidation of the Shenzhen AEC plant as announced in August. The decision was made to optimize the group's global supply chain to better align with the evolving market dynamics and customer needs. As said in the announcement, this move is expected to improve the cost competitiveness, agility and resilience of the group's global manufacturing operation for its key products and solutions. With those highlights, let me now pass over the time to Katie, who will talk about our group and segment performance.
Yifan Xu: Thank you, Robin. Good morning, and good evening, everyone. Let me take you through the group financials. This slide covers the group's key financial metrics for the third quarter of 2025. The group delivered revenue of USD 468.0 million, representing an increase of 7.6% quarter-on-quarter and 9.5% year-on-year, largely driven by growth in SMT. In third quarter, the group recorded bookings of USD 462.5 million, driven by AI momentum. We recorded recurring TCV orders in memory and logic and SMT bookings were also better than expected. This marks the sixth consecutive quarter that we have achieved year-on-year growth. The group had an isolated bookings cancellation in the third quarter for its panel deposition tools from a leading high-density substrate manufacturer in response to a slower-than-expected digestion of its existing capacity. This is a one-off occurrence. And excluding this cancellation, the group's bookings in the third quarter would have been USD 486.6 million, 1.5% higher quarter-on-quarter and 20.1% higher year-on-year. The group achieved a book-to-bill ratio of 1.04 for the quarter, maintaining a ratio above 1 since Q1 2025. SMT posted a robust ratio of 1.12, while SEMI's ratio was at 0.96. The group closed the quarter with a backlog of USD 867.7 million. The group's adjusted gross margin for the third quarter was 37.7%, which is lower than our typical level. It was impacted by a larger contribution from SMT and the lower SEMI gross margin, which I will explain in the next slide. I would like to note that the group's year-to-date adjusted gross margin remained healthy at approximately 40%. The group's operating expenses were up 6.2% Q-on-Q and 5.3% year-on-year. As expected, higher OpEx was largely due to strategic R&D and infrastructure investments and foreign exchange impact. They were partially offset by prudent spending control and some benefits from restructuring. The group's adjusted operating profit was HKD 124.4 million, down 26.6% quarter-on-quarter and 30.3% year-on-year due to lower gross margin and higher operating expenses. Group adjusted net profit was HKD 101.9 million, down 24.4% quarter-on-quarter, but up 245.2% year-on-year. The quarter-on-quarter adjusted net profit, which included the fee collected from the order cancellation mentioned above was offset by the absence of tax credits recorded in the previous quarter. The year-on-year increase in adjusted net profit was driven by the fee collected from the order cancellation and a lesser negative impact from foreign exchange. The adjusted earnings per share was HKD 0.24. Now moving on to the Semiconductor Solutions segment for the third quarter of 2025. SEMI's revenue was USD 240.5 million, down 6.5% quarter-on-quarter, but up 5.0% year-on-year. The year-on-year revenue increase was driven by stronger demand for wire bonders and die bonders due to the increased needs for power management across multiple applications. Quarter-on-quarter revenue decline was due to the timing of key customers' AI technology road maps, which impacted AP demand this quarter. There was also some shipment disruption caused by a typhoon in September in China. SEMI's bookings of USD 207.8 million were down by 1.7% quarter-on-quarter and 12.4% year-on-year. Excluding the booking cancellation explained above, SEMI's Q3 2025 bookings would have been USD 231.9 million, 9.6% higher quarter-on-quarter and slightly lower year-on-year. SEMI recorded quarter-on-quarter and year-on-year growth in wire bonders and die bonders. TCB orders were up quarter-on-quarter but remained at a lower level due to the impact on AP demand, as mentioned above. As I said earlier, SEMI's adjusted gross margin was lower than normal at 41.3% for Q3 2025. Q-on-Q decline was due to a higher contribution from wire bonders, lower TCB revenue and a relatively lower manufacturing utilization in Q3 2025. Year-on-year decline was due to high base effect from TCB manufacturing ramp in Q3 2024 and a higher contribution from wire bonders this quarter. Encouragingly, year-to-date SEMI adjusted gross margin has stayed in the mid-40s and AP margins have remained stable. SEMI adjusted segment profit was HKD 82.6 million in Q3 2025, down 52.8% quarter-on-quarter and 41.5% year-on-year, mainly due to lower gross margin and higher operating expenses, as mentioned in the previous slide. Next, the SMT Solutions segment of our business. SMT delivered strong revenue of USD 227.5 million, up 28% quarter-on-quarter and 14.6% year-on-year. This was due to a robust performance in Asian markets driven by AI servers, EVs in China and the delivery of a smartphone bulk order booked in the previous quarter. However, contributions from automotive outside China and industrial remained soft. SMT registered Q3 2025 bookings of USD 254.7 million, down 5% quarter-on-quarter, but up 51.8% year-on-year. Marginally lower quarter-on-quarter bookings were due to a high base effect from the Q2 smartphone bulk order, while the year-on-year increase was driven by strong momentum across both AP and the China mainstream markets. AP bookings were supported by demand from IDMs and OSATs for telecom base stations and AI servers. China's mainstream business recorded strong year-on-year growth due to demand from EVs. SMT delivered a gross margin of 33.9% this quarter, up 136 basis points quarter-on-quarter and 163 basis points year-on-year. And segment profit was HKD 163.0 million, up 205% quarter-on-quarter and 65.6% year-on-year. Both were driven by higher volume effects. With that, let me now pass the time back to Robin for Q4 revenue guidance.
Cher Ng: Thank you, Katie. Now to Q4 revenue guidance. The group expects Q4 2025 revenue to be between USD 470 million and USD 530 million. This is up by 6.8% quarter-on-quarter and 14.3% year-on-year at the midpoint, which is above market consensus. This growth will be supported by momentum in both SEMI and SMT. Looking ahead, the group's TCB TAM projection has a potential to go beyond USD 1 billion in 2027, supported by recent news about investments in the AI ecosystem. AI data centers will continue to drive demand for AP, particularly TCB for HBM4 and advanced logic where the group has technology leadership. The group's mainstream business will be supported by global investment in AI infrastructure and stable demand from China, while visibility for automotive and industrial end markets recovery remains low. While the group has not experienced any material impact from tariff policies, it acknowledges that uncertainties remain. The group's global presence will provide flexibility to navigate any potential impact, and we will continue to monitor the situation closely and adapt as needed. This concludes our third quarter 2025 presentation. Thank you, and we're now ready for Q&A. Let me pass the time back to Ben to facilitate.
Benjamin Poh: Thank you, Rob. [Operator Instructions] With that, may I request Gokul to unmute.
Gokul Hariharan: First question I had is on the HBM4 commentary from you, Robin. And you mentioned that you are leading this transition to HBM4. Could you explain a little bit more what exactly that is indicating? Do you think that you would have higher market share in HPM4-based TCB compared to the incumbent Korean vendor? And also your updated view on when does the fluxless TCB insertion happen for HBM? Is it happening for HBM4 or we are waiting for HBM4E for this migration to happen?
Cher Ng: Gokul, have you finished?
Gokul Hariharan: Yes, that's my first question.
Cher Ng: I think the question is on the HBM4, right?
Benjamin Poh: Leading transition to HBM4.
Cher Ng: That's right. Yes, I think as mentioned in our MD&A, we believe we have established ourselves as a primary supplier for the HBM4 market. I mean we have a conviction because we have won -- we are probably the first to have won the HBM4 orders for not just 1, but 2 major HBM players. Now I think the second question is on fluxless. We believe that there is point as the industry continue to stack higher and higher and move from HBM4 to [ 4E to 5 ], in our opinion, it's quite inevitable that they have to move to a fluxless solution because the number of IOs will continue to increase, the pitch will probably narrow down, the chip gap will get smaller. So all this means that fluxless will be a better solution compared to a flux-based TCB solution.
Gokul Hariharan: So just to clarify, Robin when you talk about 2 HBM vendors, does it include the biggest market share player? Because I thought they are still using the incumbent vendor, right?
Cher Ng: Yes, of course, of course, as we said, we have won orders from 2 of the 3. So definitely, yes, we are talking to the leading one.
Gokul Hariharan: Got it. Understood. Also maybe next question is, I think you observed some pause in AP and TCB in Q3. What is the reason for that? And given your guidance for 7% Q-on-Q growth for Q4, could you talk a little bit about how SEMI's overall and TCB within that will be growing? That would be outgrowing that 7% or it will be growing slower than the 7%?
Cher Ng: I think in terms of when we talk about pause, actually, it's really largely driven by the timing of key customers' technology road map, right? So we are confident that when they launch the new architecture, we will get the orders. So it's a matter of timing in our opinion. So TCB demand, whether in terms of booking or billing will actually align with this timing as far as concerned. So it tends to be a bit lumpy, yes.
Gokul Hariharan: Is that more about logic? Or is it more about HBM? And also any indications on like segment-wise too, how are we thinking?
Cher Ng: Gokul, I would say both because the technology road map will drive both HBM as well as on the logic side as well. Yes.
Gokul Hariharan: Okay. And Q4, any thoughts?
Cher Ng: I think in terms of, if you are alluding to booking, maybe it's time for me to give you some color on booking for Q4, right? I'm sure this question will pop up during the conference call as well. Now the way we look at Q4 booking color on the group-wise in Q4, group-wise booking in Q4, we expect our bookings to be kind of flattish compared to Q3 reported number of -- Q3 reported number was USD 462 million. So going forward in Q4, we expect that to be kind of flattish on a group basis. However, we do expect that this Q4 booking for the group will be the seventh consecutive quarter of year-on-year booking growth since Q2 2024. So it's encouraging to note that we have been growing our bookings for 7 consecutive quarters. And I think Gokul, encouragingly we see SEMI bookings are expected to increase by mid-teens Q-on-Q mainly due to TCB. So I'd say Q-on-Q mid-teens and still comparing against the reported number, right? So that's for the SEMI bookings, expected to increase mid-teens Q-on-Q mainly due to TCB. So we expect TCB booking to sort of increase on Q-on-Q basis compared to Q3. And for SMT, we expect SMT to decline Q-on-Q due to the already high base effect in the prior quarter. Now baked into the Q4 booking for SEMI, I think the [ QR ] for chip-on-substrate application. And as the market moves towards larger compound die because of higher computing power -- compute requirement, we are confident of achieving a sizable TCB order for OS application in Q4 from the leading foundry OSAT partners. And these orders will be likely built in early part of 2026, which will be definitely gross margin accretive, right? So I think to sum it all in terms of Q4 and certainly beyond Q4 in terms of booking color, we remain confident that the strong AI tailwinds, including the recent news regarding investment in the entire ecosystem for AI will continue to drive demand for AP, in particular, our TCB technology leadership will position us strongly going into 2026 and beyond. So this is a bit of Q4 color and slightly into Q1 as well.
Benjamin Poh: And next, I would like to request Donnie to unmute.
Donnie Teng: My first question is a housekeeping question. So considering we have disposed the AEC operation in China, wondering if Katie can give us some color on how should we estimate the OpEx or OpEx ratio in the coming quarters as we have seen the OpEx ratio has been pretty high for the past few quarters. So wondering if it will be coming down after the disposal of the AEC operation and also some cost control management. And my second question is regarding to the TCB. So my understanding is that despite we have some progress in fluxless TCB, but the real volume shipment remains small into maybe fourth quarter this year. So I was just wondering if you can give us a time line where -- when exactly the fluxless TCB for memories and for leading foundries can ramp up more significantly in the future. And also some comment on the progress in China will be also appreciated. As you know that China has been aggressively increasing their AI chip production capability, including HBMs as well.
Yifan Xu: I think I will take the first portion, Donnie. So you asked a question about AEC liquidation. I just want to make a correction. For AEC liquidation, as we announced, the savings was going to be RMB 150 million each year. Majority of that saving actually will be benefiting COGS, not OpEx. There will just be a little bit factories and G&A that will be part of OpEx. So that -- so on AEC, let me just spend a quick minute. The liquidation took -- sorry, the announcement took place in August, and the project has been progressing pretty well. And we do expect that the savings will benefit us going forward. And on the OpEx ratio and specifically on OpEx, there's actually no change. At the beginning of this year, we announced that we will be investing incrementally HKD 350 million in R&D, especially AP and the infrastructure of the company. So every quarter, we've been actually -- we are on the path of the investment. And because of that incremental investment, we've mentioned in prior quarters that this year's OpEx will be similar to prior year with some marginal increase. And that narrative has not changed and will not change for the year.
Cher Ng: Okay. I will take on the second question, Donnie. In terms of TCB fluxless application. As mentioned in our MD&A, we have made very good progress in terms of fluxless [indiscernible] TCB for logic side, Chip-on-Wafer. I think plasma technology has been endorsed by the leading foundry. And also just to recap, Donnie we have been saying already in the past, but it's good for recap that Chip-on-Wafer demand this year, even we have won the technology battle, the Chip-on-Wafer demand will not be significant this year. We are looking into 2026 for inflection point in terms of Chip-on-Wafer application for logic TCB fluxless. Now I think that's your question, if I'm not wrong.
Benjamin Poh: Yes, next question on the time line for the memory and leading foundry shipment.
Cher Ng: Yes. I think in terms of fluxless, I answered the first question to Gokul already. So I think it all depends on when they will adopt the fluxless TCB for memory. As I said in our opinion, as the industry continues to step higher, the chip get smaller, more IOs in our opinion, at some point, quite inevitable that they have to move towards a fluxless TCB solution even for HBM.
Donnie Teng: And any color on China's adoption of TCB or opportunities there?
Cher Ng: Yes. Donnie, I think we have been saying we are -- we supply to the global customer base. I think in terms of volume, obviously, the rest of the world volume in TCB is still higher than those of China. And for sure, we -- China ambition to really step up in terms of advanced packaging.
Benjamin Poh: And next, I will request Kevin to unmute.
Unknown Analyst: My first question is on the TCB outlook. As mentioned on the logic side, we are already passing the qualification, right? So I was wondering how should we think about the potential business opportunity on the chip-to-wafer part as compared to chip-to-substrate, as mentioned that most of the contribution will be coming from next year. And when is it likely the timing of this contribution will start? And also on the memory side, I think we just mentioned that HBM4 we are screening order from multiple customers, right? So just wondering for the customer, are these for sample tool or for production already?
Cher Ng: I can answer your first question first, Kevin, in terms of chip-to-wafer. Quite similar answers to Donnie. Chip-to-wafer in terms of volume, we expect it to be still smaller compared to substrate because substrate, I think the whole industry has moved -- almost the whole industry has moved to TCB solution. Whereas for chip-to-wafer at the moment, it's only the leading foundry leading the pudding in terms of using a TCB for particular end customer. So if more end customers adopt TCB, then you will see Chip-on-Wafer TCB solution fluxes will increase. Otherwise, it's just one customer. I think the volume will still be smaller than the substrate volume. Now in terms of HBM4, I would say they are already into some kind of a small volume production already using our tools for HBM4 production for the 2 customers that we talked about.
Unknown Analyst: My next question is on the hybrid bonder side. So we are -- I was wondering how competitive are we in our Gen 2 hybrid bonder, which [indiscernible] we are already shipping? And what kind of chip order process are these for? Or this is going to be for mainly on the logic side or for the memory side?
Cher Ng: Yes, Kevin, we have -- I would say we are shipping HBM -- HB, hybrid bonding solution for both logic and memory. As we speak, we are actively collaborating with other key logic and memory players and we're making good progress and all these projects are at different stages of evaluation. So we are hopeful that at some point when the hybrid bonding market takes off, we are there to compete with incumbent.
Unknown Analyst: Okay. So we have already -- are we securing order from these customers already? Or this is just right now still in the evaluation process?
Cher Ng: Yes, still in evaluation for some of these very key logic and memory players. We are engaging them very actively as we speak.
Benjamin Poh: And next, I would like to request Sunny to unmute.
Sunny Lin: Could you hear me okay? So my first question is on a high level, directionally, how should we think about the recovery of mainstream SEMI solution from here? I wonder in the last few months, now given more manageable impact from tariffs, do you think the overall client sentiment is improving or not much change for 2026?
Cher Ng: Thanks, Sunny. I think in terms of mainstream, I would say quite encouraging because mainstream are now also -- I mean AI also contribute to the mainstream demand. I think as you're probably aware, China is a significant portion. So we see China volume has been picking up for the last few quarters. So that's giving -- that's supporting the mainstream quite a fair bit for both SEMI as well as SMT. Now in terms of tariff, I think the initial part of the year and initial period of the year, I think the tariff situation definitely has some impact on the sentiment of our customers. Now I think with the tariff situation a little bit more stable, I think customers are now a little bit more confident, I would say, in terms of placing orders. That's why we are also seeing -- we have good orders coming from mainstream wire bond, die bond and SMT are also seeing a mainstream application for putting chips on larger PCB boards for base stations and all that. So all these are also partly driven by the AI adoption. So in general, we see mainstream certainly coming up on the bottom. But going forward, we see mainstream stable, especially the demand coming from China provides that kind of stability for mainstream.
Sunny Lin: Got it. And then I have questions on TCB. Maybe if you could remind us the lead time for you to make TCB tools nowadays. In terms of orders, should we expect the inflection point to potentially come maybe in first half or second half of 2026 for logic and for HBM?
Cher Ng: I think for logic, I think we mean that sizable orders for the chip-on-substrate for larger compound die will most likely realize the revenue in the early part of 2026. For HBM, it all depends again on the timing of our key customers' technology road map. So if they accelerate, we will see revenue earlier for HBM. If there's a further delay, then our timing will also align accordingly. Now in terms of TCB lead time, actually, internally, we are efficient. We don't take a long time to assemble a TCB machine. It all boils down to material supply, right? So if we -- if customers give us more visibility, we can order materials earlier, then the lead time will be shorter. So I think that's the dynamic of the TCB lead time at this point in time.
Sunny Lin: Sorry, maybe a quick follow-up. So for logic -- so on Chip-on-Wafer, any view on when the leading foundry may start to migrate to TCB? Maybe will that be in second half of next year or early 2027? And therefore, assuming if your lead time is about like 2 quarters, should we see orders starting to come through maybe from first half of next year?
Cher Ng: We are hoping orders will come sooner. But again, as I say, it depends on the timing of the road map. We are confident that chip-to-wafer, we will have delivery or shipment in 2026. I don't think it will delay to 2027.
Benjamin Poh: And next, I would like to request Daisy to unmute.
Daisy Dai: My first question is for Katie regarding the SEMI Solutions gross margin. Katie, you previously mentioned that the closure of AEC will have a positive impact of the cost of goods sold going forward. Yes. So how we should think about the near-term and the long-term gross margin for the SEMI Solutions segment?
Yifan Xu: Daisy, assuming you're kind of talking about basically the gross margin going forward, right?
Daisy Dai: Yes.
Yifan Xu: Okay. So first on the AEC point, is correct. We would expect the savings to come in gradually in Q4 and then full-fledged in next year. Now in terms of the overall SEMI Q4 gross margin, we do not provide guidance, but just some kind of directional pointers. Robin guided Q4 revenue probably could tell that the TCB contribution -- revenue contribution will continue to be lower, but with some have high photonics but wire bond momentum will be sustained. So therefore, we expect a slight margin accretion for SEMI's margin in Q4. And then when you look at the group level, then if SEMI and SMT mix stays similar and SMT experiences a stable margin, then we expect basically slight margin accretion for the group in Q4. Now of course, we always caveat right it's really depending on the mix going forward, especially in the midterm in kind of longer run, we -- the technology leadership in HBM and advanced logic with those leadership, we expect the TCB order in Q4 and beyond -- I'm talking about in the midterm now, would actually provide support to SEMI's gross margin. And with this liquidation that you mentioned earlier, we do expect that the SEMI gross margin will come back to the kind of the mid-40s level.
Daisy Dai: It's clear. And second question is for Robin on the hybrid bond. So you are at an evaluation stage for the leading foundry and HBM customers. So for the HBM use hybrid bond, do you see that it will happen in 16-high or 20-high.
Cher Ng: Since we are a dominant TCB player, we hope that they can continue to use TCB even up to 20-high. But nevertheless, we are prepared that if they have to switch to hybrid bonding, we will be there also to provide competitive solution for hybrid bonding for HBM 20-high.
Daisy Dai: Yes. And also a quick follow-up for your leading foundry customer, your European peer has been a dominant supplier for hybrid bond at that leading foundry customer. So how you see your hybrid bond opportunity at this leading foundry customer?
Cher Ng: Yes. We will be relentlessly knocking on their doors for sure. But I think having said that we also have been saying that because we are not the leading player in hybrid bonding, I think the advantage is that we know the pain point, existing pain points, right? So with that coming in from behind, we are relentlessly and diligently working with all the leading logic and memory players, asking them what are the current pain points so that we can incorporate features, engineering innovations to mitigate or totally eliminate those pain points using our tools. This is what we have been doing. So I think we are confident that our Gen 2 and in future Gen 3 should be able to address all the pain point and give us an entry point in all this leading key logic and memory players.
Daisy Dai: And sorry, final follow-up. So in the Gokul's question, you said that you are the primary supplier of the HBM4 market and the first company won the HBM order at 2 key customers. So is it the fluxless TCB or the flux TCB?
Cher Ng: It's still the flux TCB at this point in time.
Daisy Dai: [ Flux 1 ]?
Cher Ng: Yes. The Flux 1. Yes.
Benjamin Poh: Next, I will request Leping to unmute.
Leping Huang: I have another question about the TCB. So what are the current customer concentration level of your TCB equipment now? And what may look like in the future? So is it mainly still concentrated on the top 3 memory maker and the leading foundry? Or you also see some broadening of your customer to other OSAT or other foundries in the market? This is my first question.
Cher Ng: I think we have definitely we have broadened our TCB fan-out to not just leading foundry, the OSATs, HBM and also globally as well. So we're pretty engaged with all top AI customers needing requiring or requiring TCB solution. I hope I answered your question.
Leping Huang: Okay. The second question is about this -- you have the deposition equipment cancellation. So is it due to some the road map change of the -- in the advanced packaging? Also, I remember, is it due to the -- you have a company subsidiary called NEXX, it is from that subsidiary.
Cher Ng: It is from that. It is from NEXX. I think it's a case of digestion of capacity, right? So there was a bit of a sizable capacity maybe about 2 years ago, right? So the customer take time to digest. So -- and these particular customers decided to give it up and pay us a cancellation fee.
Benjamin Poh: Next, I will request Alex to unmute.
Alex Chang: First question is about your margin on SMT solution. It seems like your quarterly revenue level already increased to the level similar to 4Q '23 or early '24. So I see the margin still like low 30s to -- is this the normalized margin going forward? Or you expect margin can return to high 30s level sometime in the future?
Yifan Xu: Yes, Alex, this is Katie. Thanks for the question. So for -- you're kind of comparing to a few years ago where actually the SMT's end market composition were quite different. The -- few years ago, actually, automotive and industrial were running really, really strong and their contributions to SMT's revenue were much larger. And this is where we actually could command relatively higher margin. So currently, as we mentioned, the automotive and industrial end markets are relatively muted. And that's why the margins are sitting in the, call it, low 30s. Unless the end market composition changes, this kind of level will be sustained in terms of margin percentage.
Alex Chang: Another follow-up question on TCB. You mentioned the TAM would reach like USD 1 billion in 2027. Do you have probably a rough split between the logic versus memory and also split between C2W applications?
Cher Ng: Yes. I think it's dynamic. I would say, Alex, it's very dynamic. Again, it all depends on customer road map and all that. But generally speaking, if you take really looking further into the future, it's just intuitive that the HBM TCB demand or size or TAM will be larger than logic because of the number of stacks and also as the industry migrate from one architecture to the next generation, they require more HBM stacks per chip, right? So naturally, I think HBM demand over time, not in a particular year, not in a particular quarter, but over time, HBM demand for TCB will be larger than logic.
Alex Chang: Got it. So what is the company's target market share for each application?
Cher Ng: We don't go down to that kind of granular level HBM market share or logic. But overall, I think last year, we put out the TAM for TCB, our aspiration is to hit 35% to 40% market share in the entire TCB TAM.
Benjamin Poh: And next, I would like to request Arthur to unmute.
Yu Jang Lai: Can you hear me? So the first one, Robin, if you can -- can you share with us a high-level ballpark figure on the revenue contribution from AI?
Cher Ng: This is a difficult question. I think for -- we don't share -- sorry, first, we don't share, but also this is a difficult question because we talk about AI benefiting both AP and mainstream. Well, we have better visibility on how AI benefit AP. But in terms of mainstream, it's a little bit tricky because wire bond, die bond, they are quite fungible. Today, customers may say, okay, I use it for AI-related packaging, tomorrow, they use it for others. So it's a bit difficult to really unpack, sorry.
Yu Jang Lai: No problem. Because you just mentioned that you saw some power application, they start to come back and the drivers from the AI. So that's why I want to get this high-level ballpark figure. Maybe we can discuss it next quarter when we have a visibility. The question number 2 is on the cancellation from the high-density substrate. And I think Leping already touched base a little bit. So my question is, is the key component of the equipment fungible? Can you give it to the other substrate customer?
Cher Ng: The short answer is yes, there's no inventory related issue relating to this cancellation.
Yu Jang Lai: Because if we look into the AI business of the rack and also the key component, actually, we heard more and more PCB, HDI substrate shortage at this moment. So I'm kind of wonder, so was the client is based in Japan or in Taiwan or China?
Cher Ng: None of this actually, none of this. I mean this is a NEXX business, we are saying that they supply to a few key players, high-density substrate players. It just happened that, as I said, I repeat again, it just happened that there was a big capacity ramp-up in the last 2 years. And this particular customer just say, okay, I'd rather not keep you holding on all these orders, I decided to cancel it. So I think in short, this is that kind of circumstances.
Yu Jang Lai: So in the future, when we look back, this could be an isolated event. So do we think this demand for the other customer will return?
Cher Ng: No. This in a way I don't -- if you are thinking is this AI related, I wouldn't say this is AI related. Yes, this is -- they are serving a particular IDM which use all this equipment for RDL and all that. So it's a particular application. I would say it's not related to AI. So don't link this cancellation with AI that we have been talking about. De-link these 2 pieces, Arthur. This cancellation has nothing has nothing to do with AI.
Benjamin Poh: I think we have time for one last question. I think we have Gokul here.
Gokul Hariharan: So my question is more on the margins and operating leverage. I think we are having pretty good momentum both now in mainstream and in TCB. Margin still seems to be a little bit sluggish. How do you think, let's say, next 2, 3 quarters, TCB revenues will come through given all these orders, bookings realize into revenues. What does it do to gross margins? Like is TCB still accretive to group gross margins right now? Or is it kind of similar to group gross margins? Second part of the question, again, to Katie is on operating leverage because now that we are back to some degree of revenue growth, we're still not yet seeing meaningful operating leverage come through. I'm asking because Street expectations are for very big operating leverage to kick in for next year. I think revenue growth of 10%, 15% contributing to doubling of your operating profit is what a lot of Bloomberg estimates are looking at. So just wanted to understand what is the extent of operating leverage that we can expect? I think we have seen operating margin go back to high teens to 20% at really, really peak kind of levels back in 2021. But in the recent past, we've not really seen operating margin really get beyond the mid-single-digit levels. So just wanted to understand what is the extent of operating leverage we can expect as we start some of these ramp-ups for TCB and other products?
Yifan Xu: I appreciate the question. First thing, TCB, I just want to make it very clear that TCB margin has been stable and is accretive to SEMI business. Now overall, when you say operating leverage, volume has come back up, but not quite at the super cycle level. And within the volume, we always say there are a few mixes that actually impact margin. One is the segment mix. So far, as you can tell, like in Q3, for example, the SMT contribution to the group is at about 50%, right? SMT naturally has lower gross margin. Therefore, the segment mix could be different based on the contribution from the 2 businesses. The other thing is on product mix. Within SEMI, for example, it really depends on the product mix between TCB and wire bond in Q3 and as we guided for Q4, if you look at that product mix, when we have less TCB revenue, but more wire bond revenue coming from mainstream applications, the margin -- the gross margin side would not -- would be under certain pressure. But having said that, in the long run, as a few of you asked earlier, we do expect that our SEMI business will continue to enjoy the accretive margin contribution from applications like TCB. And with the AEC liquidation we mentioned, we should have savings from operation efficiency, et cetera. So that I think our conviction for SEMI gross margin to stay in the mid-40s and then gradually going up has not changed. And then so at the group level, we've been talking about the 40%, right? I think, again, I'm talking about in the long run, not a specific given quarter, I think we are comfortable that the group's gross margin will be at that level and gradually improve as we go.
Gokul Hariharan: Got it. So just on the OpEx side, same, because that's something that you can control revenue harder to control, especially on mainstream. Are we going to stay around this roughly HKD 5 billion kind of level going into next year? Or we still see that OpEx will keep growing given we are investing in some of these newer technologies?
Yifan Xu: Yes. So Gokul, I actually cannot answer your question very well right now. Maybe give us a quarter because the organization actually is going through the budget process. But directionally, as we have talked about before, the OpEx has been running at HKD 4.7 billion in the last few years. And this year, with the R&D and infrastructure investment, we have communicated that will be marginally higher. Though the investment is at HKD 350 million, we are doing certain restructuring projects and the cost saving projects that you probably have seen in the last few years on trying to bring it down. So this year, I think you guys can do the math, right, it's about HKD 2.8 billion. So that's kind of where we are. I think going forward, Gokul, we're not going to change our commitment in R&D investment as you guys were talking about TCB, hybrid bond, all that, that side of the conviction has not changed. We'll continue to do the right investment. On the other front, for the overall efficiency and productivity of OpEx, we'll continue to look into any opportunities we can find and trying to contain that. So again, I cannot give you a specific number. We'll probably share with you more. But I think our strategy -- our thinking on OpEx has not changed.
Benjamin Poh: That will be all for the last questions. And I will now pass the time back to Robin for his closing remarks. Thank you.
Cher Ng: Thank you, Benjamin. Just a couple of pointers before we officially close the call. The group maintained strong business momentum this quarter. Our AP and mainstream business will continue to benefit from sustained AI adoption. TCB solution, we secured repeat orders in both memory and logic, reflecting ongoing technology leadership, particularly in HBM4 and advanced logic. What Katie said, we are in the midst of really finalizing our budget for 2026. But certainly, I can -- at this juncture, we can give you some direction or some color on how we look at 2026. We expect a growth year in 2026 largely driven by AP because of AI and underpinned by the sustained momentum of our mainstream business. And finally, we remain confident in the total addressable market for TCB, which we believe could go beyond USD 1 billion in 2027. So thank you. With that, we will close the call and see you next quarter.