Chroma ATE Inc. (2360.TW) Q2 FY2025 Earnings Call Transcript & Summary

Welcome, everyone, to Chroma's 2025 Second Quarter Earnings Conference Call. [Operator Instructions] For your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.chroma.com.tw/investor/index under the Investor Relations section. Now I would like to introduce the CFO, Paul Ying. Mr. Ying, please begin.

Thank you, Jason. Hi, everyone, and welcome to the 2025 second quarter financial results release for the Chroma. Well, let's start with the second quarter condensed -- consolidated income statement. In this page, you can see that the net sales for the second quarter is NTD 6.455 billion. It represents a 6% drop compared to the last quarter top line. But if we compare to the last year second quarter, it's a 17% growth. Outside of the NTD 6.4 billion, 97% is coming from the testing equipment business, which is the core business of Chroma. And in this sector alone, it's a 3% drop from a Q-over-Q base and another 20% growth on a year-over-year basis. And if we look at the gross profit, which is NTD 4.224 billion, it represents 65% of the gross margin, and it's a 2% increase compared to the last quarter, and it's a 29% of growth on a year-over-year base. And after deducting the OpEx, the operating income for the second quarter is NTD 2.197 billion, represent a 34% compared to the net sales. And on a Q-over-Q base, it's a 2% growth. And again, compared to last year's second quarter, it's a 45% growth, and this is also a very [ bright ] record that we have made, either on the gross margin or the operating income. And as to the non-operating portion, which is the net profit on NTD 241 million compared to last quarter, it's a 44% drop and compared to the last year second quarter, it's a 17% drop as well. Well, mainly, it's due to the foreign exchange loss, which represent approximately NTD 600 million, but it was offset by capital gain, which is one of the long-term holding, the equity method of the investment ADLINK, and we resigned from the Board, then we classified this portion to the short-term investment, which is the -- on the mark-to-market value. It's also to give the Chroma, enjoy capital gain of NTD 600 million, which is offsetting to the ForEx loss, foreign exchange loss, which is the -- we are lucky in this portion. But again, that's mainly due to this loss or not performing. So the non-operating portion, we have a drop. But if we get to the income before tax, which is NTD 2.438 billion, and it's a 6% drop compared to the last quarter, but 35% growth on a year-over-year base. And for the net income, which is a little bit over NTD 2 billion, it represents a 7% drop compared to the last quarter and 40% growth compared to last year's second quarter. And this represents a NTD 4.6 in EPS performance, which is, again, this is a 7% -- an 8% drop compared to last year's 39% growth on a year-over-year basis. And this is for the second quarter financial results. If we turn to the next page, which is the first half consolidated income statement, here, you can see that for the top line of the first half of this year, is, approximately, is NTD 13.3 billion compared to last year first half, it's a 34% growth. And again mostly -- approximately 96% of that is coming from the testing equipment business, which is another 34% growth compared to last year. And the gross margin, we enjoy NTD 8.372 billion, represents a 63% gross margin. And compared to last year, 69%, and this is also another 44% growth. And the operating income, which is NTD 4.361 billion, it represents 33% of the top line. And again, this is 81% growth compared to last year first half. And after deducting -- or adding the non-operating items, then the income before tax is a little bit over NTD 5 billion compared to last year, it's a 67% growth. And for the net income, we approached to NTD 4.163 billion. It represents a 31% compared to the top line, and it's another 73% growth compared to last year first half. And for the first half of this year, the basic earnings per share is approaching to NTD 9.67. And this is for the first half comparison of the 2025 compared to 2024. And next page, we give you some highlights for the balance sheet and the financial ratio. And in this page, you can see that the cash and short-term investment, which is 48% compared to last year's year-end. And for the inventory, it's also another 12% of growth. But for the short-term debt, it's a 76% drop. And the long-term debt is a 10% growth due to the construction of the -- of our -- the second phase of our headquarter. And as to return on equity, it's 33% for this period and compared to last year's 22%, which is another record high. For EBITDA, you can see first half, we [indiscernible] NTD 5.46 billion and this is a year-over-year 60% of growth. Well, this is the highlights for the financial numbers. And then let's go through the highlights for the operation. Jennifer, you want to take it over?

Yes. Good afternoon, everyone. This is Jennifer. I will go through the product mix on Slide 9 and provide an update for each sector. I think for the second quarter only, Testing Instruments and ATS has given an outstanding growth, presenting 22% quarter-over-quarter and 55% year-on-year. The growth driver of the Testing Instruments and ATS continues to benefit from AI server power application demand. We expect that these sectors will reach -- I mean, the total sales of the sectors this year will reach a historical high. And so we're actually expecting there will be more orders to come in the second half this year. And the semiconductors in the second quarter was slightly down about 15% quarter-over-quarter. This is due to the -- I think the product mix and based on customer scheduling. So you probably -- we will talk about the second half about semiconductors later. And however, semiconductor sector still increased by 18% compared to last year. And for the first half, the biggest growth still comes from our semiconductor and photonics sectors, presents 57% compared to last year same period. According to the current order on hand, we expect to enjoy this kind of high level of growth for the second half this year. And even though our semiconductor and photonics sectors have present 135% growth of last year total, but I think we will continue to benefit from 2 major drivers to contribute to our semiconductor and photonics sectors. First one mostly come from our Metrology equipment deliver and second, revising up the system level tester orders due to AI/HPC chips and autonomous driving chip. However, overall, we expect the testing equipment business will have a good year of growth this year. And the attitude comes on the entities where we [ met ] not very much compared to last year. So this is a quick update regarding to our product mix and also some of our view in the second half. And now we move on to Q&A session.

[Operator Instructions] First we'll have Kevin Wang, Mizuho, for questions.

I have a few questions. First one is regarding your second half revenue growth. As you mentioned, that semiconductor, photonics revenue should be driven by Metrology and also SLT. But for your total -- does that mean for your total revenue actually to be higher than first half for your second half? Is that the correct assumption?

Possible because if we look at the whole year basis, the whole year basis is we still think the growth rate for our semiconductor sector was still higher than power business. If you look at annual basis.

Okay. And also for your Testing Instruments revenue, do you have the new guidance for the full year? Because it seems even stronger than original expectation.

We don't release official financial guidance, but I think our profit is able to reach a historical high. Last time was back in 2023, about NTD 8 billion. I think we can do much better than NTD 8 billion.

Okay. Much better than NTD 8 billion. And also for your SLT and the Metrology business -- maybe I'll ask about the Metrology business first. So we will see the more meaningful revenue in the second half. And also, I believe that should be even stronger into 2026. So this year, do you maintain multiple billion of revenue contribution from Metrology? And also, do you have a very preliminary view for 2026 Metrology business contribution?

Yes, you could say that because -- okay, first, the Metrology tool, no matter for what kind of coming advanced package, I think we definitely will have a position for each of them. And then you say [indiscernible] related -- because we start to book this kind of Metrology tool revenue from first quarter. I would say first half mostly related -- we do have some idea, but mostly come from [Pro Max ], okay? But idea will start to contribute from the second half of this year. And today, Metrology tool has only one vendor, which is [ Pro Max ]. And then if you say coming up potential opportunity like [indiscernible], we are mostly [indiscernible].

Got it. And also SLT business because you mentioned you have the new SLT for the new generation of the GPU. So how should we think about that improvement of your new SLT compared with the current SLT? And also if that's the possible we see, what percentage of the ASP increase for the new one compared to the current one?

Well, this comes with multiple, I would say, key factors. I'm not so sure you talk about -- you want to point on Rubin. Rubin is under finalizing and then price discussions. And if you talk about Rubin with the switching version, I think customers are planning to build up capacity next year. And I can't really tell whether this year we will start with the [indiscernible] or not, not sure. But I think if you look at the market today, I think from several source, pretty much confirmed for next generation, SLT will definitely move on to another different generation, which need to have a new tool. Second, I think we do see the increasing demand and orders on system level pressure. As we guided in the beginning of the year, this year, we have roughly -- at that time, we have roughly 10% or 20% come from ASIC and -- which we already start to deliver to those ASIC customers from second quarter. But recently -- because the biggest U.S. vendors, like NVIDIA and others, they continue to revise their order, mostly come from AI and also autonomous driving so possible -- to jump to conclusion, I would say, System Level Test, if we look at today's order on hand, I would say we will revise our guidance quite a lot compared to the beginning of this year.

Got it. Which means SLT will grow strong this year.

Yes.

And also you also mentioned the ASIC sold 10% to 20%, maybe that assumption will be even -- will be slightly even lower because the...

Because the HPC is too strong.

Yes, that is too strong. Right. So the percentage will be lower, but the total revenue will be stronger. So how should we think about the next year's SLT outlook from the current -- existing largest customer and also the ASIC piece?

[indiscernible] actually indicated to us that ASIC may come next year. We actually received other applications orders. I think we pretty much concern on this trend. And we believe there will be more orders come from both ASIC makers and not to talk about that Rubin is in the schedule at the moment.

Got it. Final follow-up question. So do you have any idea about the current feeling for the SLT, the time for the Rubin compared to Blackwell [indiscernible] some better changes, but how should we think about that -- the testing time because if compared with Hopper -- the Blackwell, we still have around 2x or even higher. But how should we think about the Rubin?

I can't tell you the details yet, but I can tell you, Rubin, it's really, really challenging version because you are actually looking at 2,000 levels. Actually, our capability can reach over 3,000 kilowatt -- at 3,000 watts at the moment. So you can consider it when the market gradually be -- pretty much ready when the market migrates to GPU version.

[Operator Instructions] Next one, [ Katherine Jang ], Macquarie.

First of all, congratulations on the good results. Just want to get my head off to the margin. You delivered a pretty good gross margin this quarter. I was wondering if that's mostly because of the better product mix? And how should we think about the gross margin going forward?

For this portion, I think we still maintain the expectation that -- well, on the -- we're not expecting that every quarter we can reach this kind of record high. But again, I think if you take that as an average for the past few quarters, I think that's somewhere that we are still trying to maintain the stability of the gross margin in management.

And then going forward to the operating expense because you delivered a pretty good operating profit, how should we think about that the operating profit margin going forward as well?

Yes, definitely. I think the equation is quite simple, that we can grow the top line and maintain a stable gross margin. The OpEx normally becoming something like 6. So it will definitely improve the operating margin.

Just one final question about the capital gain that you mentioned earlier. May I understand how is it accounted for in the profit and loss?

Well, again, just like I said, I think this is a reclassification of the investment and then turns to the capital gain due to the -- from long-term investment of the -- to short-term financial assets. So we have the mark-to-market for the market stock price for the estimated investment, which is ADLINK. It's a [indiscernible] company in Taiwan. We used to be sitting on the Board so that we have to classify it as the long term. And this year, I think early this year, we have -- they have a reelection, and we resigned from the Board.

[indiscernible]equity method [indiscernible] cost method investments. And then according to cost method investments, you need to find mark-to-market. We invest ADLINK for so many years. So of course, our cost is much lower.

[Operator Instructions] Next one, Alex Wang, Bernstein.

First of all, congrats on the great results. I have a few questions. First of all, about the gross margin, I'm wondering in the second quarter, is there any impact from the FX? So if we remove that impact, the gross margin will actually be much better?

Yes. Maybe if we put it another way is this gross margin already reflects the impact from the currency.

So there is a few percentage impact from currency?

Yes, you can consider it this way.

I see. So okay, that is really strong. Okay, that's the gross margin. And then a follow-up on the SLT. In the slide, you have a few new models like SLT 3260 and 3900. So the -- any one of this is for Rubin?

I can't tell you. I think the chart we list there is we want to demonstrate one thing, okay? As you could see these days, AI and/or HPC chips, the die size could get bigger, no matter you talk about chiplets or the big die model like a King Kong number like NVIDIA. And I think our strength is to be able to reach out to multi-die. Even the current version, if we talk about [ GBC ], we can talk -- we can process like teens of die to over 20 die, depends on the spec. And the next model, which we just demonstrate here is we can reach out to more 20, I would say, more than 20 die to even up to 50 die depending on customers' design. And which is pretty much staying to the next year, we have seen that Edge AI is about to come in. So I think this is, I think, the message we would like to deliver.

I see. So I think you were talking about model 3200. I see there's like 40 -- 54 sites, meaning that the throughput in this new model will be higher than in the old model.

And also, you could see that there's a model that we also can reach up to over 2,000 watts [indiscernible] for Rubin design, which I just mentioned previously to someone's questions. We currently also can demo up to over 3,000 watts and pretty much fit to the pipeline you can foresee to the GPU version.

I see. So if the throughput is higher, how about the testing time? Like in the future -- in the past, it's like 1 to 2 hours. Are we going to see higher testing time without accounting the burning test?

Okay. We can't give you a conclusion today. We already comment about the pattern increasing the cycle time. This is [indiscernible] about, I would say, around 2 hours, okay? And we are discussing the Rubin's pricing at the moment, and then you need to finish the parallel to be conclude what kind of cycle time. But probably we mentioned that before, system level test, the starting time is half an hours. You never see they go back to less than half an hour. Even if you want to test gaming, still need to start up, jump up on half an hour, okay? We will have more clear picture for coming, but I can tell you that is very, very challenging version. First, this is combined with transceiver. And second, this is actually reach up to 2,000 watts.

I see. And one last question about the SLT. Can I assume the SLT for ASIC chip is in a lower versus Blackwell because their [indiscernible] power is lower.

ASIC is -- I have no idea why market want to mix ASIC with HPC. I believe that for us, it's really different spec, okay? I think ASIC targets Edge AI with low power consumption and maybe it's not that complicated. But because ASIC, they can learn from those HPC, they knew, they probably stayed in order to go back in the future. So that's why it seems like 3 or 5 years ago, they gradually adopt system level testers.

I see. My last question is about data center ATS testers. I think last time you mentioned that you see a very strong demand coming from power and server power ATS. And you said the mix of 5G and data center as a percentage of ATS will go to like 40%. Any update on that?

Then I think we could echo in to Delta [indiscernible].

Okay. I'll take your answer.

[Operator Instructions] There are currently no questions and then that will be the end of this conference. We thank you very much for your participation in Chroma's conference. There will be a webcast replay within an hour. Please visit www.chroma.com.tw/investor/index under the Investor Relations section. You may now disconnect. Thank you again. Goodbye.