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

Welcome, everyone, to Chroma's 2024 Q4 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 CFO, Paul Ying. And Paul, please begin.

Thank you. Hello, everyone. This is Paul Ying from Chroma. And welcome to the 2024 fourth quarter earnings conference. I will give you a highlight on the financial review. And then Jennifer Chien will follow up with the operational highlights. Well, you also can access my presentation material on the website, we have already put that in the website. And if you look at the Page #5 of our slide for the corporate profile, you can see that some of the key figures. Look at the 2024 consolidated sales, we reached at the TWD 21.6 billion, and the net income for 2024 reaches at the TWD 5.3 billion, and the total headcount for Chroma Group all over the world at the end of the 2024 is somewhere like a little bit less than 3,600 people. And if you look at -- for the financial performance, you also can look at the return on equity for 2024, we have reached over 20% and reached at the 22% again at the year 2024. And for the dividend for 2024 after the Board meeting this morning, we declared a TWD 9 out of TWD 12.49 EPS which is -- the payout ratio is somewhere like 72%. And if you look at the 2024 condensed consolidated income statement, you can see from this page at the Slide #10, you can see that the total sales numbers is TWD 21.6 billion, compared to last year, it's a 16% growth. And if we look at the detail of that, I think later, Jennifer will give you highlights and the detail for the breakdown. But for the gross margin portion, you also can see that 2024, we reached at the TWD 12.7 billion represent 59% of the gross margin, and compared to the year of 2023, it's 18% growth. And for the operating income, we reached at the TWD 5.4 billion. And compared to last year, it's a 17% growth. And again, for the net income, we reached at the TWD 5.4 billion compared to last year, it's a 32% growth. And for the year of 2024, we reached the EPS at TWD 12.49. And this is a brief of the financial numbers. And then Jennifer, it's your turn to...

Okay. Good afternoon, everyone. This is Jennifer. I will go through the product mix in fourth quarter and the whole year in 2024. Please refer to Slide 13. And first, the ATS sector the fourth quarter reached TWD 1.68 billion, which is similar to third quarter, but better than 2023 fourth quarter by 12% year-on-year. We do see this as a sign as a recovery. In 2024, the whole year's ATS was down by 16% year-on-year, reached TWD 6.8 billion. And still the decline was mainly come from low sentiment of EV and ESS markets. However, we expect these factors to bottom out in 2025 mostly contributor for EV and ESS recovery and also the 5G power devices demand. And followed by the semiconductor and photonics sectors, which has remained strong in fourth quarter, reached TWD 2.1 billion, presents a growth of 14% quarter-over-quarter and 141% year-on-year. The whole year sales revenue for semiconductors and the photonics sectors in 2024 was TWD 6.9 billion, slightly over 8 years and presents a growth of 135% year-on-year. The major growth was mainly coming from mature nodes, IC testers and the system-level testers for AI and HPC products. We expect semiconductor photonics sectors with still the major growth drivers for the company in 2025. Number one, because the qualified metrology equipment will start generating meaningful sales revenues from 2025 then the demand for system level test will be coming from AI, HPC and the new auto and gaming chips ramp-up and also the capacity ramp from the ASIC makers. And we believe the semiconductors and photonics sectors will contribute more than 50% of the company's sales revenue in 2025. For turnkey solutions in fourth quarter reached TWD 275 million, presents a decline of 15% quarter-over-quarter and also declined 25% year-on-year. However, the turnkey solution for the whole year in 2024 reached TWD 685 million, present a growth of 51% year-on-year. Besides we need some small project on EV battery cells, another contribution was coming from our new design of turnkey solution for AI process and manufacturing. These projects have been launched from the second half of last year and will be continued delivery in the 2025. And a couple of key highlights for 2025, first one, we still expect to do better than 2024 present growth. And we're expecting the semiconductor should be able to present a double-digit growth. And then the second key point is this year, we will have capital gain from transfer the developed residential area to our talent employees. The estimated capital gain will be approximately TWD 3 billion. And that's all about the operation highlights, and we could move on to Q&A. Thank you.

[Operator Instructions] Now we have our first question from Wern Juan, HSBC.

I have two questions, then I'll hop back to the queue. The first is just on your metrology segment. I was wondering if you could give us a bit of an update on your penetration in the overlay? And just to clarify, is that essentially overlay only in advanced packaging? Or are you in overlay also in the front end? And just to clarify, this overlay does not include optical critical dimension, right? So that's my first question. I'll hop back. Then I'll have a follow-up.

Sorry, you mean what's overlap, you mean RDL or sorry?

Yes, Jennifer, not RDL or TSV. So on your slide -- the slide towards the back essentially slide, you don't list anything, but essentially the slide where you show RDL/TSV, you talk about the 2 to 5 nanometer, but you also mentioned overlay. So I'm just curious. And the reason why I'm asking this question is Jennifer because overlay is different from RDL and TSV. And I want to understand whether or not you are only an overlay for advanced packaging? Or you -- are you also an overlay for front end, because my...

Can you tell which is this, because I couldn't find the...

Semiconductor measurement solutions, the slide where it shows you 7980, 7981, 2D, 3D metrology measurement system.

Regarding to your question, no idea of who overlay means, but let me give update regarding to our metrology equipment. Basically, we have two models for metrology so far, 7980, which is for Probe Mark and the other one is for RDL testing. And then we don't -- currently, our sales is not only limited to foundry, but we also cover some of the OSAT. So we will define our position is our test -- our equipment, which is metrology equipment will be focused on advanced package.

Okay. That's very clear. Then for the -- you mentioned I think in the past, RDL/TSV it sounds like at least from my interpretation that's going to ship this year. But I'm just curious, Jennifer because -- so overlay, as I understand, you haven't, you're undergoing qualification. Is it fair to assume that the overlay segment for advanced packaging will be qualified in the second half and the deliveries will be in 2026?

Sorry to interrupt. I don't know what's overlay, sorry. I really don't. I have to say there is no qualification needed for our site because we already qualified it.

Next one Arthur Lai, Macquarie.

We already understand this year is good year. And in your highlights, you also mentioned that there's TWD 6 billion residential project. This is -- how our company will reconcile the profit? And can you give us some idea?

Okay. We grant this current land several years ago from central government. And according to the incentive schemes, about 10%, we need to because if this is a plan as incentive for industrial park purpose, of course, you need to have labor, which is human resources. So according to a plan, the 10% needs to be residential, and we have codeveloped with the constructors, and we grant close to 50% of housing, and we decide to give as incentive schemes to some of the talent engineers, okay? And then the houses finished and start to transfer to our talent employees this year. And we estimate approximately capital gains will be around TWD 3 billion.

Okay. So with the all -- so this is really new to me. So would be all into this year's financial result or would be like a multiyear?

No, this year.

This is only one time.

One time. Okay. Got you. And can we also view this as like employee incentive scheme?

Yes, we also sell them by discount basis of the market.

And then you will also motivate the morale of the employee because they get a pretty good deal, right? So it's a win-win-win.

Well, I mean, in all of Taiwan high-tech will need to retain the talent employees, especially for R&D engineers, and this is one of our incentive scheme.

Okay. Cool. And then another thing I think long-term investor, they will pretty appreciate is that you actually increased R&D expense, I think it's about -- so how -- can you kind of give us a breakdown at how you're going to allocate the R&D into the semiconductor?

We don't break down our R&D based on the product mix, we based on the talent, special technologies. So this is how we're able to maximize each talent R&D. However, I think our company's goal is to set the R&D expenses target around 11% plus or minus. Yes, currently it's about 12%.

Got you. Got you. And then -- so -- so because -- and the other thing I want to ask is like in our guidance, you guided the semiconductor will continue to outgrow the other, the business, right? And in '24, you already make up almost 1/3. So should we expect this year, this business will continue to gain the revenue share?

You mean overall semiconductor sectors?

I mean, the semiconductor in your total revenue will continue to above the 30% and higher?

I think even you use the consolidated sales, I think our semiconductors still account for half. I think you can refer to the product mix breakdown, which is about 40-something percent. Yes.

Got you. So on the other hand, they will -- the other business, for example, the ATS will be bottomed up, but the growth rate will not be as high as semiconductor. Is that the right way to think about?

We can't really say -- I think the correct statement would be we're expecting maybe the -- based on current order on hand, our semiconductor sectors will account over 50% of total revenue, while power business will still bottom up. So there's no conflict, yes.

Yes, yes. And lastly, I'm not asking the guidance, but based on the last statement of '25 outlook, you mentioned that the AR glass will be launched for the second half this year, right -- sorry, second half of last year, and it will continue to this year. So how should we think about this business size?

You mean...

Yes. So it would be the same to like turnkey solution last year because when we -- last year was around...

The reason why turnkey solution has some quite a decent growth last year is mainly contributed from these AR glasses. Maybe you think in this way will be more clear.

Okay. Okay. So when you come, you will really come quite meaningfully, right, in the turnkey?

No, but the issue is already came.

Next question, [ Catherine Chuang, Macquarie ].

First of all, congratulations for the good results. I have a few questions regarding your metrology business. I'm just wondering about -- how is your metrology tools compared with your competitors in terms of market share and ASP? That will be my first question. And I have a few follow-ups.

Last year, we got qualified by foundries regarding to our metrology equipment. Actually, foundry have their own ecosystem or process regarding to this kind of qualification process. During this qualification process, you -- of course, Chroma is not the first year, we definitely is, I would say, second one to be qualified it. The condition to be able to qualify, of course, you need to do better than existing makers. Otherwise, why you qualify? Why you want to spend over a year to do this kind of qualification process. However, today, we already got qualified it, and we will be mostly in charge with the new capacity ramp from foundries. And then another message we would like to clarify here is our metrology is not limited to target to foundry these customers in these days, we also start to penetrate to OSAT, because both of them were also very much interest to penetrate advanced package.

I see, okay. And the second question is regarding to photonics and CPO products. How do you see the photonics and CPO growth in the next few years?

Actually, we're already are existing vendors, and we're actually helping our customers to able to qualify their FAU products. And I would say, current stage from the customer space is around, I would say, [indiscernible] or small volume, R&D ramp-up. If you talk about mass production, I think most of our clients are target next year. So honestly, CPO contribution is not much this year, and most of the customers are focus on next year.

Okay. And how much would that like -- if the CPO products go through ramp up, how much would that contribute to our revenue?

We can't disclose this particular customer's order.

[Operator Instructions] Next question, Wern Juan, HSBC.

Just two follow-up questions, then I'm done. So the first question is just -- so what I mean by overlay, right, is going back to the slide I was talking about earlier. It's the alignment of your chiplet above the RDL/TSV layer. Are you doing any of that? So the alignment of the chiplets to the interposer, the alignment of the bumps to the chiplet and interposers. So everything above the interposer. Are you also doing the alignment for that? That's my first question.

Okay. RDL is actually doing that kind of interposer alignment job. But we have no idea -- maybe you can just send me what you mean by overlayer later. But basically...

So above the bumps above the RDL. So the bumps above the RDL, so aligning the chiplets to that -- to the whole package because the interposer is a front-end process, I get it. But above that, so the chip-to-wafer, the chip-to-wafer bumps and then the chiplet to the interposer. Are you also doing that? Is your machine also examining those?

Okay. Please refer to our this quarter's presentation, Slide 18. We actually disclosed very details, and we also have a diagram showing what we covered. We basically -- the RDL that we cover, including RDL, TSV and OVL is all the three major features we covered. You may refer to that slide. Yes.

Okay. Got it. And then just a follow-up question. I noticed you mentioned broadband light integrated system. That's inspection. So I'm just curious to know what is the progress or timeline that you can comment? Is it 2026 or beyond 2026 and into front end, so beyond the advanced package into the wafer? And is it inspection or metrology, yes?

First, we will only target advanced package. We have -- currently have no plan to cover so-called front-end process. So all our metrology equipment mostly it target advanced package. And advanced packaging, the growth of the advanced package include spec increase. Today, you may be only see the [ Promark ] and also RDL and other TSV. But future could be including other spec, for example, measure the thickness of the wafers, et cetera. In the future, you also have SoIC and POP package. And CPO also need to do this kind of so-called advanced package process. So this forces position ourselves that we are interested to cover even further front-end metrology equipment like the [ KOA ]. So this is all different equipment.

Next one, [ Alex Wong ], Bernstein.

My first question is for metrology. Last time, so 4 months ago, you mentioned in the earnings that you expect multibillion NTD dollar revenue for this year. Have you changed this guidance?

No.

Okay. Cool. And second question is about CPO. You mentioned that one of your customers is already in a pilot run. So is that the U.S. IDM you mentioned or Taiwan Foundry or the GPU company you mentioned?

Okay. First, foundry will not do the FAU process. FAU will be assigned to another vendor of Taiwan. And then they will send in the FAU for foundry to do the alignment, I mean, or you could say package. So it depends on how you define. You mean if you say we cover these customers, yes, we do cover this customer who manufacturing for FAU. And we also cover the other optical customers, yes.

I see. And you expect your CPO-related business will drive revenue -- have some revenue in 2026 or 2027?

First, we are already existing vendors. That is why our customers are able to receive the qualification by the foundry regarding to their FAU. And I think that's why we're able to comment this year is mostly target on this kind of pilot round. Next year will be mass production. That is the reason why our customers would like us to increase the throughput so to meet the mass production next year.

Understood. Very clear. And my last question is about the power tester business. So I know maybe the Panasonic line in the U.S. will provide a revenue stream this year? And how about other -- the demand from other customers for power tester this year?

Okay. First, we do see the recovery from the EV and ESS, but we didn't use the word like booming from EV and ESS markets. But we do see one thing besides the EV and ESS market recovery, we also see another power devices actually demand continue to increase, which is AI server and data center. Okay. Look, we see, number one, the power density continue to increase, especially for this kind of high-end data center servers typically highlight to OpenAI. But think about people talk about DeepSeek. Okay, this is kind of like a general, okay, maybe friendly versions of AI server and data centers. But these things also need power devices. So I guess this is the reason why -- okay, just go back to fundamentals. No matter you develop which version, whether you want to go for high-end version or general versions or other versions or easy access versions. But all these products all need to have power devices. We guess this is the reason why we do see picking up the 5G power devices demand.

I see. And you expect this will help your ATS business to have some recovery this year?

Yes, this is exactly, we see the sign of recovery.

Next, we'll have Haas Lu, UBS for questions.

This is UBS Annie on behalf of Haas Liu. So my first question would be more about the competitive landscape. So currently, Chroma is doing very well in the high-end metrology and SLT sectors and the position is already strong. So I would like to hear your thoughts on many competitors continuing to seek to enter this market and about like how far ahead do you think we are, do provide some color?

Well, we only could say to get qualified by foundry is kind of tough. This is not something you claim you have a technology and you're able to penetrate. I don't really -- so after more than 5 years' work hard on metrology development, we don't really think to get into foundry qualification is an easy task.

Got it. And also -- so you mentioned that our semi currently has like 50% of our revenue share. Do you see like it may be increasing a bit to 60% over the next -- this year?

Possible. Yes, as you could see, our product mix for semiconductor sectors is continued to increase. Started from past 10 or 15 years penetration start on legacy, SLT, photonics, then metrology.

And ladies and gentlemen, we thank you for all your questions. We have no further questions at this moment, and we're going to close the meeting. And we thank you 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, and you may now disconnect. Thank you again. Goodbye.

Thank you. Bye.

Thank you, everyone. Bye-bye.

Thank you.