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

[Audio Gap] Q1 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. This is Paul from Chroma. Welcome to the 2025 First Quarter Earnings Conference Call. This conference call will be conducted in English. Well, let's start it from the first quarter consolidated income statement. From this slide, you can see that net sales for the first quarter approximately TWD 6.8 billion to TWD 6.9 billion compared to the last year fourth quarter, TWD 6 billion, a 14% growth and compared to last year first quarter, it's 55% growth. And majorly, the sales revenue is coming from the test equipment business, which is occupied like 94% of our total top line. To the gross profit approximately TWD 4.1 billion in [indiscernible] and with gross margin 60%, quite similar to the percentage of the fourth quarter of last year, but with 15% growth on the amount. And compared to last year first quarter, the gross profit has grown by 62%. And as to the OpEx, I think it's quite similar to the -- a little bit growth, but quite similar to the percentage. And according to the operating income, you can see that it reaches at the TWD 2.1 billion and occupied like 31%, which is over 30%, and this is the first time in our record that our operating income reaches over the 30%. And compared to the last quarter, it's 40% growth. And compared to last year first quarter, it's double the size to 140% growth. And again, for the net income, it reached at the TWD 2.1 billion, which is 40% growth compared to the last quarter and it's 121% and also double the size, compared to the first quarter of last year. And our earnings per share goes to a little bit over TWD 5, which is TWD 5.03, and this is record high, either from the sales revenue or from the net income. And we just reached a record high last quarter. And then at the first quarter of this year, we break it again. If we go to the balance sheet highlights, you can see from this page that the cash and short-term investment growth by 20%, basically is due to the increasing for the sales revenue and business. And short-term debt was due to the handful of cash and then it reduced by 93%. And long-term debt growth by 11% compared to the last year, basically is due to the construction for the power expansion for the Phase 2 of our manufacturing site. And to the inventory turnover, it's approximately 6 months, which is in line with our expectations and accounts receivable turnover is less than 80 days. And for the earning return on the equity, it's 34% compared to 22% of last year, and this is the first time that we reached over 30%. And for the return on assets, it's 22%. Again, it's over 20%. And if you look at the free cash flow for the first quarter of this year, it's approximately TWD 2 billion, which is quite a number. And this is the highlight for the financial statement. And then let's go through the operation highlights, and I will let Jennifer to take it over.

Okay. Good afternoon, everyone. This is Jennifer. I will be presenting the product mix for first quarter and provide an update for each sector. Please refer to Slide 8. And since our orders come with a lead time about 2 to 3 months, so the guidance will not be very much different compared to the February and our customers remain their CapEx earnings. And then so we will not give further guidance regarding to the second quarter. For the slide, the semiconductor sector remained strong growth, and we have -- overall, the sales has been overtaking the power business account for 50%, okay? However, the power business indicates an impressive growth of 31% quarter-over-quarter and 32% year-on-year, mainly contributed from the 5G-related power devices demand. The coverage includes the specialty power devices from data center, servers, et cetera. We expect the power business to continue to grow in the second quarter. The semiconductor sector in first quarter increased 25% quarter-over-quarter and 118% year-on-year. IC-related testing equipment accounted about 80% and photonic sector [indiscernible] of it. The best way to describe the first quarter regarding to semiconductor sectors, SLT is major. Legacy IC did drop as we expected, and we have started to ship [indiscernible] metrology equipment. So this is a summarized for the semiconductor sector. The two major contribution to [indiscernible] battery cell formation and automation for wearable devices. Consolidated all the testing equipment business reached TWD 6.5 billion, present a growth of 12% quarter-over-quarter and 52% year-on-year. Our [indiscernible] in the first quarter increased by 65% quarter-on-quarter and 306% year-on-year. The strong demand mainly contribute from the automation demand across several industries like server manufacturing. Okay. The overall consolidated sales in the first quarter hit a record high, reached TWD 6.86 billion, present a growth of 14% quarter-on-quarter and 55% year-on-year. Based on our order on hand to date, we expect to have another good quarter in second quarter. So that will be the summarization for the operations side, and then we could move on to Q&A. Thank you.

[Operator Instructions] We will have our first question from Kevin Chen, Citi.

Congratulations on a very strong quarter. My first question is regarding the APS automated system. I see that besides the semi/Photonics, this segment is growing very strong as well. Can you give some more detailed breakdown of this segment? And also I would like to get a sense of how much of the strength in the first quarter due to -- due to some tariff holding -- And how sustainable of you think this is heading into the rest of the year?

Kevin, this is Jennifer. You are asking about our business, right? So most of it actually come from, I would say, the China build up this infrastructure for AI demand. So they actually -- we do see the increasing demand from high power, especially related to those 5G specialty power devices include data center and servers. And we believe this momentum will continue to move on to even to second quarter. So I think, overall, ATS this year will have quite a decent growth compared to, I mean, last year, I think able to offset the decline of last year.

Okay. So mostly -- would you say like in terms of percentage, this is going to be more than half of this core business from the power...

Can you repeat the question? Sorry, I don't -- I'm not hear you clearly.

Yes. I'm just wondering in terms of percentage for this core business, you said mostly come from the AI-related server. How big of this percentage for this core business will be? Is it going to be like 50%, 60% or more?

We still keep eye on this kind of percentage changes, but we believe that this kind of 5G-related devices the coverage of ATS could reach over 40% this year.

Okay. Okay. My second question will be on the outlook. I know that we are not commenting on specific customers. Just wondering for this year, last time we talked about that we're expecting other new customers to start ramping up this year. So I was just wondering how that has been progressing so far in terms of contribution for the revenue this year? Would it be claiming like -- I believe last year it was about 10%. Is it going to be a much larger percentage this year?

10% of what?

10% of the SOT last year that will be coming from like...

[indiscernible] We could see these kind of change according to different shipments in each quarter. But however, as we addressed in the last quarter, this year, one of the biggest contribution from will be coming from non-AI portions, including -- according to our confirmed order for the second and third quarter mostly related to auto. And in that aspect, in the beginning, we didn't see the customers planning to change any of their CapEx for this year. I think another contribution will be coming from ASIC makers. As you could see the recent comment about the CapEx spending this year will remain no change. So I think overall SLT this year will definitely include in these two parts. First one, non-AI portion. Another one is coming from ASIC makers.

Quickly for the ASIC makers, do we see like more coming from, let's say, China?

So we sell the SLT to China at the moment.

Next one, Haas Liu, UBS.

Congratulations on your solid results. I think just a quick follow-up on your full year outlook because this year, it seems that first quarter and even second quarter, you were guiding sequential growth through first half of this year. So I was just wondering if you could share more view into second half, what's your book-to-bill look like right now? And if we could still see that the full year growth will be able to outperform your historical [indiscernible] in down cycles in the past couple of years that historically your sales have been declining in those down cycles for the industry. So I was just wondering if you could actually outperform that. Yes. That's my first question.

Of course, we're always looking for But as you could see, the market still remains some kind of uncertainty, especially for geopolitical factors. I think we will take more conservative view. I mean, regarding to the second half this year. I think we need to consider maybe for equipment company tariff this kind of issue is passed on courses and our shipment to United States currently remains low. I think it's not more than, I would say, around 5% to 8% at the moment, even we do receive the payments and revenue from United States customers. I think equipment still depends on where and which location the customers are going to build up their CapEx. However, we still keep our eye on the market changes, we do have quite a decent order visibility even going up to third quarter.

Okay. Okay. Got it. Because when I look at first quarter sales, it was up 55% year-on-year and the second quarter just based on your, it will grow sequentially. So at minimum, you will still be able to grow like 30% year-on-year. So I was just wondering if that kind of momentum would you be able to expect into second half this year? So there is some uncertainty. Could you actually share a little bit on the where -- which part of the business you are seeing more uncertainty at this stage? Are your customers actually canceling their orders into second half this year or even push out into 2026?

We did see the customers planning to push the orders. So we still have quite a long over 3 months order visibility. I think our concern is mostly related to what kind of overall economy status. And we also need to pay attention on the changes of the currencies. As you could see, normal equipment company is pretty much tied up to the United States dollars.

Yes. Okay. And then I think just on the mix, since first quarter is probably the first quarter that -- in the past few quarters that you have been seeing that your traditional power equipment business see a sequential recovery in a meaningful way. Would you still comment that -- or would you still guide that the semiconductor business this year will be the key growth driver for the company? Or actually it's going to be the other way around that traditional power is actually going to outgrow semiconductor?

Okay. Overall, we think this year, the power business, our confidence level regarding to the power business growth is getting higher as we didn't see very much changes come from the -- especially China market. I think China recently quite aggressive to build out this kind of so-called AI infrastructures, and we generally start to see that. And based on our current order on hand, I think we do have a very high level of confidence that we're able to cover whatever we have been last year. And regarding the semiconductors, the customers see them planning to change very much with their orders, no matter you like to discuss about [indiscernible] But I think the key factor is we still need to wait until the customers further notice which quarter they're planning to deliver.

Okay. And then just very quickly, very quick -- two quick follow-ups on Chroma's related expansion plan because there has been some discussion regarding the industry expansion moderate. Are you seeing signs from your customers that some of the just reschedule some of the delivery of those metrology equipment? What should we think about first half versus second half regarding the pickup for your metrology business?

Overseeing -- starting just like -- from first quarter, we already start to ship the so-called Chroma metrology. And we also got informed by foundry to prepare the orders for the -- we can't be very much sure which quarter they wanted to deliver. The fact is we already [indiscernible] all the units and also the plant regarding to the new factory -- I mean, new capacity. But the good sign is we do start to see the existing capacity has gradually adopt our metrology equipment. So we think this is quite a good move for our metrology business.

Okay. Yes. And before moving back to the queue, if I could sneak one more question. Just regarding your metrology business. Will you still be commenting that this year is going to be a few billion contribution to your overall sales?

Based on the numbers that informed by the customers, I think we don't see the reason to change.

Next one, Hanxu Wang, Bernstein.

Congrats on the great results. I have a question about the ATS or battery revenue to the U.S. So I remember this year, there is a catalyst for your power business, which is the Panasonic battery line in the U.S. Any issues with that because of the tariffs?

Not at the moment.

And do you guys already starting shipping products for that production line?

So batteries, not yet. I think we can comment around maybe second quarter. I think If you elaborate the U.S. technology, you probably got...

I see. Okay. And then I just want to confirm, for the metrology business, you said you're going to ship in the second quarter. Did I hear that right?

First quarter, we already started to ship for [ Mark ], which is 7980. And then we already got informed by the customers regarding to the [ RVO ].

I see. I see. And -- Okay. And my final question is about the SLT competition. So there's a U.S. testing equipment company just had an earnings briefing, and they expect to see some SLT revenue for AI accelerators this year. So do you start seeing direct competitors in SLT for GPU or ASIC this year or next year?

Which company you mentioned?

Teradyne. Teradyne.

I don't think so.

I see. So that's not related to your business.

Next, we'll have Derrick Yang, Morgan Stanley.

My first question is that regarding your power business -- power testing business, I just want to make sure I hear you right. You say that 40% of that is from 5G and the majority of that is to China, not U.S.?

We think so because I don't know whether this is how much -- because the power devices is not under restriction. But -- okay, you cover power. You probably know most of the power devices are manufactured in China. And I only can tell you based on classifications, I mean, our sales revenue for ATS, the strong demand actually come from those 5G specialty power devices for data center and servers. But how much could be detailed down to United States, we couldn't be very much sure. But no doubt that the DeepSeek actually lid up the China being so aggressive to develop AI infrastructure. Because equipment company cannot take rush orders because as I said, our orders come with a lead time.

Yes, yes. Sure. Sure. I was asking this question because apparently the AI-related server power demand has been very strong, and you are one of the key suppliers for the power testing equipment in this area. So are you saying that based on your destination of shipment [indiscernible] the end customer?

Yes. I think this part is actually better than -- much better than we expected. We didn't expect such strong [indiscernible] from the so-called AI infrastructures.

Okay. Okay. Got it. Got it. And my second question is regarding your SLT and metrology and maybe also the power testing business. Could you provide a little bit of preliminary color regarding the outlook or your view into 2026, any new customers in progress? Or -- I know it's going to be big, but any color will be much appreciated?

It's very difficult to comment on 2026. It doesn't mean we don't have a confidence. We do still very much concerned about [indiscernible].

Okay. Maybe let me put it this way. So maybe more specifically for the SLT business because I think the major SLT user -- sorry, go ahead.

I only could -- I couldn't comment in details, but we could only comment on one thing. The [ Rubin ] is planning to sampling from second half this year. So we're not surprised from last quarter, the H Series has continued to -- I think from customer side has continued to decrease because the customer is planning to move on to next generation.

So the shipment is likely to start...

I couldn't comment on shipment, but we have pretty much confident that customers are planning to sampling the [ Rubin ] this year.

In the second half this year?

Yes.

Next one, [indiscernible].

This is Nicole from [ CTC ] also. I know that Chroma has multiple testing solutions for server power EDD2. And I'm just curious that as like server power [indiscernible] towards higher power and density. And so from Chroma's perspective, what are some of like the peak power densities that you're seeing in these power [ racks generate ]? Does the complexity of testing higher power components like does it translate to a higher ASP for your necessary testing solutions?

That's correct. Yes. We actually used to have like -- I think before last year, about 2 years, we sort of mentioned about 20% to 25% of the ATS that too come from this 5G power related. As you can see, we start to cover general -- I mean speciality power devices with [ generator ] -- so we have been doing this business for several years. But this year is actually quite strong. I would say the 5G power devices, I will say, stronger than [indiscernible].

Okay. My follow-up question. So if you could possibly answer like what is like e-commerce of the -- in terms of the power capacity in kilowatt that you're seeing now for example like in the power rack like the power supply unit and like the PSU and super capacitor and like [indiscernible], if you could talk the answers.

Because of that we're only dealing with -- I mean the equipment [indiscernible] I only will say this year possible to reach up to over 40% of ATS actually come from this 5G-power related because we actually see mainly power business from these applications in coming second quarter will be even stronger than first quarter.

Next one, Wern Chng, HSBC.

Jennifer, I just have one question. Just my question on your comment that on SLT being driven by auto. I know you don't give percentage SLT contribution. I'm just curious to know, do you expect in the SLT contribution, whether also would be significant this year and next year, so material -- so is it 5%, 20% of SLT, not overall revenue? And you -- if you just tell me if the customer is being aggressive despite weak end demand because auto is weak, but autonomous driving is coming in, right? So just wanted to hear your thoughts.

Sorry, we couldn't provide a breakdown for overall percentage regarding to system-level test because we don't like -- certain customers order size. However, just like we guided in February, I think if you look at the system-level test for last year, I think it's kind of double last year. So I think from the beginning, we already stated we don't expect the system-level testing will be the key growth driver for this year, but will not be very much different compared to last year, mainly come from -- I would say, close to half of the drivers actually come from non-AI portion includes auto-related and gaming related. And then if you look at the customer bases this year, besides NVIDIA, we were also getting several orders coming from those [ ASIC ] makers, including like Microsoft and partially AMD and Google. And -- so if you say -- you could say last year, we probably have like mostly come from the NVIDIA as a TV series. And then this year, probably it's kind of mixed. I think this is a very typical pattern for equipment companies because we're dealing with CapEx spending and the customers will not do exactly the same CapEx like the components every year repeatedly. So this is somehow we're able to comment on the system-level testers.

Next, we have Haas Liu, UBS.

I just have a few more follow-ups regarding your view into -- initial view into second half because maybe you could just share with us your view how you gauge the second half macro uncertainty, could it potentially impact your business? And historically, you've also provided some of the seasonality for first half versus second half. So maybe for this time around, if you could share any view regarding that kind of seasonality, whether it will change meaningfully or if you can try to quantify, it would be super helpful.

I think it depends on [indiscernible]. Okay. Basically, we -- as I said, because our customers, they have no plan to change the CapEx for this year. And several new projects, for example, like [ Rubins ] and others is still planning and it's pretty much on schedule. And I think we leave this kind of considerable changes just because it depends on the equipment status. And we already mentioned, for example, currency or we don't know what kind of U.S. new policies, et cetera. But however, if you talk about tariff because we -- first, we're mostly dealing with customized equipment. So our pricing still depends on the customers' [ back ]. And second, I think this year overall our customers still planning to give CapEx outside the United States. So today, maybe we are not the right person to comment on the tariff impact.

Okay. Yes. And then just on the 5G power infrastructure buildup in China, which you are seeing much stronger than expected demand year-to-date and could actually sustain into the same quarter. Could you actually just provide some reference regarding how much this business has been contributing historically in the past couple of years? Because this year, you have a target for that 40% of the business will be coming from this part of the segment. But how about in the past few years? [indiscernible] like single digits in...

[indiscernible] Business used to account for our other sectors. We're always expecting a solid and steady and stable growth to support, I mean, cash flow, okay? And the major growth momentum definitely come from semiconductors because semiconductors normally tied up to new industries or new market penetration. And so when we do the projection for power business, we normally like whatever low double-digit thing or despite of any kind of economic status. But if I move on to first quarter, we were -- first, we were quite surprised the demand is actually stronger than we expected. As you could see, first quarter, this is not yet moved on to so-called new tariff issue. And second, initially, if you still remember back to February, we thought maybe [ legacy ] I will -- probably have some declines, and we have pretty much concern. But just like we comment, we did see [ legacy ICE ] equipment to decline as we expected.

Okay. Yes. So for the traditional equipment business, I remember the last time you guided like low double-digit growth. Is that guidance changed at all based on what you are seeing right now?

But I already said we have a very high level of confidence to offset whatever we declined last year.

Okay. That's very helpful. And then I think just my last follow-up for this call is that I think for first quarter this year that it is probably the first time your operating margin touched 30%. Do you think on a full year basis, based on your forecast right now, would you be able to keep that kind of level throughout this year? Or you would expect some of the downside in the second half with all the macro uncertainties?

I think operating margin just indicates the nature of equipment company, which is operating leverage. So it still depends on the sales momentum. Second quarter will not be very volatile compared to first quarter, even I think first quarter result was kind of impressive.

Ladies and gentlemen, we thank you for all your questions, and that will be the end of this conference. We thank you for your participation in Chroma's conference. And 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, and goodbye.