Good morning, and good afternoon, ladies and gentlemen, and welcome to Besi's Quarterly Conference Call and Audio Webcast to discuss the company's 2023 First Quarter Results. You can login into audio webcast by visiting Besi's website at www.besi.com. Joining us today are Mr. Richard Blickman, Chief Executive Officer; and Mr. Leon Verweijen, Senior Vice President of Finance. At this time, all participants are in a listen-only mode. Later, we will conduct a question-answer session and instructions will follow at that time. As a reminder, ladies and gentlemen, this conference is being recorded and cannot be reproduced in whole or in part without written permission from the company. I'd like to turn the call over to your host today, Mr. Richard Blickman. Please go ahead, sir.

Thank you, George. Thank you for joining us today. We will begin by making a few comments in connection with the press release issued earlier today and then take your questions. I would like to remind you that some of the comments made during this call and some of the answers by management in response to your questions may contain forward-looking statements. Such statements may involve uncertainties and risks as described in the earnings release and other reports filed with the AFM. For today's call, we'd like to review the key highlights for our first quarter ended March 31, and also update you on the market, our strategy and the outlook. First, some overall thoughts on the first quarter. Besi's first quarter operating results were within guidance and in a challenging industry environment. Revenue of €133.4 million decreased by 3.1% versus the fourth quarter of last year, primarily reflecting general weakness in high-end and mainstream computing markets from both IDMs and Asian subcontractors and a temporary reduction in shipments for automotive applications. Such adverse influences were partially offset by increased shipments for high-end smartphone applications. On a year-over-year basis, revenue this quarter declined by 34.1%, reflecting the impact of the current downturn on Besi's business. In addition, demand from Chinese customers remained weak representing approximately 27% of total revenue this quarter. Order trends in the first quarter reflect both the negative effects of the current industry downturn and the favorable prospects for Besi's wafer level assembly portfolio. For the quarter, orders of €142 million declined by 21.3% versus the fourth quarter primarily due to the pull-forward of some high-end smartphone bookings into the fourth quarter and, to a lesser extent, decreased orders for mainstream computing and hybrid bonding applications. Orders for smartphone applications for the most recent two quarters significantly exceeded those for the comparable period of the prior year but were less than previously anticipated. Demand for automotive applications improved in the first quarter versus both the fourth quarter last year and the first quarter last year. We received a €10.5 million order from a Chinese subcontractor subsequent to quarter-end for automotive applications, indicating ongoing strength in this end-user market. Bookings this quarter also included orders for multiple hybrid bonding systems with follow on orders anticipated in second quarter from multiple customers, including two new customers. In addition, the first order for a TCB chip to wafer system was received subsequent to quarter-end from a U.S. customer. Besi's profitability was solid in the first quarter with gross margin reaching 64.2% due primarily to the current product mix and cost control efforts. Operating income of €41.7 million exceeded the midpoint of guidance. Excluding share-based compensation expense, Besi's net income and net margin were €43 million and 32.2% this quarter versus €42.3 million and 30.7% recorded in the fourth quarter last year despite lower revenue levels. As seen in this next chart, our financial performance has significantly improved at this point of the industry cycle as measured by comparison of Besi's results for the last 12 months ending March 31 this year versus the comparable period ending March 31, 2019, with revenue orders and operating profit increasing by 44.7%, 66.5% and 82.7%, respectively. It is also a positive indicator for business target achievement in the next industry upturn. Besi has significantly increased its capital allocation in recent years. In 2022, we distributed €416.3 million. To date, in this year 2023, we will have distributed almost €300 million including the dividend for fiscal 2022. Progress also continues on our €300 million share repurchase program under which we spent €77.8 million in the first quarter this year to purchase 1.1 million shares. This brings total purchases under the program to 2.9 million shares at an average price of €59.33 for a total of €174.1 million. Our financial position remains solid at quarter-end with cash and net cash of €644.9 million and €325.8 million, respectively. In addition, cash flow from operations rose strongly to €61.4 million in this quarter, up 36.4% versus the first quarter last year. As a result of recent conversions, their remain outstanding only €600,000 and €13.4 million of our 2023 and 2024 convertible notes. Next, I'd like to speak a little bit about the current market environment and our strategy. As seen in this next chart, industry conditions have continued the downward trend since the second quarter last year, highlighted by slowing memory, mainstream computing and data center markets, continued weakness in China and CapEx reductions made by many of the largest semiconductor producers. The outlook for 2023 remains negative as we work through the current industry downturn. Analysts have further lowered market estimates for this year but are forecasting a renewed upturn starting in the second half of this year. We are prepared for various industry scenarios with a highly flexible production model and strategic initiatives in place to enhance profitability regardless of the industry direction. In the interim, we continue our investment in R&D programs and service support in preparation for the next upturn and a significant projected growth of our wafer level assembly portfolio over the next three to five years. We are currently updating Besi's strategic plan with the aid of an external consultant. At present, the principal focus is on R&D as we prepare our existing and wafer level assembly portfolios for the next industry upturn. Progress in hybrid bonding and other wafer level assembly adoption continues apace with yields improving at customer sites and increased interest received from the development community and customers primarily for data center, mobile and memory applications. We are working closely with AMAT on the commercial development of an integrated production line, which show significant promise at the first two customer locations. From an operational perspective, our principal focus currently is adjusting headcount, supply chain and production overhead to align with challenging industry conditions. In addition, we continue to work to complete new cleanroom space in Singapore and a new tooling facility in Vietnam by year-end to support future growth opportunities outside China. Now a few words about our guidance. For the second quarter this year, we forecast that revenue will increase by 15% to 25% versus the first quarter this year, with gross margins remaining elevated at 62% to 64% due primarily to our projected product mix. Operating expenses are forecasted to decrease by 0% to 5% versus the first quarter, as lower sequential incentive compensation expense is partially offset by a one-time strategic consulting expense. That ends my prepared remarks. I would like to open the call for questions. Operator?

Thank you very much, Mr. Blickman. [Operator Instructions] Today's first question is coming from Madeleine Jenkins calling from UBS. Please go ahead. Your line is open.

Hi. Thanks for taking my question. So my first is on hybrid bonding. I was just wondering if you could quantify the orders you received this quarter. And you also mentioned in the release two new customers that will order in Q2, so should we be modeling a kind of significant ramp up from Q1? And also, quickly, ASMPT mentioned in their release today that -- about first customer order for hybrid bonding. I just sort of wanted to hear your take on how that two may compared to yours and more generally, how you see your technology lead versus competitors? And I have a quick follow-up if I may.

Excellent. Thank you very much. Yes, we had in this quarter several follow-on orders already for those customers where systems are installed. And then, we have a very clear indication that we will receive in the next week or two orders from two new customers. So that tells you the proliferation of hybrid bonding is continuing. It's difficult in this phase to forecast exactly how many machines will be required because also in the high-end computing applications, it's a matter of qualifying processes and also expected market growth. But compared to three months ago -- sorry, it's two months ago, in the February, things have further improved. Also, the yields on the installed base, the largest base in Taiwan, which is over 20 machines now, we reached yields well above 99%. So that means that that installed base is very capable to serve the mainstream. So that's what's happening on the hybrid front. On the TCB, we proudly announced to have received the first order. As explained earlier, this system for TCB processes again stretches the envelope, tighter specifications, far less consumption of certain chemicals, gases in this case, and higher accuracies as mentioned and that should be the next benchmark for these type of processes. So then we can offer the complete solution, offering hybrid bonding TCB for those processes where that is preferred. And then in addition, we have this bridge attach machine, which we also have already supplied several, which is the basic tool required to build chiplets. I hope these comments help you.

Yes. Yes, that's helpful. And so also on the ASMPT, they announced about their hybrid bonding tool and they had a first customer order. Could you talk a bit about how that compares to yours and your kind of technology lead there in hybrid bonding? Thank you.

Well, first of all, it's very positive that compared to two years ago when there was significant, let's say, debate about how fast hybrid bonding would be adopted that now also we see competitors jumping on the bandwagon. And the concept, as we know, is different. It is certainly not comparable in terms of mainstream high volume capacity compared to ours as far as we know. It's still in very early phase. One thing I should add, what I understood is they are marketing this system with 150 nanometers. We will ship in the next few days the first 100 nanometer accuracy system, which is definitely required to expand the use of hybrid bonding into the next generation. So in the 3 even 2 nanometer chip design geometry. So we are definitely on track to further expand our market positions.

Great. Thank you. Very helpful. And then just quickly on the automotive end market, you talked in your release about last quarter being weak, but then this quarter you also flagged a large order from a Chinese subcontractor. I was just wondering if you could maybe give some more color on how you think this end market will develop as we go through this year? And, thank you.

Well, first of all, the automotive market has been very strong already for the past several quarters. There was just by, I would say coincidence less orders in the first quarter books but then immediately after quarter-end we mentioned major Chinese one because that stuck out because of its size, but also all the other. And you may have noticed that in their communication to the shareholders, big plans for expansion, whether it's Infineon or ASTM but also in the U.S. same for China. There are major expansion plans underway for power devices, especially in the electronics for electrical and hybrid cars. So we are benefiting very much from that as opposed to still ongoing weakness in high-end computing. As we mentioned, less orders than expected for this year's round in high-end smartphones. So that's the picture.

Thanks very much.

And thank you, ma'am.

Thank you.

Thank you. The next question is coming from Charles Shi calling from Needham & Company. Please go ahead. Your line is open.

Hi. Thank you for letting me ask that question. Richard, I want to start with the backlog. I think last quarter you disclosed that the backlog to be about €270 million and given that your book-to-bill is above -- was above 1 in Q1. It seems like a backlog grew a little bit. But if I compare Q1 quarter-end backlog with your Q2 guidance, it seems like your backlog coverage, which I calculate as backlog for the prior quarter, divide that with the revenue for the next quarter it seems to be 1.7x. But historically, especially, in downturn years that ratio tend to be like 1.2x. So it seems like your backlog has still remain relatively high relative to historical. It's a little bit unusual in a downturn year. Do you kind of expect that ratio to go back down to somewhere around 1.2x or maybe closer to 1x maybe by the end of the year? Or what's the expectation there in terms of the backlog?

Well, Charles, thanks. We are comparing, let's say, a different product portfolio in this downturn to the previous one. Don't forget that for the hybrid bonding orders lead times are longer. And we mentioned also end of February that the orders we received are not for a typical let's say eight to 12 weeks turnaround in conventional assembly equipment, but they have six, nine months lead times. Also, when we talk about systems to be integrated in automated lines, the lead times are even a bit longer than that, even 10 months. So they -- out of that 270 plus, there is substantial amount for Q3 and some for Q4 and even a few for Q1, but that has to do with that new customers simply program to adopt this hybrid bonding. So it's a different -- it's not apples-to-apples comparison. We also book, of course, orders. We had a good April month and more to come in May, June. Needless to say there is some uncertainty in the market in this current environment. So one should always be more on the conservative side in guidance than to expect that things should develop more positively. But one never knows. Still, it is expected that somewhere in the second half of this year certain markets will need again capacity. Although many of the utilization rates are somewhere around 70%, some a bit higher also some lower still. So, we are not yet up in the 80s which are typically turning cycles. That may well happen in the second half. that's what VLSI TechInsights today. They all expect this type of pattern. But for us, this backlog is a very good one. Does that answer your -

Yes. Excellent. Thanks, Richard. Always appreciate the color you provide to investment community. Maybe a quick follow-up on the smartphone side of the business. I think you talked about high-end smartphone orders seems to be a little bit lower than we previously expected. But I want to ask overall smartphone revenue. I know there's high-end, there's a mainstream. But combining those two, high-end seems to be doing a little bit better than last year, but I don't see you talk about the mainstream side. Do you expect the total smartphone revenue? I think you called out mobile internet in your annual reports. Is that going to be flat or say at or slightly down? What's the expectation for 2023?

Well, it can be either one. There are certain new applications under development for next years, but that already has to be established in a certain initial volume towards the second half of this year. On the internet, you can find many articles about configurations expected for 2024, and that could mean the uptick in '23 for a strong year '24. For '23 itself, yes, whether it's flat or slightly more, but I can cover it maybe a bit different. It looked like in the second half of last year, a more let's say higher growth expecting let's say model for '23 than it currently looks like. But we've had this in previous years as well. It's always hard to tell the marketing decisions which are made at those brands, how much they will, yes, let's say order in terms of then capacity available. But I'm just telling you the situation as it is right now.

Thank you, Richard.

Thank you very much, sir. We'll now go to Rolf Bulk calling from NewStreet Research. Please go ahead sir. Your line is open.

Yes. Thank you. Thank you for taking the question. I wanted to ask about the memory market, specifically SK Hynix this morning mentioned that at the specs the high bandwidth memory markets to grow around 50% this year with a lot of their growth driven by generative AI. And my question is, of course, hybrid bonding is a candidate for adoption in HPM in coming years. And I was hoping you could give us an update on how your discussions with the main memory manufacturers is progressing and also whether the interest in hybrid bonding is still consistent despite the CapEx pull back we see in memory? Thank you.

Excellent. Thanks, Rolf. That's a very good question. The two customers, which we mentioned where we expect the adoption in the next couple of weeks is exactly for this HPM5. And also, we are continuing successfully to stack memories on top of CPU. We now have certain stacks with 8 and also working on 12, which are then hybrid bonded on to one another. And that is definitely picking up pace. So from the start in CPU, we're now entering into memory applications and then combined in the end with stacked onto CPUs.

Thank you. That's very helpful. You also mentioned for my follow-up question that orders for hybrid bonding have decreased sequentially. How should we think about this? Does any of this relate to slowdown and adoption of the technology in a particular end markets? Or is it just regular lumpiness with some of your customers placing larger orders in particular quarters that that might not necessarily repeat in subsequent quarters?

That's a combination. One is of course the nature is always lumpiness. But then as I mentioned earlier the yields of our bonders have increased significantly so the volume available has -- remember a year ago we were at yields of about 20% and we have accomplished in this 12 months that these machines are now running well above 99% yield. So the output is significantly higher. And supposedly that covers today's demand. Further proliferation is underway. New devices are qualifying like the MI300. Then, we have a suite of products from Intel, which are being taught up. So it's not that hybrid bonding adoption is slowing. It is more a matter of combination of our machines output. And maybe end markets, let's say, the adoption of new devices, that sometimes takes longer time. But he adoption is well on track.

Thank you. Very clear.

Any next question?

[Operator Instructions] Next question is coming from Mr. Robert Sanders from Deutsche Bank. Please go ahead, sir.

Yes. Hi, good afternoon. My first question would just be about upticks in particular the periscope zoom lens. I was just wondering how big an opportunity that could be for you as it's rolled out at your largest customer. And can you give us an idea of this is a larger opportunity relative to prior camera innovations like duo cam and trio cam? Thanks.

It certainly is a major opportunity. And as I tried to explain in an answer to an earlier question, the qualifications should be, let's say, reached in the second half of this year. And we will see in the number of machines which are connected to that first round, how big the rollout next year is expected to be. So a significant next round.

Got it. Just my follow-up would be on TCB. You sound like you've been -- you've received your first order from a U.S. company, which sounds like it might be Intel. I mean as I understand it the TCB market is going to remain large for quite a while. So does this mean that you have an opportunity to recover share here against ASMPT? And how long do you think the TCB market will be larger than hybrid bonding?

That's an excellent question. Number one, I think we answered some calls ago, we have developed this tool simply because that customer has requested us to help to do that. So their current installed base is not able to follow the road maps and specifically down to 1 micron accuracy. And -- well, that is, of course, tied to a certain expected market volume otherwise we would not develop that machine for that customer specifically. There are also other customers interested in this tool. It looks very positive. As we shared in the Capital Markets Day and we will share it in the next Capital Markets Day and again in more detail, for definitely the next five years, you will have a mix of TCB type of connect whether or not fluxes and then you will have the hybrid bonding. And the combination is very strong, let's say, support to those customers who are especially developing chiplet architecture devices. So with this first benchmark, the first machine qualified also ordered and accepted that offers us a very strong next product line.

Got it. Thanks.

Thank you very much, sir. Next question is coming from Mr. Marc Hesselink from ING. Please go ahead, sir.

Yes. Thank you. First question also on hybrid bonding. What are your discussions currently with your largest client? I think you just said it should be capable for mainstream with the current yields and the current shrinkage. So is it likely that that will happen soon going into mainstream? I think I would have read that going into the smartphone devices. Thanks.

Yes. That's again, an excellent question. We don't know for certain. But we -- our read of what is happening, they want to move in an accelerated fashion to the 100 nanometer spec. And this is likely to be linked to a next processor for a high-end smartphone application, which then should hit the market in the model 2024. So qualifying this year, multiple systems installed in the first half of next year in time for volume application in the models launched in Q3, 2024. Maybe it is first for the high-end tablets and the year thereafter smartphone. No one really knows that. It also depends on other factors than the factors we can influence. But that's our current read. Clear?

Yes, yes. No. Sure. That's clear. Thank you. And then the other question is actually more on the second half for this year. And if I read correctly, I think as the -- probably a bit more hybrid bonding and automotive continues to be strong and your backlog is still very well-filled. Is it fair to assume that the second half of the year will be a bit stronger from the first half of the year than your normal seasonality?

Well, the best comparison is 2019. That is the -- the bottom in '19 was at exactly April, May, June '19, and we saw orders pick up in Q4, after let's say, the industry tide turned early 2018, a similar pattern. The only thing which is different is that the peak in '21 was significantly higher than the peak in '17. How much of that is AI related or other applications related is difficult to tell. What's also different is the global economy, how much that will impact semiconductor demand, who knows. The China situation, on the other hand, we recognize now rapidly building capacities outside China. Before year-end we'll have certain new programs also for high-end smartphones in India. We are preparing organizations to support that locally, same with Vietnam. So that is gaining traction. That could lead to orders in the second half of this year. But still always sort of rule of thumb, the first half is stronger than the second half apart from 2019. And as I mentioned earlier, we track very closely the utilization rates at customers. It's varies per region and China is a bit lower than Taiwan and also Southeast Asia. Southeast Asia is also typically more automotive related. But it's somewhere around 60, 70, some areas slightly above 70. So we're working through this correction phase. Whether the tide really will turn in the second half, it's anyone's best guess. But we have some unique new technologies, which could accelerate as well. So very interesting and very positive.

Clear. And then the third question, follow-up question is on your investment levels. Obviously, you always adjusted for the output levels, but you're also now strictly investing a bit more to prepare for [indiscernible] hybrid bonding. What should we expect for the coming quarters?

You mean CapEx or...

Sorry. Sorry, more in the OpEx side, so within the combination of R&D and the more structural SG&A as we're not -- the near-term with more of the things that you're are building up because of hybrid bonding?

Well, the current levels support our plans as they are. There is no significant -- there is no increase of any materiality. The organization is in place. The support is organized. So I would guess on the OpEx side that we would stay at similar levels. And if you take out one-time effect always in Q1 share-based payments, yes, those are difficult levels which are sustainable.

Okay. Very clear. Thank you.

Thank you, sir. We'll move on now to Mr. Didier Scemama calling from Bank of America. Please go ahead.

Thanks for taking my question. Thanks for the update and the thoughts, Richard, high-end smartphone adoption for hybrid bonding in 2024, I think that was really my -- one of my questions. I wanted to ask you also about 2024 on hybrid bonding. Which one do you think is going to be bigger for you? Do you think it could be high-end smartphones? Or do you think that the generative AI, high performance compute sort of thematic could be a bigger driver for hybrid bonding adoption? And specifically, you mentioned high bandwidth memory and CPU, which is a no-brainer for hybrid bonding. I'm wondering whether you think the GPU market and training algorithm could also benefit from hybrid bonding perhaps next year. Thank you.

Yes. GPU market, certainly. But if you ask us today, as I also answered to an earlier question, we would guess that the high-end tablets is the first let's say application for a process using the hybrid bonding and probably chiplets architecture to some extent as opposed to high-end smartphones. But we could be wrong. But it's definitely the case that they are developing with a lot of efforts to be able to use the 3 nanometer, maybe even 2 geometry in that next generation. So a lot of effort is being invested. That's from a mainstream application and volume, I would guess more '25, more likely. But that is for all let's say major volumes hybrid bonding. '24 for high-end definitely, and the first let's say product families from Intel processors and big volumes to be expected '25, '26. The infrastructure is being organized. These will all be established on integrated lines. But then putting me on the spot for '24 is still too difficult to answer with a definite answer. But we will update everyone again on the Capital Markets Day June 6 in some more details. Yes, that's as much as I can share right now.

All right. No, that's great color. Just also being a bit more down to earth on the second half. Is there any particular reason why, let's say, historical seasonality would not play out in Q3 and Q4 going beyond the current macro uncertainty?

Well, what I mentioned earlier, we did not expect in '19 the tied to turn positively in Q4. That was to us. All of a sudden, yes, the tide turned. And then we had sort of the hiccup in March due to COVID but then immediately it picked up further in April. But the rules of thumb six to eight quarters up and then six to eight quarters down. Yes, by Q4, we will have reached definitely six to eight quarters. We have been -- although nobody believed that we have been careful since Q2 last year. We saw definitely signals of let's say peaks past. It's also hard for us to understand what is the impact of GDP in this case. Will next year interest rates be low? I don't know.

Yes. Thank you.

Thank you so much, sir. Next, we'll go to Ruben Devos calling from Kepler Cheuvreux. Please go head.

Yes. Hello, good afternoon. I've got two questions, both on hybrid bonding. The first one is something you mentioned in the annual report. You sort of provide a rundown of the potential hybrid bonding applications, which is impressively wide range. In this call, we talked mostly about computing AI and smartphones. But in the annual report, you also mentioned autonomous driving, medical, gaming. So I was curious how far out is development for this type of applications? And to what degree is maybe Besi working towards potentially addressing these other markets at some point? That's my first question.

Well, the gaming certainly is already part of the, let's say, AMD first product range. It's not -- I mean we're talking as you rightly say about computing and high-end smartphones, which is expected. Certainly the high-end smartphones when that is adopted that is really a game changer in terms of volumes. And you need many machines for that. Computing a bit less, the high-end computing. So from a numbers of machines, the biggest impact will be in positive sense the adoption for mainstream high-end smartphones. That's the expectation as it stands. Automotive, yes, it's more autonomous driving, of course, you need more intelligence. But that's currently not seen as the imminent driver. Same for medical. But gaming, yes. I should add to that, the chiplet architecture element. So it's not just connecting single devices but the architecture of multiple devices to create an electronic circuit. For many end products is what you see in conferences also when you simply look online what are the objectives to be reached of designing chiplet architecture using hybrid bonding and also TCB for that matter.

All right. Thank you. And then maybe a second question. I believe you provided an update in the prior release that you shipped about 35 units to date, of which four bonders incorporated in integrated production lines. I was wondering whether you could offer an update as to shipments but also which type of systems you currently have in the backlog? Yes, in the previous answer, you talked about a clear direction into integrated lines. But how should we think about the incremental traction for let's say integrated bonders relative to standalone tools? Thank you.

Well, there are several questions. We certainly have shipped a few more bonders Q1. But as we indicated also two months ago, the quantity and orders we received will be shipped Q3, Q4. So not so much in Q1 and Q2. The other question, and I mentioned that several times, this whole concept of integrated lines is gaining more and more traction because of the simple fact yields impact by particles. So an integrated line offers less particles. And the qualification of the first line in Taiwan is as we speak, same in the U.S. And those should become the standards you could say workforce for hybrid bonding in this industry. But again, in qualification phase as it is right now. So over time, we will ship more bonders to be integrated into integrated lines than standalone bonders.

Okay. Thank you.

Thank you very much, sir. We'll now go to Nigel Van Putten calling from Morgan Stanley. Please go ahead, sir.

Hi, good afternoon. Just some clarifications really. First on the high-end smartphone optics or periscopic lens. I think there was some assumption that that would be maybe due for shipment this year maybe already in your backlog. From an earlier question I got the impression that the qualification still needs to be finalized. And you see this more of a next year development. Is that correct?

Partly. The orders for multiple systems should still happen this year or early next year. So those orders were not yet booked.

Understood. That's clear. Then another question, I think your temporary FTE count in Asia this quarter was 232. That compares to 60 in the fourth quarter on similar revenue levels. I know you manage that very carefully. So does that imply that there is a lot more work now going on, on converting the backlog into the next quarter? Is that flagging some optimism into the second half of the year perhaps? How should we read that?

The biggest is of course the ramp to go in the midpoint from 133 to 160. And certainly, some -- if you take the backlog also into Q3. And we have to, yes, let's say, carefully anticipate that next year we might go into a higher gears and you have to train people. So the best you train them once you have volume. Anyway, so part of it is that. But as you said, we are very close tight ship, look at the margin. By the way, nobody asked about the margins. We've had many questions last time and supposedly that's the industry standard now 64% gross margin. Anyway, you only achieve that when you run a tight ship.

Understood. As a follow-up to ask a question about the gross margin. So going forward, how should we think of that? Is that now another step up slightly, 62, 64, which is not continue? Or was there any specifics in the mix? I think you already gave the answer, but still want to provide you the opportunity to provide more color.

There are several things. First of all, don't forget we had a wonderful dollar in the second half of last year with the parity to the Euro. And we've also been able to increase prices early for inflation and other issues. And then, of course, the ongoing development of new machines with successful applications, that all helps to bring that margin again at higher levels. Despite the fact that we have less effect of cereal production, volumes are nearly 40% lower than peak or about 40% lower than peak, so it's very inefficient. So you have several factors which help to further increase the margins, but may also with a different currency model have another impact. But needless to say that once you have reached these levels, and especially in downturns, that tells you that things are developing continuously and a better margin control.

Yes. Yes, understood. Very strong, indeed. Maybe one quick last question. In the order book combined with sort of the statements you made before but also today about a large U.S. IDM and that lands into perhaps already in the second half of the year. If I can sort of read you correct that is not yet in the order book, but there is quite high confidence that those orders will still materialize in the second half of the year as flagged before. Is that correct?

Yes, that definitely we have mentioned that also in previous calls. You -- there is a phase, which is an initial adoption and qualification. And then you have sort of an initial production capacity, which is around 20 machines at a minimum. But now these machines also start to say that again, run at very acceptable yields. So that offers mainstream adoption from an end market perspective. And once that really becomes, let's say, yields definitely above 99.9%, then customers can start scaling and then you need multiple systems, and then the minimum picture is typically 50. We're somewhere in between the low 20s and 50 in Taiwan. We are still below 10 in the U.S. but with definitely and big potential this year that could move up to what you just suggested. So the adoption is continuing. End markets are a bit, you could say, look at it, be in Intel less at this moment, but there are definitely signs that that should turn at a minimum next year.

Understood. Thank you very much.

Thank you so much, sir. We still have a couple of more questions. And next one will be coming from Johannes Ries calling from APUS Capital GmbH. Please go ahead.

Yes. Richard, good afternoon.

Good afternoon, Johannes.

Hi. Some follow-on questions to what we discussed before. First, generative AI, how much you have realized since the last month? Because my feeling is it really spread around everywhere and it's -- maybe it's just at the beginning. How much this maybe change the plans maybe of your customers, especially by the adoption? You mentioned of chiplet technology and so forth could help you going forward with all we have to offer bridge attach and also bonding technologies?

Well, as I tried to explain earlier, more and more the industry is moving in this direction, there are many indications, broader adoption. Remember two years ago we only had one customer in Taiwan driving the bus and then in the U.S. but slower, and now also Korea also memory in the U.S. And then more and more clear examples of designs used in those end market applications. So, yes, there is an ongoing adoption. And with our portfolio now both hybrid and TCB and bridge attach, don't forget our flip chip, we are able to cover most of that spectrum, and certainly at a very high-end.

And this AI boom is also maybe further -- maybe driving the adoption of just chiplet technology?

Yes, that's what everyone tells us.

Maybe on the 100 nanometer hybrid bonding, the next generation. If I got it right, so that's maybe also maybe the generation which is used for this high-end smartphones solution maybe start next year. Remind us a surprising difference between just generation first and generation second compared to the 150 nanometers?

Well, this first round from 150 nanometer to 100 nanometer moves depending upon which loading automation is used and whether it's connected into a line. We call it Generation 1 plus and it's not yet Generation 2 because it's based on the same system platform. We moved from between 1.5 million to 2.5 million from 2 million to 3 million. That's where it currently stands. But this is early, simply confirming the capability of 100 nanometers. You would need more automation around such a system so you have the cleaning, wet cleaning, dry cleaning in the automated line. Yes, the price of the bonder is again -- it touch higher because of the interface.

Great. And so that's not the end because in the longer-term we even expect -- we discussed it last call, move to 50 nanometers but that's sometime out into the future.

Yes, that's three years away. But as I mentioned, we are in a prototype phase developing such a concept. It's moving along because there's definitely customer pressure that that will not be ready before 2026. Maybe in prototype '25, but that's what the market also expects.

Coming back to this memory topic. How big could be this memory market opportunity for hybrid bonding compared to logic part?

Well, it could be much larger than the CPU because you have more variety and how many memories 2Ds, 3Ds you use. But the biggest, let's say, volume upside is this chiplet architecture. So if you combine more devices, every combination needs a bonding step. So we explained that also in the Capital Markets Day, that is the real let's say game changer in hybrid bonding volume. Not so much the difference between CPU and memory.

Bringing all this together on one device that's a big driver, it's clear. Totally, as a topic, a big boom in compound semiconductors leads some carpet gallium nitride -- silicon carbide gallium nitride. Is this anything also you're benefiting from?

Yes, because they also need to be connected. It needs to be packaged. So that's also definitely helping, especially in the automotive applications, power motives. And big plants in Germany, Bosch in particular. So, yes, that's definitely in growth segment.

Great. Then on the geopolitical investments which are made now in the U.S. and in Europe, now say -- definitely now just started, maybe the front-end, things are coming. But in the end, also, maybe it's after some time also they have to invest in back-end solutions. When you expect from this investment also maybe further pushing orders? Is it maybe the end of next year or is it 2025 topic?

'25 topic. Before you have a front-end fab and it takes you two years. And don't forget the Chip Act is still -- in the political environment that also takes time. So, we don't count with that before '25.

But nevertheless, it's also far away another growth driver. And finally, on China, we hear also form the front-end guys that in the high-end segment, but in the middle-end or even basic mature nodes, there is a huge investment going on in China. You mentioned U.S.-China business had quite been weak. But could you also see an uptick going forward if these front-end things also need to -- need for back-end?

We mentioned already that in automotive we had a big order in the first week of April, which for China was a typical major order. And that is for people also expect could support a next investment round in the second half of this year. But anyway, many more questions. We are past the hour.

I'll jump. Thanks a lot.

Call me in case you have further questions. We can set up a call and look very much forward to have a longer discussion.

Yes. Mr. Blickman, the last question has been withdrawn and we do not have any further questions at this time, sir.

Thank you very much. Thank you all for calling. And please, in case you need more details, don't hesitate to contact us. Thank you. Bye-bye.

Thank you, gentlemen. Ladies and gentlemen, that will conclude today's conference. Thank you very much for the attendance. You may now disconnect. Have a good day and goodbye.