ACM Research, Inc. (ACMR) on Q3 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the ACM Research Third Quarter 2021 Earnings Conference Call. At this time, (Operator Instructions) After the speaker presentation, there will be question-and-answer session. (Operator Instructions) I would now like to hand the conference over to your first speaker today, Gary Dvorchak. Please go ahead. Gary Dvorchak: Good day, everyone. Thank you for joining us on today's call to discuss third quarter 2021 results. We released results after the U.S. market closed yesterday. The release is available on our website as well as the newswire services. There's also a supplemental slide deck posted to the investor portion of our website that we will reference during our prepared remarks. On the call with me today are our CEO, Dr. David Wang; our CFO, Mark McKechnie; and Lisa Feng, the CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to Slide 2. Let me remind you that remarks made during this call may include predictions, estimates or other information that might be considered forward-looking. These forward-looking statements represent ACM's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under Risk Factors and elsewhere in ACM's filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward-looking statements, which reflect ACM's opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certain of the financial results that we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation, a loss relating to a change in fair value of the financial liability and an unrealized gain in trading securities. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is -- with that, let me now turn the call over to Dr. Wang, who will begin with slide three. David? David Wang: Thanks, Gary. Good day, and welcome to today's call. We had excellent third quarter with strong financial results. We delivered record revenue and shipments with solid profitability. Third quarter results demonstrate the strength of our expanding customer base, our differentiated multi-product solutions, strong product cycle for both front end and back end and our growing production scale. Revenue grew to $67 million, up 41% year-over-year. Shipments were $99 million, up 68% from $59 million in the same period last year. We maintained a good balance of growth and profitability with a 44.5% gross margin and 19.5% operating margin. We are focused on profitable growth as we invest in R&D to driving innovation, broaden our product portfolio and introduce new products. On the bottom line, we report $0.56 of net income per diluted share compared to $0.42 in the same quarter last year. We ended the quarter with $65 million of cash. In addition, we had $30 million a quarter and from our holding of SMIC's stock market shares. I will now discuss recent operational highlights on Slide 3. First, our Q3 revenue growth was broad-based, driving by and new products. Our wet cleaning and other front-end process tool grew 29% and represented 70% of total sales in Q3. The growth was driven by our flagship cleaning SAPS tool, good contribution from TEBO cleaning tool and our Semi-Critical cleaning tools. Advanced packaging, other process tools, services and spare parts grew by 88% to 26% of sales. The strong growth of this group was driven by AP tools, including ECP AP, wet etcher, stripper and scrubbers together with the increase in our service and spare parts business, Second, we received good orders from 3 new major customers. Several weeks ago, we announced evaluation orders from 2 potential new customers. The first order is for SAPS cleaning tool from a major global semiconductor manufacturer and is scheduled to be installed in their China-based development fab in the first quarter of next year. The second order is for Ultra ECP map copper plating tool from major Asia-based semiconductor manufacturer. Also for delivery early next year, yesterday, we announced order from leading global integrated device manufacturer or IDM, orders or for 2 Ultra C pr wet stripping system to be used in a China-based advance packaging facility. We already delivered the first order in October and planned a second delivery in Q1 of 2022. ACM offers a full product line of WLP white possess tools, ranging from coater, developer, white etcher, cleaning and PS savers to advanced copper plating tools. While our WLP wet process tools ranging from coater, developer, wet etcher, cleaning and PR strippers to advanced copper plating tools. While our WLP wet tools have gained wider acceptance with a number of China-based manufacturers, this order is ACMs first WLP wet tool orders from a major global player. ACM progress with 3 new major player is a testament to our technology leadership, regional support teams and production scale. We are confident that successful qualification of this tool can result in larger business opportunities. We continue to build our scale. Our sales pipeline is a top-tier player. I want to thank our sales and technical support teams for their outstanding execution. China is among the largest and fast-growing market for semiconductors. Over the year, ACM has become a significant supplier of semiconductor equipment in China with our major domestic front end customers. We believe ACM differentiate technology and multiproduct offering provides us an opportunity to capture significant market share on a global basis. Longer term, we are targeting half of our sales from countries and regions outside of Mainland China. Third, our ECP product ramp is getting momentum. We delivered multiple ECP tool in the first half 2021 and even more in Q3. As noted in last quarter's call, we expect the ECP momentum to continue with the delivery of 20 ECP tools for the full year 2021. We expect the ECP product line to drive meaningful growth in 2022. We see good opportunity for ECT in both front-end and back-end or packaging applications. In the front-end, smaller geometry require advanced plating solutions. ECP portfolio includes the ECP map for damascene copper interconnection and ECP TSV for through-silicone via. Meanwhile, back-end and advanced packaging has become more important as industry moves most of all. Manufacturers are looking for packaging innovation to drive higher performance. ACM ECP AP for advanced packaging addresses this back-end opportunity. We estimate that the total global market for ECP front-end and back-end application will triple from $500 million last year to up to $1.5 billion in the coming years. Fourth, we are seeing strong interest for our Ultra Fn furnace dry process tool portfolio. So far in 2021, we delivered several process tools and evaluation tools, including doped and un-doped poly LPCVD. We expect to deliver additional units by year-end. More recently, in October, shipped furnace product with higher temperature oxidation and capability. Building on this strong execution, the next major development in our furnace road map is a batch atomic layer depletion, or ALD process. We view this as the most challenging and promising product for advanced manufacturing nodes for both memory and logic. We expect furnace product cycle to ramp in 2022. Based on 2022 market data, we estimate our current products address a $5 billion total global market opportunity. We are committed to our goal to double our addressable market to $10 billion in the next several years. On that note, we are making steady progress with our R&D investment in 2 additional major new product categories. This is our long-term commitment to major adjacent markets in which our customers are pushing us to invest in product roadmap that support their advanced nodes. We have accelerated our hiring to supporting this program. We are confident that we can deliver the first tool in each category in the first half and second half of 2022, respectively. We have a deep R&D program intended to address the next 2 product generations by entering this category at the leading-edge nodes. We are in a strong strategic position to leverage our local relationships with some of the most advanced semiconductor fabs in the world, where we can test drive and develop our most advanced technology. This will help driving most of our product line to the leading edge and competing on a global basis. Next, I would like to recap the ACM customer base on Slide 5. Our first group includes our 5 major front-end customers that represent the foundry, 3D NAND and DRAM manufacturers. For 2021, we expect a good growth from Huahong Group and YMTC, which we expect to remain as our top 2 customers. However, each may represent a lower percentage of total revenue as we anticipate meaningful growth from other customers. For 2021, we also expect a good contribution from our other 3 major front-end customers but now unlikely to be over 10% contributors. This including SMIC, which contributed to our third quarter results as anticipated, SK Hynix and CXMT. Our second group, including a number of new China-based semiconductor customers who manufacture power, analog, CMOS image sensor, compound semiconductors and other devices. This customer, including 4 of 5 Tier 2 players, a handful of new Tier 3 and others. Each is relatively small, this group of new customers combined could contribute 10% or more to our 2021 revenue as the newer customers are investing in new capacity to support the growth of 5G, IoT, EV and AI and other emerging technologies. ACM has good presence at these customers, supplying a broader range of tools, including SAPS, Semi-Critical cleaning, ECP and the furnace products. Our third group is advanced packaging and wafer manufacturing customers. Top customers here have included JCAP, Tongfu, Nepes and Wafer Works. We've had a good offer -- good order momentum in this group this year, including orders from 2 new advanced packaging house in Q1 and yesterday's announcement from the China-based packaging facility, a major global IDM. We expect additional orders from more potential customers in this group by year-end. Collectively, we expect tremendous growth from this group. That should be driving our increased industrial focus on advanced packaging and wafer manufacturing, penetration of new customers and a strong product cycle for ACM ECP AP tools. Looking ahead, we believe our current customer base represents a significant opportunity for ACM. Most of these customers are still in early or middle stage of multiyear capacity expansion. We are committed to further broaden our customer base as we believe every major semiconductor manufacturer can benefit from our technologies. Moving on, I would now like to discuss Q3 shipments and provide an update on our manufacturing facility. Please turn to Slide 6. We delivered record total shipments of $99 million in the third quarter shipments. Shipments were $32 million higher than revenue, the difference being first tools and evaluation tools of customer acceptance for previous delivered first tools. This is a positive indicator as it reflects demand for new products and from new customers. To achieve this level of achievements, we must thank the production team in our Chuansha facility. We are ramping production capacity to meet the strong customer demand in a constrained supply chain environment. We started production in the second building of our Chuansha factory in Q3 as planned. We are on track with our capacity road map, which targets a full rate of million of annualized production capacity by the end of this year. up from $350 million at the beginning of this year. We expect to further increase production capacity to $625 million by the end of 2022. We are committed to our long-term strategic plan to build production and R&D center in the Lingang region of Shanghai. The 1 million square feet of floor space will enable us to increase our annual production capacity to $1.5 billion. The facility will also be used to support advanced R&D with a state-of-art cleaning room and testing equipment. We recently began initial construction, laying the groundwork towards our plan for initial production in the beginning of 2023. Before I provide our 2021 outlook, I want to provide an update on ACM Shanghai's stock market IPO. Yesterday, the Shanghai Stock Exchange announced the pricing of the stock market IPO for shares of ACM operating subsidiary, ACM Shanghai. In IPO, ACM Shanghai proposed to issue 43.4 million shares, which is 10% of the total share outstanding following the IPO as the announced pricing of RMB 85 per share. This would represent gross proceeds of RMB 3.65 billion or approximately USD575 million at the current exchange rate. If all goes according to plan, we tentatively to expect ACM Shanghai stock to begin trading on November 18, 2021. Please keep in mind that the term timing and successful completion are subject to factors beyond ACM Shanghai's control. We are confident that the stock market listing of ACM Shanghai shares, combined with the NASDAQ listing ACM Class A common share can provide a strong foundation to supporting our mission to become a major player in the global semiconductor industry. Now let's move to our 2021 outlook on Slide 8. We -- Our guidance reflects optimism about our growth opportunity for 2021. We have tightened our revenue guidance to the range of $230 million to $240 million, representing 50% of our annual growth at the midpoint. Our outlook for 2021 is based on several key assumptions. First, stability regarding the global COVID-19 pandemic. Second, the stability in the U.S.-China trade situation. Third, a range of spending scenario for the production ramps of key customers. Fourth, management of ACM supply chain. And finally, a range of timing of customer acceptance of our first tools. Our results and outlook demonstrate successful execution of all strategy. With strong strategy, our strong growth is supporting additional R&D spending on new products. We are building our global sales and marketing resources to penetrate the new customer in the region, and we are scaling production capacity to support our long-term growth plan. We believe we came on track to achieve our mission to become a major supplier to the global semiconductor industry. To conclude, I would like to thank our employees for their hard work and dedication. I also want to thank our customers, partners and shareholders for their support and confidence in ACM Research. I will now turn the call over to Mark to discuss financial results in more detail. Mark, please? Mark McKechnie: Thank you, David. Good day, everyone. We delivered strong financial results in the third quarter. Unless I note otherwise, I will refer to non-GAAP financial measures, which excludes stock-based compensation and unrealized gains in trading securities. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Now the third quarter, shown on Slide 9. Revenue was $67.0 million, up 40.6%. Revenue for single-wafer cleaning tools, which includes SAPS, TEBO, Tahoe and Semi-Critical cleaning was $49.5 million, up 29.0% from $38.3 million. Revenue for ECP furnace and other technologies was $8.2 million, up 69.1% from $4.9 million. Revenue for advanced packaging, excluding ECP, services and spares was $9.4 million, up 109.5% from $4.5 million in 2020. Total shipments were $99 million versus $59 million in the third quarter of 2020 and $82 million in the second quarter of 2021. This includes deliveries for revenue in the quarter, deliveries of shipments awaiting customer acceptance for potential revenue in future quarters and deliveries of evaluation tools. This represents another quarter of record shipments, great accomplishment by our production team given industry-wide supply constraints. Gross margin was 44.5% versus 42.8%. This was at the upper end of our normal expected range of 40% to 45% due to favorable product mix. We expect gross margin to continue to vary on a quarterly basis due to a variety of factors, including product mix and manufacturing utilization. Operating expenses were $16.7 million versus $10.1 million. The increase in operating expenses reflected higher R&D on new products, our expanded U.S. sales team and other costs. R&D expenses grew by 82.2% to $7.6 million or 11.3% of sales versus $4.2 million or 8.7% of sales last year. The increased R&D intensity reflects ACM's commitment to new products and innovation. We expect to increase R&D spending in 2022. Operating income was $13.1 million, up from $10.3 million. Operating margin was 19.5% versus 21.6%. Unrealized loss on trading securities related to the change in market value for our SMIC investment was $1 million in the third quarter of 2021 versus an unrealized gain of $9 million in the year ago quarter. Note that we exclude this noncash item from our non-GAAP results. We had a tax benefit of $0.3 million versus a tax benefit of $1.7 million in the year ago period. Net income attributable to ACM Research was $12.4 million versus $9.0 million in the year ago period. Net income per diluted share was $0.56 compared to $0.42 in Q3 of 2020. Tax items and the effects of foreign exchange fluctuations on operating results provided a net benefit of $1.7 million or $0.08 per share in the third quarter of 2021 versus a net benefit of $0.3 million or $0.02 per share in the third quarter of 2020. I will now review selected balance sheet items. Our cash balance was $65 million at the end of the third quarter versus $70.2 million at the end of the second quarter. In addition to the cash balance, we also had trading securities of $3.2 million related to our SMIC investment. This includes a significant unrealized gain from our original purchase price. Total inventory was $176.6 million at quarter end, up from $136.9 million at the end of last quarter. $39.7 million quarter-to-quarter increase was driven by 2 items. First, finished goods inventory grew by $17.9 million to $81.9 million. This represents the balance of first tools that have been delivered to customers and evaluation and are carried on our balance sheet at cost pending a potential transfer of ownership. The second item is work in process and raw materials, which in total grew by $21.8 million from the prior quarter. This was due to purchases to support future shipment growth. At quarter end, short-term borrowings, including the current portion of the long-term debt were $17.5 million, down from $24 million at the end of the second quarter. Noncurrent long-term borrowings were $23.1 million versus $18.7 million at the close of the second quarter. Cash flow used by operations was approximately $4 million for the third quarter. For 2021, capital spending is planned at approximately $10 million. This includes $5.5 million already spent through the first 9 months of the year. Our 2021 investments will be primarily focused on capacity increase at our Chuansha factories, investments to support our R&D programs and initial spending on Lingang. In sum, we are successfully executing on our strategy. We are participating in the growth of major new IC fabs. We are ramping production, and we're developing and delivering new products to a growing list of customers. We're positive about our opportunities in China and expansion outside of China. We remain committed to achieving our mission to become a major player in the semiconductor equipment market. Now let's open the call for any questions that you may have. Operator, please go ahead. Operator: Your first question from the line of Patrick Ho from Stifel. Patrick Ho: Congratulations for the nice quarter and outlook. Actually, Mark, maybe to start off first with you, the supply chain. Based on your results, your outlook and the margin profile, it looks like you guys managed it very well. Can you discuss what problems you may have seen and how you mitigated the situation given the results and outlook? Mark McKechnie: Patrick, maybe I'll let David start on that and then I can add, but David can you... David Wang: We saw that, Patrick, in the market. Actually, you know, the orders are constrained and semiconductor equipment there are spending double compared to last year. So we see our component also hit the constraint. And we have, I should say, some components we buy from U.S. and buy from Japan and we also buy from Europe. The leading time is get longer and longer. I can give you some example. Some normal parts we have 2 months. Now they get in 4 months, even some special parts get in 6 months. So for that reason a delay, we had forecast ourselves. And then based on sales forecast, we'll buy those long-leading items ahead of time. And so that's the approach we're taking so far. And obviously, now we're in a rolling based forecast next 12 months, and what is the possible delay, what is our vendor's supply status. And actually now, we require our vendor give us in the next 12 months and what it can provide to us. So that's the approach we are taking. And hopefully, we can have this supply security or we call supply on time to be improved. And you can see that the third quarter, we're doing a lot of good work. And however, as compared with the regular last year, our leading running item takes more time. Anyway, so that's the status right now. Hopefully -- and we know our (inaudible) key supplier started to increase 5 more people and also increased the manufacturer floor. And we're hoping those situations get improved for the start of next year. Mark, anything you want to add on that? Mark McKechnie: Yes. No, thanks, David. The only thing I'd add, Patrick, is it's not new to deal with the supply chain. I mean we've been dealing with the situations related to COVID and the global supply chain. And then, of course, the big recovery where the industry is building back semi capacity pretty aggressive. But at our size, as a company, I think we've demonstrated some scale. It's really important that our customers are confident that we can deliver. And so we're sending that message. And I think our manufacturing and supply chain team did a good job in Q3, and we anticipate that as well in Q4. Patrick Ho: Great. That was really helpful. As my follow-up question, maybe for David, in terms of the advanced packaging market, you're showing some really nice growth there. The marketplace itself is growing. Can you give a little more color on the type of applications you're seeing today and how it may progress to say, next-generation techniques like heterogeneous integration. What are you seeing today? And what are some of the opportunities, say, over the next couple of years. David Wang: Patrick, actually, I should say, we have laid a very good product portfolio and for the advanced packaging tool, wet process cleaning and coater, developer, PR stripper and also the most important copper plating tool. So we see the people in this growing area is obviously pillar and also we see the people pillar fan out. And also there are also people talking about this micron pillar, more than 300 micron of copper plate there. So it's really high demand for our copper plating tool, right? And also our copper plating has certain benefit compared to competitors, including I call it, etch control and high plating rate with a special design of the plating chamber. So we see there very strong, I call it driving for our revenue growth or the growth this year and next year. So we're also -- I should say, we're also seeing the customer outside Mainland China interested in our plating tool, and we're expecting those tool hopefully next year, we're getting into market, and that's our planning too. So that maybe in general way, I call it the advanced packaging tool. And plus, we also increased new customer in China. JCAP and Kungfu is our traditional top two customers. Also, we'll see a few other emerging or I call the new start-up company getting this application too. So we have very good positive, I call it forecast, for the advanced packaging took growth. Mark McKechnie: Thanks, Patrick. Patrick Ho: Operator: Your next question from Charlie Chan from Morgan Stanley. Charlie Chan: First of all, congratulations for your great results in China IPO finally, congrats. So my first question is about -- it seems like for it not be the component shortage, you can do more shipments, right? So I'm not sure this year you still deliver very strong growth, right? So next year, do you think you can deliver even stronger growth rate for 2022? Any preliminary outlook. David Wang: Okay. Yes. Actually, you look at our shipment, in Q2, almost double. I mean, 80% and our Q3 shipment also 60% increase too. So our total shipments compared to last year has been increased a lot and end of this quarter, I can give you more detail how much percentage increase. It's much, much more than previous year. So we'll say, we think next year, continue we look strong in our forecast pipeline. So in other words, we have the real increase more of the components and borrowing from our supplier. So in other words, we are reworking closely with our key supplier and as I said, we've given a rolling 12-month forecast plan, and they can tell us what is delivered and what is the capacity they can build for us. So we're working on that. And I -- really hopefully next year get better. But again, we're still very carefully watching the market and also working close with supply chain. It's ongoing process, we got to be carefully also manage this supply chain. Charlie Chan: Okay. And I'm not sure if you think about this, but previously, you mentioned you have two new product lines to launch, right? Can you update the status right now. David Wang: You're talking about new products or the existing products. Mark McKechnie: He is asking about the newer, the two new products, yes. David Wang: I see. Okay. Well, probably the -- let's put it this way. Two years ago, we're started launching the 2 new products. And unfortunately, I still cannot tell you what the product name. However, we believe these 2 products represent a big market and service market globally. And also, we see the 2 new products and also have, I call it challenging, also need innovation for technology improvement. So now we are working closely with R&D and the team. I think probably one product will come out first half next year. And also, we do have our customer talk together, get us the tool as a better side application test. And also, our second product, we're targeting second half next year. So with our team and working very dedicated, we're hoping those 2 will deliver in the timeline. Charlie Chan: Okay. Since on track. And my next question is to Mark. Again, let's on China IPO. I'm not sure the pricing, what's the kind of variation implication, it might be et cetera? And what would that mean to your U.S. listing market cap? Mark McKechnie: Yes. Charlie, so I think we put a lot of the details out on where it was priced and the number of shares, the proceeds, RMB 3.685 billion or USD575 million. So we -- in terms of the valuation, I think you can kind of look at our numbers and work that out. And of course, I don't know how that's going to necessarily filter back into our U.S. market cap. But after the offering, we mentioned that the U.S. -- we would own 82.5% of the subsidiary. Charlie Chan: I thought that it's a big catalyst, given what's kind of an overhang, right? So hopefully your market cap can continue to expand. That's all from me. Mark McKechnie: Thanks, Charlie. Charlie Chan: Operator: Next question from Ken Bolton from Needham & Co. Ken Bolton: David and Mark, I offer my congratulations on the stock market IPO as well as the international customer expansion. I wanted to start with the international customer expansion. It sounds like the 3 customers you're working with or that you recently announced are all taking tools for delivery to their China manufacturing facilities. I'm wondering if you can give us your thoughts that as you first penetrate their China manufacturing facilities, what's the opportunity to begin to place and deliver tools to international. David Wang: Quinn, we lost your words. Mark, can you hear Quinn? Mark McKechnie: Yes. No, David, I heard Quinn okay. I can repeat the question. Can you hear us, David? Ken Bolton: Yes, Mark, I can hear you coming through. Mark McKechnie: Yes, you're coming through okay, Quinn. I don't hear David. A - David Wang Mark, you can hear me? Mark McKechnie: David, we can hear you okay. I guess you cannot hear us. So Quinn, I can take that question, while we wait for David to come back. But I think your question was about the new customer announcements. I think we mentioned that 2 of those were for deliveries to the China fab. Another one was an Asia-based one. And so can you maybe Quinn, just to clarify your question again? Ken Bolton: Yes. I guess maybe I misunderstood. I thought all 3 were delivery, smart tool deliveries taking place in China and was asking what's the progression, the company's opportunity to first deliver tools to China facilities, but then to expand to other manufacturing facilities at those customers around the world. Mark McKechnie: Got it. Yes, it's a great question for David. But I think you know we've got a global sales force. And so these are the 3 that we announced here recently, but we still feel pretty positive about our opportunity for customer deployments outside of Mainland China. I think, as David noted, our longer-term goal is to have half of our business out of China outside of Mainland China. So we've got activities that we think can result in that in the coming years. Ken Bolton: Got it. Just to clear -- Did you say that one of the customers was taking delivery outside of China, somewhere else in Asia. Mark McKechnie: Well, we just -- of the 3, we talked about SAPS evaluation order from a global semi manufacturer with a China development fab. We talked about the 2 stripper orders to global IBM's China packaging facility. And then the ECP evaluation order, we just mentioned it was from Asia, a regional semiconductor manufacturer, but we didn't say where that tool was going. Ken Bolton: Got it. The second question, David talked about the growth in the advanced packaging business. Wondering if we might be able to get you to sort of -- give us your sense, how much of the business in 2022 might come from that broader advanced packaging application. Mark McKechnie: Yes, you bet. So Quinn, I guess, we gave the mix right for Q3 and year-to-date. It was about 74% on the front-end products and 26% on the...Sorry, guys, we're having some technical issues. I think the team in Shanghai is trying to get back into the call. But yes, I think for now, Quinn, we would plan on -- kind of a similar mix. I mean it's hard to say for 2022, for next year, where the growth will come from. We'll give more details on our Q4 call but we don't anticipate a significant shift between those 2 groups. Ken Bolton: Operator: Next question from Suji Desilva from ROTH Capital. Suji Desilva: Mark, I don't know if David is back on, but congrats on the progress here. The -- I want to know that the TEBO products has been out there for a while since the IPO. David started talking about it more in this call. Is that ramp opportunity now potentially going to inflect? What are the kind of the puts and takes of the pace at which TEBO can grow versus SAPS? Mark McKechnie: Got it. Yes, great. And Suji, we're going to -- we're trying to get... David Wang: I got back now. Can you hear me okay? Suji Desilva: David, can you hear me? A - Mark McKechnie That's great. Hey, David. Suji Desilva: David, it's Suji. Can you hear me? David Wang: Yes, very well. Suji Desilva: Great. Okay, David. So I'll repeat the question. So I said in this call, you guys talked about the TEBO product more, you had the IPO. I'm curious, is there an inflection ahead for the TEBO product? What's the opportunity there? What are the factors of puts and takes of that growth versus SAPS, which has done very well for the last few years? David Wang: Okay. Well, actually, the TEBO, we made the progress, and also, we realized TEBO have combined with a certain drying technology. So a year ago, we started to develop the advanced drying technology and most of that on 2 types. One is a hot IPA multi-zone method. Next one is actually super critical CO2. The 2 new drying technology, I think were one will come out probably Q1 next year and the other one will come out through probably Q2 next year. With this joint technology and together with TEBO will further give TEBO much wider application. Why? Because all the -- like a 70 nano DRAM, their capacity structure, you have to dry by CO2 because effect. Also, certainly nano of the, I call it the semi fab structure, also their high aspect ratio of the hot IP drying technology. So with this adding additional drying technology on TEBO product, and we'll see the other tool get more of a really advanced application. -- one and also the logic memory logic manufacturing. Suji Desilva: Okay. All right. And Quinn just asked a question, I want to maybe rephrase and ask it, make sure we get your answer. The new customers seem to be shipping primarily into China and the region with one maybe in Asia. And we're excited about the global customers. You talked about 50% of the business coming from outside of China longer term. Can you talk about what it would take for these customers to start putting your tools in outside of China and why maybe the dominant initial push is in the China facility, just to understand that dynamic. David Wang: Yes. Actually, no, obviously, the tool we ship into the China facility or China fab, right, their fab. It's good starting point. This way our process capability can validate their fab in China, is obviously potential, I call it getting to their fab outside Mainland China, and so that's what we're looking for. So I think it's really good sign and also a good starting point. And those data come out there in China, we are driving force to their mother fab or their facility outside of Mainland China. Suji Desilva: Operator Next question from Mark Miller from Benchmark. Mark Miller: Congratulations on the quarter. We're seeing margins jump around a lot, and I believe that's through the mix. And I'm just -- you said the mix looks like it's going to be 75, 25 front end back end. So I'm just wondering for the next quarter, is it a similar mix to the third quarter? Mark McKechnie: Yes. David, do you want to answer that? Or it should I can take that, too. David Wang: I can give a little bit light there, This is normal gross margin is a flat rate. We said between 40%, 45%. And there's a higher margin tool. I give you a single wafer, SAPS tool normally gives a high margin and certain, I call it copper plating and also give margins for front end. And then there's also no margin tool, right? And the (inaudible) certain, I call it a wet process tool and advanced packaging side too. So I mean this is a good combination. And also depends on combination that margin may be changing. I could give you a precise number and probably I think within the range of 40%, 45%. Mark Miller: Okay. But for the next quarter, does it look like a similar mix to the third quarter? David Wang: I don't -- I cannot give you a precise number by customer and this will carry a long time. so it's still come 25%. Mark Miller: Okay. You're breaking up at least on my side. Just wondering, you've been primarily more DRAM. NAND is supposed to come on stronger next year. Do you see opportunities, more opportunities for yourself in NAND? David Wang: A - Mark McKechnie David, you're breaking up a lot. Maybe I'll take the question, Mark, since David's breaking up. So Mark, just to be clear, you can -- if you look at our customers and kind of the way we reflected our NAND business, as you know, YMTC is our big NAND customer, right? So they were in the 30% range last year. And so I think kind of your premise, we have pretty good mix in NAND and then, of course, SK Hynix, CXMT are our DRAM customers. So we continue to expect to get good content both in the 3D-NAND and in the -- with our DRAM customers. Operator: Next question from Emma Keane from Hongdae Unidentified Analyst Unidentified Analyst: Congrats first of all, on the of Q3. This is Emma from . My questions are probably more for David as well. But Mark, you're welcome to share your thoughts. I'm not sure if David is back on line. Probably not yet. David Wang: Yes. I'm here. Can you hear me okay? Unidentified Analyst: That's great. Yes, I can hear you. So first -- my first question is probably related to Quinn's question as well. I just wanted to ask a bit more details about your future plans probably in the long term about expanding the global market. Because we know that the 3 factories of ACMR are all based in Mainland China. They're actually quite all near Shanghai, if I remember correctly. Is there a particular reason for that? Like do you have any plans to build any other factories, say in Beijing or even outside of Mainland China or outside of Asia area? David Wang: Okay. Let me give you the and we are finishing the market, IPO, like more strong financial foundation. Unidentified Analyst: Sorry, David, you're still breaking up quite a lot. Or is it just me, I'm not sure. David Wang: Can you hear now better? Unidentified Analyst: Okay. I said we already have a manufacturing center in Korea. So from now on actually we're building probably off a center close to major customer in China and actually Beijing and also Wuhan and potentially . Those R&D centers are helping closing support for customer. But more than that is also we consider other region and also country and as our business moving out of China, say go to Taiwan and go to U.S. and even go in Europe. And we do have a plan building R&D supporting center. And we believe the R&D closing to the customer will give you a fast choice or best supporting capability. Meanwhile, also we consider -- if we found good people for the company, we can even M&A good company in the local region. That will further enhance our R&D power in local. So our goal is really getting to the diversifying and global R&D in our road map. And also as mentioned in our talking script, we said that we are going to have eventually 50% sale from outside Mainland China and 50% is inside. And that's our long-term strategy, and also with our differential technology, I think, will be much strong driving force. Our tool to be sold in global, like we mentioned, TEBO or Tahoe and also we developed new technology also on the road. As our innovation product come out we validated in the local market, China, and then we can start pushing those -- verify the product into their global market. Meanwhile, we see also some fab in China to get advanced process going on. So we have also our tool can validate those advanced technology nodes. In other sense, is we get better of the technology being verified here. They will help us get into the market outside China. Unidentified Analyst: David, that's awesome. Do you mind sharing a bit of a time line for the factories outside of China? Or is it just -- it's like more of a long-term plan, and it depends on how the R&D activities and other opportunities go? David Wang: Yes. Actually, it really depends on how we penetrate the customer, and also how we see the opportunity in other M&A or potential, I call it, group come out. And we're very dynamic. And as I said, we're building Korean center a few years ago, and we definitely have our plan. And also according to our success, our penetration to the local customer outside China then will speed up those (inaudible) we found some good people and good product and we're able to group of people there too. That also can further enhance our sales and supporting capability for that local region. Unidentified Analyst: All the best for that. David Wang: Mark, anything you want to add on that? Mark McKechnie: Yes. Nothing to add. I think we are kind of at the end of our call here. So I think we need to wrap up. Operator, if you can, please wrap up the call. Unidentified Analyst: Operator: Thank you so much. That does conclude our conference for today. Thank you for participating. You may all disconnect.ACMR Ratings Summary
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ACM Research Stock Jumps 13% After Jefferies’ Upgrade
Jefferies upgraded ACM Research (NASDAQ:ACMR) from Hold to Buy and raised its price target from $9 per share to $23.40. As a result, shares jumped more than 13% intra-day today.
Analysts cited the relaxation of DUV (deep ultraviolet) rules in China's fab CapEx as the basis for the rating change. The recent announcement by the Dutch government regarding the export rules for ASML's oldest Arf immersion machine, NXT1980Di, is expected to facilitate the export of this equipment to China.
The analysts believe that China will take advantage of this opportunity to purchase as much equipment as possible, given the machine's capability to produce 16/14nm and even 7/5nm. As a result, Jefferies also increased its revenue forecast for ACM Research for the years 2023 to 2026 by 23%, positioning it 8% above Street estimates.
