庫力索法 (KLIC) 2023 Q1 法說會逐字稿

Hello, and welcome to the Kulicke and Soffa 2023 First Quarter Results Conference Call and Webcast. (Operator Instructions) As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Joe Elgindy, Senior Director, Investor Relations. Please go ahead, Joe.

Thank you. Welcome, everyone, to Kulicke and Soffa's Fiscal First Quarter 2023 Conference Call. Fusen Chen, President and Chief Executive Officer; and Lester Wong, Chief Financial Officer, are joining us on today's call. Non-GAAP metrics will be referenced throughout today's call. The non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from our GAAP financial information. Complete GAAP to non-GAAP reconciliation tables are available within the earnings release filed yesterday as well as the earnings presentation, which may be found on the Investor Relations section of our website at investor.kns.com.

In addition to historical statements, today's remarks will contain statements relating to future events and our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a complete discussion of the risks associated with Kulicke and Soffa that could affect our future results and financial condition, please refer to our recent SEC filings, specifically the 10-K for the year ended October 1, 2022, and the 8-K filed yesterday.

With that said, I would now like to turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.

Thank you, Joe. Over the prior quarter, we continued to execute on our development plans and the customer engagements, supporting secure trend in the automotive, semiconductor and advanced display market and also our (inaudible) margin optimization and the market share gain strategy within the higher volume wire bonding and also electronic assembly market.

I will discuss this specific opportunity in more detail shortly. Over the same period, we have been monitoring and internally addressing the recent policy pivot on COVID within China. Over the last 2 months, we experienced a [rapid] increase in internal COVID cases within our Suzhou facility. While this had little impact on our production capability during the quarters, this wave of COVID in China is broadly impacting the operational capacity of our customers within China. We currently anticipate this effect create additional capacity uncertainty and (inaudible) a slight impact on our near-term outlook, although it will likely support a quicker rebound as China GDP forecast has recently improved.

We also anticipate this policy shift dramatically reduce the potential for regional lockdowns, which have had both supply chain and the demand implication for us over the prior years. In addition to the potential for a swifter [macro] recovery in China, the consumer electronics show which took place last month helped to provide a glimpse into the future for existing and new applications such as electric vehicles, artificial intelligence, wearable and the display technology. Our business continues to be very aligned with this long-term trend, and we look forward to supporting them over the coming years.

Collectively, our longer-term industry outlook remain consistent. We currently anticipate semiconductor unit growth, excluding LED, will return to a more normal growth rate in calendar 2023 and a nearly 10% unit growth in calendar 2024. In addition to a more normal level of growth for the [non-LED] semiconductor market, LED units are expected to grow at a 19% CAGR, roughly 300 [billion] unit of production annually through calendar 2025, in support of new mini and micro LED applications.

Also of note, our book-to-bill ratio exceeded 1 for the first time since June of 2021. (inaudible) near-term inventory (inaudible) macro improvements are necessary to support industry growth, these data points provide additional confidence to our outlook. Turning to December results, we generated $176.2 million of revenue and $0.37 of non-GAAP EPS coming in ahead of our projection from last quarters.

Our total capital equipment revenue was $135.4 million in the December quarter with a majority of [softness] stemming from general semiconductor as anticipated. While general semiconductor is typically driven by capacity needs, they are growing technology trends, which are providing additional strengths. First, within our high-volume wire bonding market, assembly complexity continue to require more equipment capabilities. This capability allow us to enhance our margin profile. Lester will provide some additional information on our optimization focus shortly.

The next is within the power semiconductor market, which is represented in general semi and also our automotive and industrial end markets, continue to evolve with the growth in both traditional silicon and emerging compound semiconductor applications. These power semiconductor trends have supported multiple record revenue quarter for wedge bonding in fiscal 2022 and allowed us to reach a new record revenue during the December quarter.

In addition to our dominant, long-established position within the traditional wedge bonder market, we also address power and the compound semiconductor (inaudible) capabilities, including clip attach, larger bonding area and the laser-assisted bonding approach. Emerging compound semi devices using gallium nitride and silicon carbide support fast-growing applications such as high-speed vehicle charging, 5G base station, (inaudible) energy and high-powered server. We will provide additional update on these emerging opportunities over the coming quarters.

Additionally, we are pleased to be report that we continue to see very strong demand for our robust thermo-compression solution, which support advanced larger application and are very aligned with emerging chiplet trend. However, to engage with a broader group of [fabless] companies over the recent quarter have been very beneficial and have positioned us for additional share gains in a large market.

At this point, we are increasingly optimistic on the future of thermo-compression and are growing our engagement with key customers. Several new customers have [requested] systems, although we remain very [supply-chain] limited over the near term. Our TCB team is working aggressively to support multiple customer engagement in parallel. Additionally, we have previously anticipated a 10-micron pitch limitation for TCB. We now see the potential to expand this technology to below 10-micron pitch, which can materially expand the size and the long-term potential for our competitive TCB portfolio.

Finally, regarding TCB, I'm pleased to report that we have received customer acceptance on our first fluxless chip-to-substrate TCB system and have shipped our first fluxless chip-to-wafer TCB system. This will be followed by an additional system shipment to a leading foundry customer.

As we highlighted over the past several calls, we continue to expect the majority of the heterogeneous assembly needs can be addressed with our growing portfolio of TCB solutions.

Moving to the LED market. We remain engaged and are supporting multiple customers with multiple advanced display solution. We continue to make progress across several different initiatives in advanced display. I'm very pleased to highlight that we have recognized revenue of our first LUMINEX system. Over the coming quarters, we intend on shipping additional system and earning additional purchase order for LUMINEX, which support backlighting application and the large-format, direct-emissive applications.

Additionally, we have received interest to utilize this high-throughput system in more traditional semiconductor assembly market in addition to the growing advanced display opportunity. By the end of fiscal 2023, we also expect to receive acceptance on the next phase of the customer-specific advanced display solution, which we will refer as a Project W going forward. Demand for this system is expected to accelerate into fiscal 2024.

Within automotive, the ongoing electrification and autonomous transition will continue to benefit our business over the long term. Power semiconductor and the compound semi trends are benefiting our automotive customers in addition to some general semiconductor customers. The consumer electronics shows last month highlighted new electric vehicle from established and emerging automotive companies, which continue to drive innovation, bring down costs and broaden market adoption. We are currently preparing to launch our next battery bonder for larger form-factor using both ultrasonic and the laser-interconnect solutions, in addition to supporting the production ramp for vehicles and also long-haul trucks.

Memory remains [soft] over the near term, although we continue to anticipate a slight pickup in the second half. In addition to parallel customer engagement and (inaudible), we remain on track to close the pending dispense acquisition as planned. As a reminder, this strategic acquisition provides additional access to adjacent dispense opportunity in both semiconductor and the electronic assembly. Collectively, these 2 areas represent a $2 billion addressable market and provide a new set of long-term opportunity.

In addition to continuing on a prudent M&A path, we are also very focused on scaling our own equipment manufacturing capability further in fiscal 2023. During our prior fiscal year, we increased our capital equipment manufacturing footprint by 148,000 square feet or 44% to 485,000 square feet and remain very focused to build up this footprint through 2023.

Overall, despite persistent macro and regional challenge, over the past few years, we have consistently executed and have fundamentally expanded our long-term opportunity. There is no shortage of new opportunities, and our global team have remained very focused on supporting our customers by delivering new solutions and driving acceptance. While consumer-driven softness is anticipated to create an ongoing headwind for our high-volume product line over the near term, we remain very optimistic and continue to anticipate a seasonal recover in second half, followed by broader capacity and technology growth in fiscal 2024. With that said, I will now hand the call over to Lester, who will discuss our financial performance and outlook. Lester?

Thank you, Fusen. My remarks today will refer to GAAP results unless noted. Outside of the recent and near-term expectations surrounding China COVID policy pivot, our broad demand expectations for the year remain largely unchanged from last quarter. Our efforts are focused on driving customer acceptance of our growing portfolio of solutions and growing our manufacturing and development capabilities with our ongoing capital expenditure programs.

During the December quarter, we generated $176.2 million of revenue, 50.3% gross margin and $0.37 of non-GAAP EPS. Gross margins were better than expected due to cost control efforts, product and feature mix, supplier rebates and lower depreciation due to capital expenditure shifts from December into the March quarter. As Fusen mentioned, we have taken a long-term and strategic view in optimizing the gross margin of our ball bonding business and remain focused on further enhancing our corporate gross margins over the long term.

Operating expenses came in slightly higher than anticipated due to a foreign exchange loss. Finally, tax expense for the quarter came in at $3.8 million due to a higher mix of interest income in addition to the mandatory capitalization of R&D expenses under Section 174, which began in our fiscal 2023 year. We anticipate maintaining a similar effective tax rate throughout the current fiscal year.

Turning to the balance sheet. Working capital days increased to 536 days in the December quarter, primarily due to a sequential reduction in revenue. In addition, net cash increased by $48 million, and inventory increased by $27 million sequentially to support our longer-lead time products over the coming quarters. We continue to deploy capital to shareholders via our opportunistic repurchase program as well as our recently increased quarterly dividend payments.

During the December quarter, we deployed $45.4 million to repurchase just over 1 million shares. Looking ahead to the March quarter, we anticipate revenue of approximately $170 million with gross margins of 46%. Gross margins are anticipated to gradually improve to a blended 47% for the fiscal year as we continue to ramp our capital expenditure programs.

Non-GAAP operating expenses are anticipated to be approximately $68 million, plus or minus 2% due to an ongoing expansion efforts, employee merit increases and inflation. We remain very focused on controlling and limiting any noncritical activities and have recently initiated a hiring freeze and placed limitations on nonessential travel and noncritical project expenses.

Non-GAAP net income is expected to be approximately $14 million with non-GAAP earnings per share of approximately $0.25. It remains an exciting time at K&S as we continue to execute and increase our participation across several long-term fundamental trends within the semiconductor, advanced display, electronic assembly and automotive markets. As we look into 2024, we remain optimistic on broader macro demand trends and remain extremely focused to support the technology needs of our customers.

This concludes our prepared comments. Operator, please open the call for questions.

(Operator Instructions) Our first question today is coming from Krish Sankar from Cowen.

I had a couple of them. Number one, Fusen or Lester. In the past, you mentioned FY '23 could be roughly around $900 million in revenues. Can you underwrite that revenue expectation? And do you think March quarter is a trough from a quarterly standpoint?

Okay. Actually, Krish -- actually, more precisely, I think the last cycle pick was the 2018 revenue, [$890 million]. So that was the number you just mentioned. And the current consensus for FY '23 revenue is at $840 million average of all the [analysts]. So there's a little bit change.

Last December COVID situation in China created actually some additional softness in our FY '23. But in the same time, same quarter, we see our book-to-bill ratio over 1, and which point to potential trough in FY Q2. So at this moment, we do expect our second half will be better than the first half. So overall, I think at this moment, we are comfortable at the consensus revenue of $840 million due to China COVID situation that really have some softness in our '23 (inaudible) impact is in Q2, and we expect maybe extend a little bit longer into Q3. So that's my answer.

Got it. Got it. No, that's very helpful, Fusen. And then I just had 2 other questions. On the book-to-bill improvement, I understand you are coming off a lower revenue base, but is that order improvement driven by one specific customer, one specific product? Or was it across the board? And then I have a follow-up for Lester.

So the book-to-bill for the last couple of quarters have been about 0.8, right? Now it's gone up to about 1.3. And I think it's -- a lot of our backlog actually is in ball bonder. And most of it will be recognized within FY '23, close to 60% of it will be recognized by FY '23. So it's not one specific customer. It is ball bonder. It's also advanced packaging and also wedge bonder. So I think the backlog is across several business units.

Got it. Got it. And then Lester, just a quick follow-up. The days of inventory and inventory days payables both are pretty high. So I'm kind of curious what's going on? Is this just purely wire bonders that's kind of been accumulated? Or what's going on with that high number relative to the past? And what is your lead time today for wire bonders?

So the lead time today for wire bonders is about -- for ball bonders about 8 to 12 weeks, for wedge bonders is about 16 weeks. As far as the inventory is concerned, some of it is a result of, again, because of supply chain issues. But in the past, we actually bought a lot of items to make sure that -- we will not be (inaudible) we have no supply chain issue going forward. Plus, we also increased inventory because we actually did also buy some long lead items for [POs] that we see that's falling into the latter part of '23 and the beginning of '24, for example, in advanced packaging as well as in wedge bonding.

Our next question is coming from Craig Ellis from B. Riley.

Thanks for all the color so far, guys. So I wanted to follow up on a few of Krish's point. So Lester, can you provide some additional color on order improvement? You gave us a good sense by products, but can you talk about what the order activity looked like on OSATs versus OEMs? And then any color on end markets would be helpful as well.

Craig, you mean for Q1?

Yes.

So for Q1, actually, it's -- as I indicated in my remarks on gross margin. Actually, the majority of the ball bonders were actually purchased by IDMs rather than OSATs, which is unusual and has not happened for many, many quarters. And so as far as -- sorry, what was the second question?

It was colored by OEM versus OSAT and then...

Okay. Yes. So that was the OEM, OSATs. Yes. And then end market, automotive end market actually improved significantly. It grew 41% quarter-by-quarter. And as Fusen mentioned, general semi fell significantly about 61% quarter-by-quarter. And also memory to no one's surprise, also fell significantly about 80%. So for the quarter, automotive comprised about 40% of our capital equipment, which is very, very high. And general semi is about 50%.

And then lastly, on the order line of inquiry, Lester, what's happened quarter-to-date? Are you seeing that same level of strength that gave you the 1.3 book-to-bill in the prior quarter continues, had accelerated? Or what's going on, especially now that we're on the other side of Lunar New Year?

Well, I think we continue to see a lot of inbound increase, particularly from China as you put it from after Lunar New Year. It's just obviously -- it's just a weak after Lunar New Year. As Fusen indicated, we do anticipate a much stronger second half of FY '23. So we do see orders continue to come in.

Yes. And that's very helpful. So I want to move on to gross margin. So the company's execution on gross margins has been really stellar over the last 5 quarters. I think they're averaging 50%. So can we just take a different look at the guidance for the current quarter, which I think you said was 46%. Why would gross margins be 400 basis points lower than the trailing 4- to 5-quarter average? And then you mentioned capacity, I take it you're saying there's some incremental depreciation that's coming in. But given the strength you've had in gross margin, why wouldn't we see gross margins push above the 47% you mentioned as we move through the year.

Well, I think as we move through the year, we're still aiming for an overall gross margin around 47% for the fiscal year. But obviously, Craig, as you know, quarter-to-quarter it changes. I mean Q1, the gross margin was a huge benefit in terms of both customer mix as well as product mix. I mentioned IDMs was more than the majority of our ball bonding customers in Q1.

We don't see that maybe continuing in terms of the customer mix. I think as you also mentioned, we -- right now, we can continue to invest in some of our growth vectors products, particularly in advanced display and advanced packaging. So as Fusen mentioned in his remarks, we're expanding our manufacturing capacity by quite a lot. So in addition to depreciation, I think also there's operating costs of those facilities. And right now, those facilities -- those products for those facilities will really start to ramp in the second half of '23, '24, not so much right now. So that -- those operating costs goes into [our own COGS], which also affects the gross margin overall.

That's real helpful. And then lastly for me before I get back in the queue. Really helpful to get all the order color. The question is this is, as we go back to Fusen's comments that not specific guidance, but seemingly comfort around an $840 million revenue level this year. How does the company currently see linearity in the back half of the year?

Do you see growth being fairly equal as represented by current consensus at around 30% per quarter? Or would the growth and the revenue levels be more either front-end or back-end loaded? Any color helpful there, guys.

Yes. So I think Fusen already mentioned with the COVID pivot, right? It does affect our Q2 and may affect a little bit in the Q3, right? However, the COVID pivot also may drive much stronger, I guess, a quicker recovery, but that's probably more in Q4. So if I think to give some color, I would say that probably Q3 would be weaker than Q4. So in terms of what the consensus, I don't think they'll be equal. I think Q3 will be maybe a little weaker than what's thought before, but Q4 will be stronger.

Next question is coming from Charles Shi from Needham & Company.

I have a few, I will be mindful of my airtime in case your answer takes longer. So really the -- going back to the question about your full year outlook. Q3, you said it's a little bit weaker than you expected a quarter ago, but Q4 may be stronger. But that does still imply quite a very strong uptick in Q4. I'm thinking if you are sticking to, let's say, $850 million for the full year, let's say, the June quarter, maybe you're getting $200 million, but you have to make a $300 million quarterly revenue in Q4. Are you comfortable with that kind of a trajectory into the second half of the year? That's my first question.

So Charles, I think it's really [stronger] to have a maths calculation with you. So let's do this. I think $175 million for the first quarter. The second quarter, $170 million, that would be $370 million -- $345 million, right? So $345 million. So it's -- we talk about (inaudible) right? So (inaudible), I think we're talking about (inaudible) right? -- So for $460 million, if (inaudible) $230 million. So even it's $200 million in Q3. We are talking about (inaudible). I wish all my calculation is right. I don't have a calculator.

So Charles, we believe that it's achievable in the second half, right? I mean, it may slip a little bit either way, right? There's a push and pull, right? But we think we do see a path there, particularly with the backlog as well as the increased order coming in. So we didn't say it will be $200 million in Q3, right? I just said it would be a little bit softer. But again, it is a little bit volatile out there, but we do feel comfortable with $840 million in terms of for the year.

Yes, yes. So maybe -- let me ask the same question from a different angle. I think 4 years ago around the same time that was right at the beginning of the 2019 downturn, you also expressed a sort of optimism about fiscal second half being higher than fiscal first half, but the actual result was -- actually your fiscal second half was lower in 2019 than your fiscal first half. I mean by many metrics, we look at the 2023 downturn, it's probably worse, not better than 2019 downturn.

My question, maybe from a high level, what gives you the confidence that you're going to do a lot better in this downturn from a half-over-half perspective than 2019. I know this is the same question, but hopefully, we can get some color from a different angle.

Yes. So Charles, I think company have a lot of change compared to 2019. Actually, I think the same we have compared to our previous cycle, it's about 15% larger. So if you look at it, I think advanced display, advanced packaging, adding together, I think compared to previous cycle is about [$200 million]. The ball bonder compared to previous cycle, I think our gross margin improved about 3% to 4%, right?

So not only that, I think our prospective trend really proven. For example, this auto evolution (inaudible) to autonomous and EV, I think, are quite beneficial to us. We believe that advanced display (inaudible) and compared to a previous cycle, we don't have it. The AP, I think we have good traction to the TCB, right? So in previous cycle, we actually -- actually in the past 2 years, our operation margin actually is higher than 30%. It was $1.5 billion, [2 years]. We generated probably, I think maybe about $700 million to $800 million free cash. Then we buy back the stock. So I think compared to the previous cycle, we have a much bigger market. And I think (inaudible) than previous cycle.

We can discuss more on this offline. I really want to ask the next question on TCB. I think last year, there are quite a couple of products released by Apple, AMD, for example, they are already at your target interconnect pitch somewhere around 25 to 35 micron. I believe the Apple M1 Ultra has already been packaged by TSMC with a flip chip technology at 25-micron pitch. AMD RDNA 3 GPU, I believe it's already packaging at a 35-micron pitch with a [fan-out] technology. And I know ASE is probably developing 20-micron [wafer-level fan-out] really with our [bonds] and they're working on hybrid bonding. That's their public technology road map. So where does the TCB technology fit in here? I worry, it's not quite the technology road map of the 2 leading companies, could that end up being an Intel-only technology? Or what gives you the confidence that there will be more adoption outside of Intel?

Okay. So I think company you mentioned, we actually, in my script, I say we actually talk numerous (inaudible) company, all the major players, I think we actually discussed it. So we actually are quite confident that TCB, I think is going to have a huge growth for the next couple of years. The company you mentioned, I think we also talked to them, and we should not have a surprise.

Got it. So maybe last question on micro LED...

So Charles, (inaudible) answer with 2 more questions. We are not depending on one customer. I think there are numerous customers are really optimistic, waiting to [receive a system] from us. I think we discussed in last quarter, and I think we discussed it since Q3 of '22, and we discussed in Q4, we discussed in Q1. I think in the next couple of quarters, we can continue to discuss it.

Thanks, Fusen. I really want to ask my last question on micro LED. So can you kind of quantify to us what's the TAM opportunity for Project W? And when do you expect a volume ramp? Because when I look at your mini LED project, PIXALUX, which is also a customer-specific project. The product came out in spring 2021. You saw the -- actually saw the volume ramp in the fall of 2020, which is roughly 2 quarters -- 2 to 3 quarters ahead of the product release. So Project W, if I guess it right, what that product end product is, it's probably a spring 2025 product release. You're probably going to see the volume ramp in fall of 2024. Am I thinking the time line correctly? That's the question -- the second part of the question. So 2 questions. One is, how do you quantify the TAM size for Project W? And is fall 2024 ramp about right from your perspective?

So Charles, we don't talk about specific TAMs of specific customer projects. We just don't comment on that. But we do think it will be material in terms of our advanced display revenue. And as far as timing, you're right, I think it will be the latter part of '23, and then there will be a significant ramp in '24 onwards.

Sorry, I think -- I'm thinking about (inaudible) is probably latter part of '24, not '23, but you think it's 1 year earlier than what I think? Is that (inaudible)?

No, I said most of it will be in '24, but it will start in '23 as well.

Yes, Lester thanks for the clarification. Lastly, we did a manufacturing investment you're making here. If I understand correctly, your wire bonding manufacturing is largely outsourced to somebody else, not exactly built internally. Can you give us some rationale or some sense why advanced display and advanced packaging, you want to build internally? And is that 44% capacity increase include -- does that include external capacity for wire bonders or that's a pure internal capacity? That's my last question.

Charles, I think you're mistaken. We built our wire bonders internally here in Singapore, both ball bonders and wedge bonders. So we don't outsource it. So as far as the additional capacity, as we said, it's all for advanced packaging and advanced display.

Our next question today is coming from Dave Duley from Steelhead Securities.

I guess the first one was, you mentioned in your prepared remarks about how you're continuing to see wire bonder intensity increase. And I was wondering if you could just comment, I think in the past, you've said it's increased like 10% or 15%. Would you expect that intensity to continue to increase going forward?

Well, I think intensity increase is average cycle, right? Yes, but we do believe complexity actually has become more complex. We do expect intensity actually increase.

Okay. And then regarding gross margins and wire bonders, I think in the past, you've talked about how you've improved the gross margins and on this call, too, how you've improved the gross margins of the core wire bonder business. And I think you have a new wire bonder that should come out with better margins in the road map. Is that going to hit in this fiscal year? Or when would be the timing of, let's say, a wire bonder that's got lower costs associated with it?

Well, Dave, you're right. We constantly look at improving our margins in all products, particularly our core products, high-volume products like wire bonding, right? So we're continuing working on cost control. But I think as far as timing is concerned, I think we will be introducing a new suite of wire bonders the latter part of FY '23 and the beginning of FY '24. So we should see a margin jump around that point as well.

Okay. And as far as the thermo-compression bonding business, could you just highlight again what size opportunity you think this can be for the overall market? And I think you're probably shooting for 50% market share? Or perhaps help us understand what your targets are there?

Okay. So Dave, I think if you remember, I think Q3 of '22, we were talking about with a backlog of $80 million. So this $80 million -- majority of this $80 million will be shipped within '23. And last quarter, Q4 of '23, we mentioned that we identified -- for the next couple of years, we probably have opportunity (inaudible) customer. So a total of about $300 million [up to] '25. So this $300 million majority will be shipped in the '24 and '25, right? So I think we expect probably -- when we exit '25, this TCB and our dedicated AP (inaudible) will be about $20 million or higher. I hope I used a different kind of angle to answer your questions.

And I'm sorry, I didn't -- $20 million -- is that a quarterly run rate? Or I didn't quite hear what you said there.

No. I mean, $200 million for our dedicated advanced packaging.

Okay. And then a final question for me, and I think maybe Charles was talking about this. So you mentioned a new application for your LUMINEX. And I'm assuming that's outside of mini or micro LED? Or could you just elaborate a little bit about what the application is?

So LUMINEX actually is advanced display, is a laser base of our transfer technology. We actually participate both in mini and the micro LED. And we also involved in both the (inaudible) and direct-emissive application.

Next question today is coming from Hans Chung from D.A. Davidson.

So first, I want to clarify the changes in terms of the FY '23 revenue. And so I hear, we had some impact from China COVID. Now we're kind of comfortable with $840 million revenue versus $890 million last quarter. So the $50 million gap, is that purely driven by just because of the COVID situation?

I think the majority, if you see during COVID, most of people get sick. So they -- maybe (inaudible) people go back to work, the capacity reduced, some projects being delayed. So we expect really impact in Q2 and then maybe partial over Q3. So majority actually is the ball bonder related.

Got it. And so the demand wise basically, there is no change in terms of the demand trend...?

Right. I think it's fair you to say, this COVID caused a short-term weakness. But in the long term, it's fair to say probably this would be absorbed in '24. So this is like (inaudible) actually reduce '23, but actually they believe '24 is a bigger year.

Got it. Okay. And then -- can you also elaborate more on the strength in the wedge bonding business? And is the -- how does that -- I mean, how does that perform so well? Does that come from the EV or just overall automotive market, and how is that trending? I mean, in the near future, given it seems like we have seen some weakness in the EV market demand, right?

I think EV is one of them. And in general, I think wedge bonder is for the high current devices, right? So the ball bonder is a low current. So there's a (inaudible) and the EV, I think, is a big part of contribution. So compared to like the previous cycle, I think our wedge bonder compared to previous cycle actually will reach a record high in 2022 and even up to '23, at this moment, are still very strong.

Okay. Got it. And then -- and last one, just regarding the capacity for advanced display and packaging, we're going to have -- we're going to add more -- much more in '23. So can you give me a color around how much revenue that the new capacity will support? And what's the implication to the gross margin? And then -- and also the OpEx, I mean after we're assuming we're going to have put the labor in place, right? So just any color around the new capacity for advanced packaging and display?

Well, Hans, I think, as I indicated in an earlier response, the revenue that will be generated from this additional capacity in advanced packaging and advanced display will probably again be more significant in '24, right? And we are incurring -- but in order to prepare for that in '24, we are now expanding our production facilities as well as getting ready the tooling as well as training and running -- getting those facilities ready to ramp. So that has a negative impact in FY '23 because it doesn't match up with the revenue. But as the revenue comes in from those products, the margin will then obviously go back up.

Okay. So our gross margin of 47% for '23, that's already (inaudible) the ramps in the new capacity for the advanced packaging and display, right?

The 47% includes, yes, the manufacturing cost that I was talking about that, that (inaudible) the margin down. So margin will increase into '24.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you, Kevin, and thank you all for joining today's call. Over the coming months, we will be presenting at several investor conferences hosted by Susquehanna Financial Group, B. Riley Securities and Craig-Hallum. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.