Q4 2021 Amkor Technology Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the EMCORE technology fourth quarter and full year 2021 earnings conference call.
Speaker 1: Good day, ladies and gentlemen, and welcome to the Amcor Technology fourth quarter and full year 2021 earnings conference call.
Speaker 1: My name is Alex and I will be your conference facilitator today. At this time all participants are in a...
My name is Alex and I will be your conference facilitator today.
At this time all participants are in a listen only mode.
Speaker 1: After the speaker's remarks, we will conduct a question and answer session. As a reminder, this conference is...
After the Speakers' remarks, we will conduct a question and answer session.
As a reminder, this conference is being recorded.
Speaker 1: I would now like to turn the call over to Jennifer Jew, head of investor relations. If you have missed you, please go ahead.
I would now like to turn the call over to Jennifer Jill head of Investor Relations Ms. Zhu. Please go ahead.
Speaker 1: Thank you, operator. Good afternoon, everyone, and thank you for joining us for Amcor's fourth quarter and full year 2021 earnings conference call. Joining me today are Hiel Rutten, our chief executive officer, and Megan Faust, our chief financial officer.
Thank you operator, good afternoon, everyone and thank you for joining us for <unk> fourth quarter and full year 2021 earnings conference call joining.
Joining me today are heal root and our Chief Executive Officer, and Megan Faust, Our Chief Financial Officer.
Speaker 1: Our earnings press release was filed with the SEC this afternoon and is available on the investor relations page of our website, along with the presentation slides that accompany today's call.
Our earnings press release was filed with the FCC. This afternoon and is available on the Investor Relations page of our website along with the presentation slides that accompany today's call.
Speaker 1: During this presentation, we will use non-GAAP financial measures, and you can find the reconciliation to the US GAAP equivalent on our website.
During this presentation, we will use non-GAAP financial measures and you can find the reconciliation to the U S GAAP equivalent on our website.
Speaker 1: We will make forward-looking statements about our expectations for AmCourse future performance based on the environment as we currently see it. Of course, actual results could differ.
We will make forward looking statements about our expectations for <unk> future performance based on the environment as we currently see it of course actual results could differ please.
Speaker 1: Please refer to our press release and other SEC filings for information on risk factors, uncertainties, and exceptions that could cause actual results to differ materially from these expectations.
Please refer to our press release and other SEC filings for information on risk factors, uncertainties and exceptions that could cause actual results to differ materially from these expectations.
Speaker 1: Please note that the financial results discussed today are preliminary and final data will be included in our Form 10-K . And now I would like to turn the call over to Heale.
Please note that the financial results discussed today are preliminary and final data will be included in our Form 10-K .
And now I would like to turn the call over to heal.
Speaker 2: Thanks Jennifer. Good afternoon everyone and thank you for joining the call today.
Thank you Jennifer and good afternoon, everyone and thank you for joining the call today.
EMCORE delivered outstanding results in the fourth quarter, achieving a record revenue and profitability.
Speaker 2: EMCCoD delivered outstanding results in the fourth quarter, achieving record revenue and probleacher Ha
Speaker 2: Revenue of $1.72 billion and EPS of 88 cents are all-time records and we are above the high end of guidance.
Revenue of $1 72 billion and EPS of <unk> 88 cents.
Our all time record high brought above the high end of guidance.
Speaker 2: Continued momentum drove excellent performance in all end markets.
<unk> momentum drove excellent performance in all end markets.
2021 was an exceptional year for amcor.
Speaker 2: we achieved our highest ever revenue of over $6.1 billion, adding nearly $1.1 billion to our previous record in 2020.
We achieved our highest ever revenue of over $6 $1 billion, adding nearly $1 1 billion to our previous record in 2020.
Speaker 2: He set new records in all end markets, with each growing robust double digits versus last year.
We set new records in all end markets with each growing robust double digits versus last year.
Speaker 2: High factory utilization and disciplined cost control resulted in excellent profitability, generating an all-time high EPS of $2.62, up more than 85% from last year.
Hi factory utilization and disciplined cost control resulted in excellent profitability generating an all time high EPS of $2 62.
More than 85% from last year.
Speaker 2: Our solid position in key growth markets, together with our proven execution, positions M. Corwell to deliver strong financial performance in 2022 and beyond.
Our solid position in key growth markets together with our proven execution positions <unk> well to deliver strong financial performance in 'twenty two and beyond.
Speaker 2: Demonstrating confidence in our business outlook, we increased our quarterly dividend by 25% in November .
Demonstrating confidence in our business outlook, we increased our quarterly dividend by 25% in November .
Speaker 2: Throughout the year, we successfully navigated the challenges brought on by the ongoing pandemic, and the M-Corps team demonstrated resilience and focus to achieve major milestones.
Throughout the year, we successfully navigated the challenges brought on by the ongoing pandemic and the EMCORE team demonstrated resilience and focus to achieve major milestones.
We deepened our cooperation with lead customers and foundry partners to introduce and hopefully if advanced packaging technology.
Speaker 2: We deepened the cooperation with lead customers and foundry partners to introduce innovative advanced packaging technology.
Speaker 2: Revenue for advanced products represents over 70% of our business.
Revenue for advanced products represents over 70% of our business.
Speaker 2: Significant growth was driven by new product introductions, primarily in advanced SIP, Wave 11, Flipship technology, supporting 5G communication, high-performance computing, automotive and IoT applications.
Significant growth was driven by new product introductions, primarily in advance as IP wafer level flip chip technology supporting <unk> communication high performance computing automotive and Iot applications.
Our mainstream business also showed a solid year on year increase through continued recovery in the automotive and industrial markets.
Speaker 2: Our mainstream business also showed a solid year-on-year increase through continued recovery in the automotive and industrial markets.
Now let me review the current dynamics in our end markets.
Speaker 2: Our communications business grew 22% for the full year, driven by strength in the smartphone market, particularly the transition to 5G smartphones.
Our communications business grew 22% for the full year driven by strength in the smartphone market, particularly the transition to <unk> smartphones.
Speaker 2: For the latest smartphone models in both the Android and the iOS ecosystems, we introduced a broad range of new technologies, most notably technology enabling RF and sensor integration utilizing our advanced SIT platform and next generation 5G processes utilizing our ultra-thin package on package solutions.
For the latest smartphone models in both the Android and the iOS ecosystems, we introduced a broad range of new technologies, most notably technology, enabling RF sensor integration utilizing over at Fox P platform and next generation <unk> process utilizing our ultra 10 package on package solution.
Yeah.
Speaker 2: With Amcor's leadership position across 5G smartphones, we expect this market to remain an important growth driver, and we plan to continue investing in technology and manufacturing scale to support our customers.
With <unk> leadership position across five smartphones, we expect this market to remain an important growth driver.
Plan to continue investing in technology and manufacturing scale to support our customers.
Yeah.
Speaker 2: Strong recovery in the automotive and industrial market drove 28% growth for the year.
Strong recovery in the automotive and industrial market drove 28% growth for the year.
Speaker 2: Continued supply constraints, especially in wafer and substrate supply, dampened even further growth.
Continued supply constraints, especially away for a substrate supply dampened even further growth.
The strong performance of our automotive business is supported by a solid recovery in our mainstream automotive portfolio.
Speaker 2: The strong performance of our automotive business is supported by a solid recovery in our mainstream automotive portfolio.
Speaker 2: notably growth in high-power silicon carbide devices for the expanding EV market.
Notably growth in high power Silicon carbide devices for the expanding market.
Speaker 2: We also experience strength in advanced products with significant ramps of new ADAS and entertainment processors relying on large body size flip chip technology in our advanced packaging factories in Korea.
We also experienced strength in advanced products with significant ramps of new Adas and infotainment processes relying on large body size flip chip technology.
Advanced packaging factories in Korea.
Although we foresee some short and mid term constraints in the automotive supply chain. We believe the long term growth drivers in this market to remain in place with the expected continued expansion of semiconductor content per car.
Speaker 2: Although we foresee some short and mid-term constraints in the automotive supply chain, we believe the long-term growth drivers in this market remain in place, with the expected continued expansion of semiconductor content per car.
Speaker 2: Our consumer business increased 12% for a year, supported by diversification of our product and customer portfolio in IoT wearables and strength in the traditional consumer product.
Our consumer business increased 12% for the year.
Supported by diversification of our product and customer portfolio, and Iot wearables and strength in the traditional consumer products.
And the consumer wearable market, we utilize our advanced Assembly and test platform that offers a turnkey solution to integrate over 80% of the electronic components into a single system in package.
Speaker 2: In the consumer wearable market, we utilize our advanced SIP assembly and test platform that offers a turnkey solution to integrate over 80% of the electronic components into a single system and package.
Speaker 2: We expect this market to further expand and our overall product and customer pipeline for advanced SAP solutions for consumer products remains strong.
We expect this market to further expand our overall product and customer pipeline for advanced SAP solutions for consumer products remained strong.
Speaker 2: Revenue in the computing market continued a robust growth trajectory with full year growth of 28%.
Revenue in the computing market has continued a robust growth trajectory with full year growth of 28%.
Speaker 2: We experienced solid performance in all computing applications and a further strengthening of our product pipeline.
We experienced solid performance in all computing applications and a further strengthening of our product pipeline.
Speaker 2: Like the automotive market, some further upside was tempered by constraints in material supply, especially high-end substrate materials.
Like the automotive market to some further upside was tempered by constraints and material supply, especially high end substrate materials.
Speaker 2: Going forward, we believe the computing market is an important driver for growth.
Going forward, we believe the computing market is an important driver for growth.
Speaker 2: Increasing data traffic across networks and data centers is accelerating the need for high-performance computing, utilizing the latest silicon nodes and enabled by advanced packaging technology.
Increasing data traffic across networks and data centers is accelerating the need for high performance computing utilizing the latest silicon notes and enabled by advanced packaging technology.
Speaker 2: With our proven technology portfolio and established partnerships with lead customers and foundries, we believe Emcor is well positioned to capitalize on opportunities in this growing market. And we plan to continue our investments in technologies and manufacturing scale for computing applications.
With our proven technology portfolio and established partnerships with lead customers foundries, we believe <unk> is well positioned to capitalize on opportunities in this growing market and we plan to continue our investments in technology and manufacturing scale for computing applications.
Speaker 2: Finally, our test business grew 17% compared to 2020.
Finally, our test business grew 17% compared to 2020.
Speaker 2: We are broadening the scope of our test services in areas like 5G communications, computing, and system level testing to enhance turnkey support to our customers.
We are broadening the scope of our test services in areas like <unk> communications computing and system level testing to enhance turnkey support to our customers.
Speaker 2: Our global manufacturing organization remains focused on operational excellence to serve our customers, while maintaining industry-leading quality standards and high factory utilization.
Our global manufacturing organization remains focused on operational excellence to serve our customers, while maintaining industry, leading quality standards and high factory utilization.
Speaker 2: Working through supply chain constraints for material and components required extraordinary flexibility to meet customer demands by optimizing factory planning and managing new product introduction.
Working through supply chain constraints for material and components required extraordinary flexibility to meet customer demands by optimizing factory planning and managing new product introductions. We expect these supply constraints to continue throughout 2022 until new capacity for substrates and critical.
Speaker 2: We expect the supply constraints to continue throughout 2022 until new capacity for substrates and critical silicon nodes come to line.
Silica nodes comes online.
Speaker 2: In November , we announced our plans to expand our global factory footprint by building a state-of-the-art factory in B?ch ??n, Vietnam.
In November we announced our plans to expand our global factory footprint by building a state of the art factory in Vietnam.
Vietnam.
Speaker 2: The first phase of this factory will focus on advanced SIP technology.
The first phase of this factory will focus on advanced technology.
Speaker 2: This is a strategic long-term investment in geographical diversification and factory capacity exp Developers have been prioritizinglifting rig.
This is a strategic long term investment in geographical diversification and factory capacity expansion.
Speaker 2: Utilization across our advanced packaging locations is high, and we expect the strong market demand for these technologies to continue.
Utilization across our advanced packaging locations is high and we expect the strong market demand for these technologies to continue.
Speaker 2: Our Vietnam Factory project is on schedule to start pilot production in the second half of 2023.
Our Vietnam factory project is on schedule to start pilot production in the second half of 2023.
This will provide key capacity to support future growth.
Speaker 2: This will provide key capacity to support future growth.
Speaker 2: In the US, we continue to monitor investment policies to incentivize domestic semiconductor manufacturing.
In the U S. We continue to monitor our investment policy to incentivize domestic semiconductor manufacturing.
Our capex for 2021 was $780 million.
Speaker 2: Our capex for 2021 was $780 million.
Speaker 2: we made significant investments in advanced technologies like wafer-level packaging, flip chip technology, advanced SIP and test, as well as in facility expansion.
We've made significant investments in advanced technologies like wafer level packaging flip chip technology advanced SSP and test as well as in facility expansion.
Speaker 2: For 2022, we expect to increase CapEx to around $950 million in order to capture new opportunities for a strong demand for our advanced package technology.
For 2022, we expect to increase capex to around $950 million in order to capture new opportunities for the strong demand for advanced packaging technologies.
Speaker 2: Our 2022 capex guidance of $950 million includes around $100 million for the construction of our new Vietnam factory.
Our 2022 Capex guidance of $950 million includes around $100 million for the construction of our new Vietnam factory.
Speaker 2: Now let me turn to our first quarter 2022 revenue outlook.
Now, let me turn to our first quarter 2022 revenue outlook.
Speaker 2: We are expecting another solid quarter with a revenue of $1.55 billion at the midpoint of our guidance. This represents a year-on-year increase of 17%.
We are expecting another solid quarter with revenue of $1 $5 5 billion at the midpoint of our guidance. This represents a year on year increase of 17%.
The full year 2022 is shaping up as another growth year for amcor.
Speaker 2: The full year 2022 is shaping up as another growth year for AMP.
Speaker 2: Our key growth drivers remain in place. 5G deployment, high performance computing, IoT wearables, and automotive electronics are all expected to drive strong demand for our service.
Our key growth drivers remain in place <unk> deployments high performance computing, Iot Wearables and automotive electronics are all expected to drive strong demand for our services.
Speaker 2: With M-Course's differentiated technology portfolio, global manufacturing scale, and broad customer base, we believe we can outperform the semiconductor market in 2022.
With <unk> differentiated technology portfolio global manufacturing scale and broad customer base. We believe we can outperform the semiconductor market in 2022.
Speaker 2: Megan will now provide more detailed financial information.
Megan will now provide more detailed financial information.
Thank you Hugh and good afternoon, everyone.
Speaker 3: Amcor delivered record financial results in Q4.
Amcor delivered record financial results in Q4.
Speaker 3: revenue, gross margin, net income, and EPS all exceeded the high end of our guidance.
Revenue gross margin net income and EPS all exceeded the high end of our guidance.
Speaker 3: Fourth quarter revenue of $1.72 billion was up 3% sequentially.
Fourth quarter revenue of 172 billion.
It was up 3% sequentially.
Speaker 3: Year over year, fourth quarter revenue increased 26%, a result of significant double digit growth in all end markets, including new all-time records for revenue in computing, automotive and industrial, and consumer.
Year over year fourth quarter revenue increased 26%.
Results in significant double digit growth in all end markets, including New all time records for revenue in computing automotive and industrial and consumer.
Communications revenue was flat from Q3 and came in stronger than expected due to less impact from materials supply shortages.
Speaker 3: Communications revenue was flat from Q3 and came in stronger than expected due to less impact from material supply shortages.
Speaker 3: Utilization rates were high across our global factory footprint.
Utilization rates were high across our global factory footprint.
We continue to work with our customers to provide assurance for future supply by means of advanced payments and long term agreement.
Speaker 3: We continue to work with our customers to provide assurance for future supply by means of advanced payments and long-term agreements.
Speaker 3: This allows us to secure capacity and material availability for future volume ramps.
This allows us to secure capacity and material availability for future volume ramp.
Speaker 3: During the quarter, we continued to seek constraints for wafers, substrates, and components, as well as extended lead times for certain equipment.
During the quarter, we continued to see strength for wafer substrates and components as well as extended lead times for certain equipment.
Speaker 3: In order to secure specific materials for our customers, we are exploring long-term arrangements, including investments, with key suppliers to support capacity expansion.
In order to secure specific materials for our customers. We are exploring long term arrangements, including investment with key suppliers to support capacity expansion.
Speaker 3: We expect continued tightness throughout 2022 until new capacity comes online.
We expect continued tightness throughout 2022 until new capacity comes online.
Speaker 3: In addition to supply constraints, we are also experiencing cost increases, both in fixed and variable costs.
In addition to supply constraints. We are also experiencing cost increases both in fixed and variable cost.
Speaker 3: In order to preserve our profitability in this rising inflation environment, we are taking action to ensure our prices reflect these increasing costs.
In order to preserve our profitability and this rising inflation environment, we are taking action to ensure our prices reflect these increasing costs.
With high levels of utilization gross margin expanded 170 basis points sequentially to 21% and our gross profit of $362 million is an all time record.
Speaker 3: With high levels of utilization, gross margin expanded 170 basis points sequentially to 21 percent, and our gross profit of $362 million is an all-time record. This demonstrates the leverage
This demonstrates the leverage in our financial model.
Operating expenses for the quarter came in better than expected at $110 million.
Speaker 3: Operating expenses for the quarter came in better than expected at $110 million.
Fourth quarter operating income was an all time record of $252 million and operating income margin expanded 200 basis point sequentially to 14, 6%.
Speaker 3: Fourth quarter operating income was an all-time record of $252 million. An operating income margin expanded 200 basis points sequentially to 14.6%.
Net income for the quarter with $217 million, resulting in an all time record EPS of <unk> 88.
Speaker 3: Net income for the quarter was $217 million, resulting in an all-time record EPS of 88 cents.
Speaker 3: We generated record EBITDA of $398 million in Q4, and EBITDA margin was 23.1%.
We generated record EBITDA of $398 million in Q4, and EBITDA margin was 23, 1%.
We ended the quarter with over $1 billion of cash and short term investments and total liquidity of $1 $6 billion.
Speaker 3: We ended the quarter with over $1 billion of cash and short-term investments and total liquidity of $1.6 billion.
At December 31, total debt was approximately $1 1 billion and our debt to EBITDA ratio is <unk> nine times.
Speaker 3: At December 31, total debt was approximately $1.1 billion, and our debt-to-EBA-DA ratio is 0.9 times.
Speaker 3: Our solid financial position maintains our ability to fund expansion, entertain future growth opportunities, and make strategic investments.
Our solid financial position maintains our ability to fund expansion entertain future growth opportunities and make strategic investments.
Speaker 3: 2021 was a year of many records and accomplishments for Amcor.
2021 was a year of many records and accomplishment for amcor.
Speaker 3: Revenue for 2021 topped $6.1 billion, an increase of nearly $1.1 billion, or 22% over 2020.
Revenue for 2021 topped $6 1 billion, an increase of nearly $1 $1 billion or 22% over 2020.
Speaker 3: Strong execution and technology leadership drove double-digit growth and set new records in all of our endmarks.
Strong execution and technology leadership drove double digit growth and set new records in all of our end markets.
Speaker 3: Gross margin for the full year 2021 was 20%, driving robust profitability and expanding over 200 basis points from 2020.
Gross margin for the full year, 2021 was 20% driving robust profitability and expanding over 200 basis points from 2020.
Speaker 3: We generated record gross profit of over $1.2 billion, an increase of over 35% from 2020.
We generated record gross profit of over $1 2 billion, an increase of over 35% from 2020.
Speaker 3: We controlled operating expenses, reducing them as a percent of revenue from 8.8% in 2020 to 7.5% in 2021 in a period of significant growth.
We controlled operating expenses, reducing them as a percent of revenue from eight 8% in 2020 to seven 5% in 2021 and a period of significant growth.
Speaker 3: Strong operating results and disciplined spending resulted in operating income margin of 12.4%, an increase of 330 basis points over 2020.
Strong operating results and disciplined spending resulted in operating income margin of 12, 4% an increase of 330 basis points over 2020.
Speaker 3: We reduced interest expense by $12.5 million, or 20% compared to 2020, by continuing to optimize the amount, cost, and term of our debt.
We reduced interest expense by $12 $5 million or 20% compared to 2020 by continuing to optimize the amount of cost and term of our debt.
Speaker 3: As a result of these actions, we generated record EPS of $2.62, an increase of over 85% from 2020.
As a result of these actions we generated record EPS of $2 62.
An increase of over 85% from 2020.
Speaker 3: We invested $780 million of CapEx, or 12.7% capital intensity, primarily in our Advanced Products portfolio.
We invested $780 million of Capex or 12, 7% capital intensity, primarily in our advanced products portfolio.
Speaker 3: This investment will strengthen our leadership position in the growth catalysts for 2022 and beyond 5G, IoT, automotive and high performance computing.
This investment will strengthen our leadership position in the growth catalysts for 2022 and beyond.
G Iot automotive and high performance computing.
Speaker 3: We announced the expansion of our geographical footprint to add advanced SIP capacity in Vietnam.
We announced the expansion of our geographical footprint to add advanced at peak capacity in Vietnam.
Speaker 3: We generated $344 million in free cash flow in 2021, an increase of over 50% from 2020.
We generated $344 million in free cash flow in 2021, an increase of over 50% from 2020.
Speaker 3: Customer advance payments had a favorable impact on free cash flow in 2021.
Customer advance payments had a favorable impact on free cash flow in 2021.
We increased our quarterly cash dividend by 25% on strong financial results and confidence in the sustainability of our cash flow generation.
Speaker 3: We increased our quarterly cash dividend by 25% on strong financial results and confidence in the sustainability of our cash flow generation.
Moving on to our first quarter outlook, we expect revenue to be $1 55 billion.
Speaker 3: Moving on to our first quarter outlook, we expect revenue to be $1.55 billion, plus or minus $50 million, which reflects both seasonality and continued supply chain constraints.
Plus or minus $50 million, which reflect both seasonality and continued supply chain constraints.
Speaker 3: Gross margin is expected to be in the range of 17.5 to 20%.
Gross margin is expected to be in the range of 17, 5% to 20%.
Operating expenses are expected to be around $115 million.
Speaker 3: Operating expenses are expected to be around $115 million.
Speaker 3: We expect our full year effective tax rate to be around 15%.
We expect our full year effective tax rate to be around 15%.
Q1, net income is expected to be between 115 and $165 million, resulting in EPS between 45 and 65.
Speaker 3: Q1 net income is expected to be between $115 and $165 million, resulting in EPS between $45 and $65.
Speaker 3: Given the continued strong demand in the market, we are increasing our forecast for capital expenditures in 2022 to around 950 million dollars.
Given the continued strong demand in the market, we are increasing our forecast for capital expenditures in 2022 to around $950 million.
Speaker 3: This includes spending related to our new facility in Vietnam, which is anticipated to be completed in 2023.
This includes spending related to our new facility in Vietnam, which is anticipated to be completed in 2023.
With that we will now open the call up for your questions operator.
Speaker 3: With that, we will now open the call up for your questions. Operator.
Thank you.
Speaker 4: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue.
Speaker 4: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
For participants using speaker equipment, it may be necessary to take up your handset before pressing the star keys.
Speaker 4: Our first question comes from the line of Randy Abrams with Credit Suisse. Please proceed with your question.
Our first question comes from the line of Randy Abrams with Credit Suisse. Please proceed with your question.
Speaker 5: Hi, thank you and congratulations on the good result. I wanted to ask the first question on the first quarter. The seasonal is about in line with normal, about a 10% decline, but factoring you're mentioning a pretty strong growth outlook and some of the customers and peers have been a bit above seasonal.
Yes, hi, Thank you and congratulations on the good result.
Wanted to test the first question on the first quarter the.
Seasonal is about in line with with normal about a 10% decline.
But factoring youre mentioning a pretty strong growth outlook.
And some of the customers and peers are have been a bit above seasonal.
Speaker 5: So if you could put in context just the factors on the seasonality and in that I think you discussed that there are some constraints on demand. But if you could lay out what you're seeing and perhaps by end market how you're seeing the trend fourth quarter to first quarter.
If you could put in context, just the factors on the seasonality.
And in that I think you discussed that there are some constraints on demand, but if you could.
Lay out what you're seeing and perhaps by end market, how youre seeing the trend fourth quarter to first quarter.
Okay.
Hi, Randy.
Speaker 2: Hi, Randy. Good morning. This is Gil. Good to have you on the call. Let me try to answer your question and go through the individual segments. Let me first start with making a comment to the product category.
Good morning. This is does this feel good to have you on the call. Yes, let me try to to answer your question ill go through the individual segments. Let me first starts with making a comment to that to the product categories.
Speaker 2: I mean where we see the quarter on quarter correction is mostly in our advanced SIP domain, both on the communication side as well as on the consumer side. For the segments in the computing segment as well as in the automotive segment, they are either slightly up or flat quarter on quarter versus Q4.
Where we see the quarter on quarter correction is mostly in our advanced.
Each domain, both on the communication side as well as on the consumer side.
For the.
Sure.
In the computing segment as well as in the automotive segment data, either slightly up or flat quarter on quarter versus Q4, so mostly it's in as.
Speaker 2: So mostly it's in SIP and mostly in the communication segments, which is slightly better than normal seasonality on the communication. And on the consumer side, we see some fluctuations with changeovers from one product generation to another and that impacts our consumer segment.
And mostly in the communications segment, which is slightly better than normal seasonality on the communication and the consumer side, we see some fluctuations with changeovers from one generation to another and that impacts our consumer segment.
Speaker 2: And on top of that, we made some reservations for our memory business because we see some supply constraints towards the tail end of this quarter with respect to wafer supply. And there we made a slight correction to include that in our quarterly outlook.
And on top of that we made some reservation for our memory business, because we see some supply constraints towards the tail end of this quarter with respect to wafer supply and bad we've made a slight correction to include it in our quarterly outlook.
Speaker 5: Okay, yeah, that's helpful. And I guess when the wafer supply, it's dealing with some of the issues on the contamination.
Okay. That's helpful and I guess that wafer supply, it's dealing with some of the issues on the contamination.
Speaker 5: The follow-up for the SIP business, where in the remarks you discussed diversifying portfolio and good pipeline, if you could give a snapshot, if you still do the revenue run rate where it was last year and the broad expectation for this year with the transition of how you're seeing the SIP business for the coming year.
Hey.
A follow up for the IP business.
In the remarks he discussed.
<unk> portfolio and good pipeline.
If you could give a snapshot.
If you still do the revenue run rate, where it was last year and.
The broad expectation for this year with the transition.
Youre seeing the business for the coming year.
Well Dennis status strength across the board I think introducing a growth range of new products on the share on the computing on the communication domain.
Speaker 2: Well, there is strength across the board. I think we're introducing a broad range of new products on the SIP, on the communication domain. And we expect that to be strong and significantly growing in this year. On the consumer domain we see some products phasing out with one customer, with some new customers phasing in with other customers.
Expect that to be to be strong and significantly growing in this year on the consumer domain, we see some products phasing out with one customer mix from new customers phase again with other customers and there is some some ramp up and ramp down.
Speaker 2: and there is some ramp up and ramp down, how that materialized exactly in comparison to last year. And Megan can give a little bit more detail there for a run.
Materialized exactly in competition to last year, maybe Megan Ken can give a little bit more detail there around.
Speaker 3: Hi, Randy. Yeah, just to close out 21, Randy, our SIP business grew over 20%. So our advanced SIPs, $2.3 billion is where we ended up for 21. And as Hiel mentioned, we expect continued strong growth in the advanced SIP technology. As a reminder, we see that proliferating into all of the end markets, including automotive.
Hi, Randy.
Yes, just to close out 'twenty, one Randy R. S. IP business grew over 20%. So were our advanced Sap's $2 3 billion is where we ended up for 'twenty, one and as Hugh mentioned, we expect continued strong growth in the advanced <unk>.
Technology as a reminder, we see that proliferating into all of the end markets.
Including automotive.
Okay great.
Speaker 5: Great. And actually where it translates to margin where you're coming off kind of a new recent high, for next, as you go into this year, I think there's a few drivers, but I'm curious pricing if
Actually where it translates to margin, where you are coming off kind of a new.
Our new recent high.
For next year as you go into this year.
I think there's a few drivers I'm curious pricing if.
Speaker 5: now factoring in some of the constraints in rising material costs, what's happening on the pricing side, and then how you net it out, like for if the SIF business is still growing, how you see the margin trend, if we reach similar levels at high utilization.
Now factoring in some of the constraints and rising material costs.
What's happening on the pricing side.
And then how you netted out like for <unk>.
That business is still growing how you see the margin trend.
We reached similar levels at high utilization or because it could.
Speaker 5: or technically could go in either direction with whether you're doing on pricing versus some of the material costs.
Could go in either direction.
Whether you're doing on pricing versus some of the material costs.
Okay, Let me start with the pricing part and then Megan can probably give a little bit more comments on the gross margin development for this year on the pricing side already for last year 2021, we work closely with our customers to include in our <unk>.
Speaker 2: Let me start with the pricing part and then Megan can probably give a little bit more comments on the gross margin development.
Speaker 2: for this year. Now on the pricing side already for last year 2021 we work closely with our customers to include in our pricing the increased material costs specifically on substrate materials where we see increased cost during the last year already and we expect that to continue. So we have a close cooperation with our customers to include that in our price.
Pricing the increased material costs, specifically on substrate materials, where we see increased cost during the last year already and we expect that to continue so we have a close cooperation with our customers to include that in our pricing with respect to other.
Speaker 2: With respect to other inflation-related cost increases, be it energy, labour costs, etc., I think we do the same approach with our customer-based currencies. We work closely with customers to basically increase prices where needed to include the inflation that we're currently experiencing across the board.
Inflation related cost increases these energy labor cost et cetera, I think.
The same approach with our customer base currencies, we work closely with customers to basically increase prices where needed to include this.
<unk> that we are currently experiencing across the board.
Speaker 2: So material increases is already ongoing for, let's say, the full of last year, and we expect it to continue. The other inflation-related cost increases, I think we work on the same way closely with our customers to include that in our pricing.
So a material increase is already got ongoing for.
Let's say the full of last year, and we expect that to continue the other inflation related cost increases I think we work on the same very closely with our customers to include that in our pricing.
Speaker 2: Now with respect to our gross margin development, Meaghan, can you comment to that?
Now with respect to our gross margin developments may continue comment to that.
Sure.
Speaker 3: So Randy, as you know, generally we see a 40 to 50 percent gross profit incremental flow through. And as you mentioned, that can have headwinds or tailwinds, depending on product mix, which you had specifically mentioned, SIP, utilization, currency exchange rates, etc.
So Randy as you know generally we see a 40% to 50% gross profit incremental flow through and as you mentioned that can have headwind or tailwind depending on product.
Product mix, which you had specifically mentioned.
Utilization currency exchange rates et cetera.
Speaker 3: So with respect to our expectations for 2022, you know, as far as us being full in 2021, that is a good representation of our material content.
So with respect to our expectations for 'twenty two.
As far as this being full in 2021 that is a good representation of our material content and just to step back 21 had robust profitability.
Speaker 3: And just to step back, 21 had robust profitability, a result of ongoing discipline capex, and focus on controlling our manufacturing costs for optimal absorption.
A result of ongoing disciplined capex and focus on our controlling controlling our manufacturing costs for optimal absorption we.
Speaker 3: We achieved the highest gross margin percent in over a decade.
We achieved the highest gross margin percent in over a decade.
Speaker 3: Operating income margin also reached the highest in over a decade.
Operating income margin also reached the highest in over a decade.
Speaker 3: That being said, we've worked hard to establish a manufacturing cost structure that will provide leverage in growth cycles. So our expectation is that we will have improved profitability given the leverage that we've demonstrated in our financial model.
That being said we've worked hard to establish a manufacturing cost structure that will provide leverage in growth cycles. So our expectation is that we will have improved profitability given the leverage that we've demonstrated in our financial model.
Speaker 5: And one just other margin question, depreciation for the full year, if you have a just factoring now the capex coming up a bit, how depreciation trends year on year.
Okay.
One just other margin question depreciation for the full year. If you have just factoring now the capex.
Coming up a bit depreciation.
<unk> trends year on year.
Speaker 3: Yeah, 11% Randy is the increase in depreciation in 21.
Yes, 11% Randy is the increase in depreciation in 'twenty one.
Okay, Great and then a question on the long term agreement it sounds like Theres some on both sides.
Speaker 5: Okay, great. And then a question on the long-term agreements. It sounds like there's some on both sides. If you could discuss how much you're seeing on the supply side, and does that lock in, I guess it's inflationary cost, how much does it lock in?
Could discuss how much.
You are seeing on the supply side and does that lock in.
I guess it is inflationary cost how much does it locked in.
Speaker 5: the pricing, but could actually be a risk, say, if the environment changes. And where you're thinking about the co-investment, is that more on substrate, where we've been tight? And then I'm curious on the customer side, how much you've enacted long-term agreements or any kind of prepayment for the business with customers?
The pricing, but could actually be a risk.
Environment changes.
And where youre doing and thinking about the co investment is that more on substrate, where we've been tight and then I'm curious on the customer side.
Much.
Enacted long term agreements or any kind of prepayment for the.
The business with customers.
Speaker 2: Let me comment on the structure first and Megan can give the details on the total numbers. From a structure perspective, we have enhanced our agreements with customers.
Well, let me comment on the structure first and then Megan Ken can give the details on the total numbers.
Now from a structure perspective, <unk> enhanced our agreements with customers.
Speaker 2: You know 90% of our top 25 customers we have long-term agreements in place they're either a co-investment agreement or a take-or-pay agreement
90% of our top 25 customers, we have long term agreements in place.
Gary the co investment agreement or a take or pay agreement.
Speaker 2: or other longer-term arrangements that would guarantee them supply.
Off of.
Our longer term arrangements that would guarantee them supply.
Speaker 2: So guaranteed supply is the goal for our customers.
So guaranteed supply is the goal is the goal for our customers and guaranteed delivery is for us the goal with our suppliers I think mostly on the on the supply of substrate materials, we put long term agreements in place with critical suppliers, mostly on the high end.
Speaker 2: and guaranteed delivery is for us the goal with our suppliers.
Speaker 2: I think mostly on the supply of substrate materials. We put long-term agreements in place with critical suppliers, mostly on high-end substrates.
Rates.
Speaker 2: and we executed that in the latter part of last year and we will continue to do that this year. There are some, I think that's to a lesser extent, co-investment agreements going on to help some of the smaller substrate companies to ramp up and to accelerate their ramp up of new capacity. On the total numbers...
And we executed that in the <unk>.
Latter part of last year, and we will continue to do that this year there are some.
I think thats to a lesser extent co investments.
Going on to help some of the smaller.
Substrates companies to ramp up and to accelerate the ramp up of new capacity.
The total numbers Megan can you comment to that.
Yes, so Randy we don't give specific levels of dollar capacity in there I think what's important to know is that nearly all of our top.
Speaker 3: Yeah, so Randy, we don't give, you know, specific levels of dollar capacity in there. I think what's important to know is that all nearly all of our top
Speaker 3: customers have engaged in some form of long-term arrangement, which does mitigate our investment in those programs. On the supplier side, I think Heale did address we are doing that specifically for the high-end substrates, which is where we're seeing the most significant constraint.
Customers have engaged in some form of long term arrangement, which does mitigate.
Our investment in those programs on the supplier side I think he'll did address we are doing that specifically for the high and substrates, which is where we're seeing the most significant constraints.
Speaker 3: The magnitude of that as well, we aren't disclosing, but it is ensuring that we can secure that supply for our customers.
The magnitude of that as well, we arent disclosing but it is ensuring that we can secure that supply.
For the for our customers.
Speaker 5: Okay, and I'll just ask one final question just following up to that. The, um template?
Okay.
I'll just ask one final question just following up for that.
Speaker 5: For those where you mentioned the 90% of top 25 where there's agreement, is that – it looks like there's taker pay, so some that you actually guarantee and secure how much they take. Is it more than a quantity driven or how much is also pricing? Like are these contracts also locking in some sort of pricing or is it more to secure the volume and – —
For those.
You mentioned that 90% of top 25, where there is agreement is that.
It looks like there is take or pay so some that you actually guarantee and secure how much. They take is it more than a quantity driven or how much is also pricing are these contracts also locking in some sort of pricing or is it more to secure the volume in.
Speaker 5: your market share. I'm curious about that structure. Then the other follow-up, because of the ongoing high-end substrate, how are you seeing the development on fan-out? Is that pulling in, or how do you see timing and magnitude of fan-out as a potential alleviation of substrate?AM dancers are measuring?
Your market share.
So I'm curious have structure it and then the other follow up because of the ongoing.
Substrate, how are you seeing the development on fan out and is that pulling in or how do you see timing and magnitude of fan out as a potential alleviation of substrate.
Yeah.
Speaker 2: Let me start answering the last question on the fan-out acceleration.
Let me, let me start answering the last question on the fan out acceleration.
Speaker 2: On FanOut, we have a broad engagement with critical customers. We expect that. And I think I also reported that we talked in our last call on the FanOut timeline. We expect that to ramp in 2024.
On fan out we have a broad engagement with customers we expect that.
And I think I also reports that we talked in our last call on the fan out timeline, we expect to ramp in 2024 so.
Speaker 2: So to volume with some initial production in 2023.
<unk> volume, which from initial production in 2023.
Speaker 2: So I don't see any short-term alternative for the high-end substrates being introduced, particularly because I expect fan-outs to be...
So I don't see any short term alternative for the high end substrates hip hop being introduced.
Certainly because I expect fan outs to beach.
Speaker 2: actually coming together with the 3nm silicon nodes and therefore I think it will ramp in 2023 here and after that.
Actually coming together, which.
The three nanometer silicon nodes and therefore, I think it will it will ramp in 2023 sure.
And after that.
Speaker 2: With respect to securing volume, you know, substrate prices currently are fluctuating quite significantly. Of course, we don't, let's say, fixed the prices in our contracts. I think we relate that to market prices and market price developments. The longer term contracts are mostly related to volume.
With respect to securing volume.
Substrate prices currently.
Fluctuating quite significantly.
Of course, we don't.
Let's say fixed price in our contracts I think we share relates to market prices and market price developments.
Should the longer term contracts are mostly related to volume.
Speaker 2: and prices are very much related to market price.
And prices are pretty much related to market pricing.
Speaker 5: Thanks a lot, and congratulations on the results.
Okay. That's helpful. Thanks, a lot and congratulations on the results.
Thanks Randy.
Speaker 4: Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad.
Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker 4: Our next question comes from the line of Tom Diffley with DA Davidson. Please proceed with your question.
Our next question comes from the line of Tom definitely with D. A Davidson. Please proceed with your question.
Speaker 6: Yes, good afternoon and thanks for taking a couple questions here. So first, just as a follow-up, when you look at the material surcharges, are those at cost, whether you basically pass on the cost or is that with your normal margins attached to the material surcharges? Yes, that's correct. So, the material surcharges are the material surcharges that are attached to the material surcharges.
Yes, good afternoon, and thanks for taking a couple of questions here.
So first just as a follow up when you look at the material surcharges.
Are those at cost whether you basically pass on the cost or is that with your normal margins attached to it.
Well that's.
Speaker 2: Well, we don't want to go into too much detail here, but the intent is to work with our customers to cover the increased cost. Of course, when there is specific fees on handling fees or others, I think that will be included in the increased material price.
We don't want to go into too much detail here, but to be intense.
Is to work with our customers to cover the increased cost of course, when there is less.
Let's say specific fees on handling fees or other so I think that will be included in the share increased material prices.
Speaker 6: Okay, now it's helpful. And then in regards to your new facility in Vietnam, what were the main reasons or the driving force behind that location? And on a related question, is there anything in the new CHIP Act that you think might increase your want to increase capacity here in the US?
Okay. That's helpful.
And then.
With regards to your new facility in Vietnam, what were the main reasons.
Driving force behind that location.
And on a related question is there anything in the New Chip Act that you think might increase your want to increase capacity here in the U S.
Over the next few years.
Speaker 2: Okay, well let's first start with the Vietnam factories.
Okay, well, let's let's first start with the Vietnam factory.
Speaker 2: You know, the Vietnam factory is for us a very strategic element to our manufacturing footprint.
The Vietnam factory is for us very strategic.
Elements to our manufacturing footprint, we see Def.
Speaker 2: We see there a strong ecosystem developing in Vietnam where our customer base is actually evaluating their supply chain.
Our strong ecosystem developing in Vietnam, where our customer base is actually evaluating their supply chain strategies to include.
Speaker 2: strategies to include, let's say, lower risk geographies in their supply chain.
That's a lower risk.
<unk> and their supply chain.
Speaker 2: That doesn't mean that companies completely move away from manufacturing in China, but they're actively looking for lower risk alternatives. In our view, Vietnam is one of them. Also because there is a strong semiconductor ecosystem already present.
Doesn't mean that.
Company's completely move away from manufacturing in China, but they're actively looking for lower risk alternatives in our fuel for yet.
It's one of them also because that is a strong <unk>.
Semiconductor ecosystem already present.
Speaker 2: and our customers, several of our customers are familiar with the location. There's a strong labour force, there's a strong incentive scheme from government.
And our customers several of our customers are familiar with the location.
There is a strong labor force.
Strong incentive scheme from Gulf of months.
Speaker 2: And we believe with the vicinity of our other manufacturing locations in Asia, this is the right location. Also from a cost structure perspective.
And we believe vicinity of our other manufacturing locations in Asia.
The right location also from a cost structure perspective to have a long term facility supporting all of our advanced technologies in Vietnam.
Speaker 2: to have a long-term facility supporting our advanced technologies.
Speaker 2: With respect to the US CHIP Act and potential investment in the US, we are monitoring this. Of course, our headquarters in the US, we are well positioned.
With respect to the U S.
Chip.
And potential investment in the U S. I mean, we are monitoring this of course, our headquarters in the U S. We are well positioned to participate in the U S supply chain.
Speaker 2: to participate in the U.S. supply chain. We are, you know, critically evaluating potential locations. Important, however, is to make it an economic viable manufacturing locations. So we are evaluating the detailed support structure that is being developed by federal as well as state governments in the U.N.
The.
Critically evaluating potential locations.
First until leverage to make it economic viable Matt.
Manufacturing locations. So we have.
Failure rating the detailed support structure that is being developed by federal less fellas.
State governments in the U S.
Speaker 6: Great. Okay, that's very helpful. And then just as a follow-up on that, is there a rule of thumb for the payback period for capital spending on equipment? Is it, you know, two-year payback period or some way to kind of, you know, try to figure out, you know, what the return is on these investments?
Great. Okay. That's very helpful. And then just as a follow up on that is there a rule of thumb for the payback period for capital spending on equipment.
Two year payback period, or some way to kind of try to figure out.
Richard is on these investments.
Hey, Bob at least up to Megan.
Speaker 3: Hi, Tom. From a rule of thumb, I would say two years is a good rule of thumb. I would say generally it's going to depend on a key customer. It's going to depend on if we have second customers lined up coming in with that. We may require faster. It's going to depend if the equipment's fungible, etc. But all those factors, I think two years is a good rule of thumb.
Hi, Tom.
From a rule of thumb it.
I would say two years is a good rule of thumb I would say generally it's going to depend on key customer it's going to depend on if we have second customers lined up coming in with that we may require faster its going to dependency equipments fungible et cetera.
But all of those factors I think your two years is a good rule of thumb.
Speaker 6: The final question, when you look at the automotive market and the growth you see there going forward, is most of that driven by the EV market, the silicon carbide, or is it basically electrification of cars in general?
Okay, Great and then final question when you look at the automotive markets and the growth you see there going forward as most of that driven by the EV market. It was looking carbide or is it the.
Basically as electrification of cars in general that's driving that.
Speaker 2: I would say the majority of the growth is driven by the electrification of cars in general. Of course in the EV market there are specific...
I would say the majority of the growth is driven by the electrification of cost in general of course on the in the EV market sedan or specific elements or like high power battery management et cetera that drive increased semicon.
Speaker 2: elements like high power battery management etc that drive increased
Speaker 2: semiconductor content. If we talk about alternative materials like silicon carbide.
Dr content, if we talk about alternative materials like silicon carbide that can handle power management for the new generation.
Speaker 2: that can handle power management for the new generation of battery management in electrical cars. That's very specific for the EV market.
Of.
Battery management in electrical costs, that's very specific for the EV market, but if we talk about driver assistance features.
Speaker 2: But if we talk about drive resistance features...
Speaker 2: sensors, radar sensors, infotainment, all of that is generic, whether these are electrical cars or combustion engine cars.
Sensors radar sensors infotainment all of that is generic rather reduce our electrical cars or combustion engine cash.
Great well. Thank you both for your time today.
Thanks, Tom.
Speaker 4: Our next question is a follow-up from Randy Abrams with Credit Suisse. Please proceed with your question.
Our next.
Question is a follow up from Randy Abrams with credit Suisse. Please proceed with your question.
Speaker 5: Okay, and thanks for putting me back in. I have a follow-up just on the CapEx. If you could give a split like in that, you mentioned the 100 million per Vietnam. If you could give the split and just directionally if we take last year as a base how the mix on the CapEx or priorities are changing year on year....
Okay, yes, thanks for putting me back in.
I have a follow up just on the Capex. If you could give a split like given that you mentioned the $100 million per Vietnam. If you could give the split and just directionally. If we take last year as a base how the the.
The mix on the Capex, our priorities are changing year on year.
Yeah.
Megan you take that.
Speaker 2: Megan, can you take that? Sure. So Randy, I would say from looking at prior year, the mix would be pretty similar on the equipment and capability expansion, where we would have the primary portion of that for advanced technologies. And then where we're seeing some increased capex is in our infrastructure in common. And as we mentioned, there's 100 million earmarked for our facility in Vietnam.
Sure. So Randy I would say from looking at prior year, the mix would be pretty similar on the equipment and capability expansion, where we would have the primary portion of that for advanced.
<unk> technologies and <unk>.
Where we're seeing some increased capex is in our infrastructure and comment and as we mentioned there was a $100 million earmarked for our facility in Vietnam.
Okay.
Speaker 5: And on wire bonding, for a while there was legacy capacity that you had some available capacity. Is that still the case? Or are you now fairly tight and need to invest in the mainstream wire bonding?
On wire bonding for a while there was like legacy capacity that you had some.
Available capacity is that still the case or are you now.
Tight need to invest in the mainstream wire bonding.
Speaker 2: Let me comment to that, Randy. I mean, our wire mount factories in Japan, as well as in the Philippines, as well as in Malaysia were actually looking at a fairly high utilization when we exited last year in our fourth quarter.
Yes, let me comment to that.
Randy I mean, our wire bonds effectively.
In Japan, as well as in the Philippines as well in Malaysia.
Uh huh.
Actually.
Looking at a fairly high utilization when we exited last year in our fourth quarter still not fully utilized I think we have some some incremental capacity in there.
Speaker 2: still not fully utilized. I think we have some incremental capacity in our Japan facilities. We plan to invest in specific expansion in some of our facilities.
Our Japan facilities, we plan to invest in specific expansion and some of our facilities to accommodate some increased volumes for our customers, but keep in mind, our wire Bonder business is clearly focused at some specific markets that are complementary to our.
Speaker 2: to accommodate some increased volumes for our customers. But keep in mind our Wirebond business is clearly focused at some specific markets that are complementary to our advanced packaging markets like in automotive.
Advanced packaging markets like in automotive.
Speaker 2: where we hold a strong position in automotive and of course, if these customers are basically expanding and want us to expand, we will do that.
We hold a strong position in automotive and of course, if these customers are basically expanding I want us to expense, we will do that.
Speaker 2: And that goes across the board with respect to automotive microcontrollers, which are actually growing quite significantly. So where needed we will invest in wire-commode capacity also.
That goes across the board with respect to automotive Microcontrollers, which are actually growing quite significantly. So we have needed to be we will invest in wired kebab capacity also.
Okay and related on the IDM outsourcing theres been mixed feedback whether theres, a outsourcing trend or they are actually stepping up investment in house and a few items have discuss more investment both <unk>.
Speaker 5: And related on the IDM outsourcing, there's been mixed feedback whether there's a outsourcing trend or they're actually stepping up investment in-house. A few IDMs have discussed more investment both in the market and in the market.
Speaker 5: but it sounds like they do want to do some OSAT investments as well. I'm curious of the trend you're seeing for outsourcing. There's probably a near-term dynamic tight environment versus a mid- to long-term strategy.
Advanced but it sounds like they do want to do some.
<unk> investments as well so I am curious the trend youre seeing for outsourcing and Theres, probably a near term dynamic tight environment versus a mid to long term stretch.
Our strategy and direction for that.
Speaker 2: Yeah, I agree with that, Randy. I mean, the outsourcing trend from IDMs and the increase to more outsourcing is already ongoing for a long time, where there is a trend of increased outsourcing. Of course, it depends a little bit which market sector we're talking about, whether it's in computing or in memory or in automotive.
Yeah, I agree I agree with Randy I mean, the outsourcing trends from idms and the increase to more outsourcing is already ongoing for for a long time.
That is a trend of increased outsourcing of course, it depends a little bit to which market you.
You were talking about whether it's in computing or in memory or in automotive.
Speaker 2: I mean, currently we see that the preference for investments by IDMs are, if they are investing, it's more towards the front-end expansion instead of back-end expansion, unless it's very specialized technologies. So there is an increased outsourcing ongoing and we definitely see that. It's not only on the mainstream side, but it's definitely also on the advanced product side.
Currently we see that the preference for investments by Idms.
If they are investing it's more.
Towards the front end expansion instead of backend expansion unless it's fairly specialized technologies. So that is an increased outsourcing ongoing.
And to be sure we do.
Absolutely see that.
It's not only in the mainstream side, but it's definitely also on the advanced product sites.
Speaker 2: where, you know, generally IDMs hold.
Gender the Ibm's holds strong.
Speaker 2: a strong, let's say, scale in the mainstream manufacturing side, but have limited scale in advanced products and tend to outsource more of their advanced products.
Shay scale in the mainstream and manufacturing side, both have limited scale and advanced products and tend to outsource more of their advanced product.
Speaker 2: let's say, volumes towards the ocean.
Let's say volumes towards the offsets.
Speaker 5: Great. And the last question I have on the demand environment, it sounds like above seasonal, so positive on, I think you mentioned compute, auto. For market segments, there are two parts to it, but one if there's any area you're seeing a bit of softness or slow down. And from an inventory picture, how you're viewing
Great.
Question I have on the demand environment, it sounds like above seasonal so positive.
Thank you mentioned compute auto.
Our market segments are two parts to it but one if there's any area youre seeing a bit of softness or slowdown and from an inventory picture, how youre viewing where levels are versus normal and and also where I suppose where customers seem to want to take it like if you see.
Speaker 5: where levels are versus normal and also versus where customers seem to want to take it, like if you see kind of a potential build up through this year.
Kind of a potential build up through this year.
Yes.
Speaker 2: From our perspective on the supply chain, we see inventories to be still very lean and we are monitoring actively the inventories at the distributor level, at our customer level, also in specific markets. They are here and there, you hear some inventory build up with respect to kitting, but in my view that's very...
As we shift from our perspective on the supply chain, we see inventory shipped to be still a fairly lean and we are monitoring actively the inventories too.
At the distributor level at our our customer level also in specific markets.
Theyre here in Das Yulia, some inventory buildup with respect to kitting, but in my view that's for each.
Speaker 2: short term and that will resolve itself. But in general inventory levels what we are seeing are low are definitely below our customer targets still.
Short term and that will.
We will resolve itself, but in general inventory levels, but we are seeing are low are definitely below our customer targets still with.
Speaker 2: With respect to market development, we see 2022 another strong year. I mean market forecast is in the high single digits.
With respect to market developments, we seek.
2020 to another strong year.
Market forecast is in the high single digits, we share. We believe we can we can outperform that so we're very optimistic with respect to the outlook on the communications side, we believe that <unk> continues to drive growth.
Speaker 2: We believe we can outperform that, so we are very optimistic with respect to the outlook. On the communication side, we believe that 5G continues to drive growth. I mean, the number of 5G phones will increase from, let's say, around 400 million or 450 million this year to about 600 million next year, and that will drive significant growth. Automotive markets, the number of cars as well as the semiconductor content will continue to increase. Then on the computing side, we're...
The number of <unk> phones will increase from let's say around $400 million or $450 million. This year to about $600 million next year and that will drive significant growth automotive markets. The number of cash as well as the semiconductor content will continue to increase.
And on the computing side, we're very optimistic with that.
Speaker 2: with further growth both on the networking side as well as data centers.
Further growth both on the networking side as well as data centers, but even on the share on the terminal on the PC side 40, Osha to domain. There's a good upside today are to establish further growth Iot is a little bit.
Speaker 2: But even on the terminal on the PC side...
Speaker 2: For the OSET domain there is a good upside there.
Speaker 2: to establish further growth. IOT is a little bit, you know, a market which is still in the early stage on the wearable electronic side, but overall with our, you know, strength in the SAP platform where we do integrate the majority of the functionalities in one single SAP, I think also there we are optimistic. So overall, across market segments.
Our markets were just still in the early stage on the available electronics sides, but overall with our <unk>.
Strength in the ISR piece sheer platform, where we do integrate the majority of the functionality in both single assay I think also there we are optimistic so overall across market segments.
Speaker 2: inventories are still fairly moderate and market demands we expect to be strong in this year-end.
<unk> are still fairly moderate.
Market demand, we expect to be strong in this year Randy.
Speaker 4: Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Heal for closing remarks.
Thank you.
At this time I'm showing no further questions I would like to turn the call back to over to Hill for closing remarks.
Speaker 2: Okay, thank you. Well, before closing the call, I would like to recap our key messages.
Okay. Thank you before closing the call I would like to recap our key messages.
Speaker 2: M-Corps delivered outstanding financial results in 2021. We achieved record annual revenue of $6.14 billion and record annual EPS of $2.62.
EMCORE delivered outstanding financial results in 2021, we achieved record annual revenue of $6, one 4 billion.
Our record annual EPS of $2 62.
Speaker 2: We are expecting the first quarter, 22, to be another solid quarter with revenue of $1.55 billion, a robust year-to-year growth of 17%.
We are expecting the first quarter 'twenty two.
To be another solid quarter with revenue of $1 $55 billion, a robust year on year growth of 17%.
Supply chain constraints for substrates and components are expected to continue throughout 2022 until new capacity for substrates and critical Silicon notes comes from the line.
Speaker 2: Supply chain constraints for substrates and components are expected to continue throughout 2022 until new capacity for substrates and critical silicon nodes comes online.
2022 is expected to be another growth year for amcor.
Speaker 2: 2022 is expected to be another growth year for M-Corps. And with our solid position in key growth markets, we expect to outgrow the semiconductor market.
With our solid position in key growth markets, we expect to outgrow the semiconductor markets.
Speaker 2: And last but not least, I would like to thank the global M-Corps team for delivering another great year. The team demonstrated resilience and focus to overcome many challenges and made 2021 a milestone year.
And last but not least I would like to thank the global EMCORE team for delivering another great year.
Team demonstrated resilience and focus to overcome many challenges and may 2021, a milestone year.
Thanks for joining the call today.
Okay.
Speaker 4: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.