Q1 2022 ACM Research Inc Earnings Call

[music].

Yeah.

Good day, ladies and gentlemen, and thank you for standing by and welcome to the ACM Research first quarter 2022 earnings conference call. Currently all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time as a reminder, we are recording today's call. If you have.

Any objections you may disconnect at this time now now I'd like to turn the call over to Mr. Gary <unk>, managing director, who has the Blue shirt group. Mr. <unk>. Please go ahead.

Yeah.

Good morning, everyone. Thank you for joining us on today's call to discuss first quarter 2022 results. We released the results before the U S market open today. The release is available on our website as well as from Newswire services. There's also a supplemental slide deck posted in the investor portion of our website, we will reference during our prepared remarks on the call.

With me today are CEO , Dr. David Wang our CFO , Mark Mckechnie and lease up on the CFO of our operating subsidiary ACM Shanghai.

Before we can can you. Please turn to slide two let me remind you that remarks made during this call may include predictions estimates or other information that might be considered forward looking.

Forward looking statements represent Acm's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under risk factors and elsewhere in acm's filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward looking statements, which reflect acm's opinions.

It's only as of the date of this call ACM is not obliged to update you on any revisions to these forward looking statements.

Also certain of the financial results that we provide on this call will be on a non-GAAP basis, which excludes stock based compensation and an unrealized gain or loss in trading securities for our GAAP results and reconciliations between GAAP and non-GAAP amounts you should refer to our earnings release, which is posted on our IR section of our website and on slide eight.

With that let me now turn the call over to Dr. David Wang who will begin with slide three David.

Thanks, Gary with us.

And the ones, who would come ACM research first quarter 2022 earnings conference call.

I'd like to start today by reveal our Q1 results and then provide an update on latest status of the Shanghai operation.

Please turn to slide three.

Every month.

As we mentioned in our in this update prior to this call late in the first quarter. Our operations were impacted by C. D Y Lockdown in Shanghai.

Hearts go out to all those factors, including our employees business partners and customers.

The government is working.

We operate under control.

We fully support the effort. We also thank our dedicated and hard working team.

Hmm.

The other really leap in one facility.

Our team at kit ECM operating as fast as we could.

This is a challenging circumstances.

<unk> revenue was $42 2 million shipments were 67 million and non-GAAP , earning per share was a one cent loss.

We ended the quarter with.

$533 million of cash and time deposits.

Revenue and shipments were significantly below plan.

Lockdown limited our ability to ship finished tronox plan.

Final acceptance and produce new tools.

As a as an example, we had a 30 complete the tool that could not be shipped in Q1 Q2 logistical issues, we expect to deliver all of those tools in the second quarter.

We used the factors Johns remarks, I'll be temporary and we have began to increase the level of operations.

At the end of April Shanghai comment for ACM on the list.

ACO business.

This enabled us to increase production and restore the jets tickets to our facility.

We start at close loop production timing.

Some facilities.

So no as two small one nine.

This is aware workers travel as a group between our factory and their hotel alcohol.

Dedicated box, we have started receiving incoming supplier and shipping products, we are bringing back more people to work every day.

The man.

Very strong we're in constant contact with our customers and we are committed to deliver tools to support their capacity expansion plans.

As of today, we have not see any changes to our order book.

Which remain walk through Q2 and Q3.

I need you to into Q4.

We expect solid well into the second.

All core cleaning products.

Speaking, even in the ranking of the ECB tool and increased human and Paul.

One of those products.

The knee obstacles to achieve our plan or the pace of reopening of the city of Shanghai and in turn our ability to scale production.

We aren't able to poverty offset the lockdown, but heavy on Shanghai, R&D and imagine people working from home.

Our team has a focus on extending our current portfolio and introducing two new platforms. Later this year.

Please keep in mind that our R&D center and their production facility in South Korea.

Affected by the Shanghai in Lockdown.

And on a 15 with a recovery.

Meanwhile, our global sales team in the rest of Asia, and U S and in Europe .

Louie potential new customer in those regions.

We are committed to gaining additional share of the <unk>.

8 billion market addressed by our current products.

We're on track to double our addressable market opportunity by year end with inspection and initial shipments of two new product category.

Q1.

R&D expense increased significantly due to the increased manpower and it was also elevated weather quarter due to the cost of building development tools.

We are committed to.

Rusty in new product.

Do we expect R&D spend to moderate.

Run rate level in Q2 and beyond.

I will now highlight new product development and the recent announcements.

UCB product cycle remaining strong.

Q1 revenue E Z P firms and other.

Other product was at $12 2 million or 29% of the sale, we shipped a 20 tools in 2021.

And so.

So you could even a cool so tucson coming in second.

We're gaining market share with our proprietary <unk> technologies in China market.

Both the front end with the our E C. P M E T.

In the advanced packaging.

C P AP products.

Long term our goal is to achieve a 50% market share of the China, <unk> market and a 25% share of the global <unk> market.

Today, we announced new volume purchasing contract.

For 10, Ultra ECP AP high speed, the peaking tools for our leading China based <unk> customer.

AP was previously quantifying while multiple China base Oleksander customers' full on amongst companies ERP application.

We expect to deliver some of those tools in the later two southern plenty of segment.

And the majority in 2023.

Also on February 17th we announced order well tell me what you said it was those orders were split between 13, Ultra ECP map and H O G City, a D copper plating systems.

On April 21, we announced that our 18 chamber so any millimeter Oh, what you will see six single wafer tool was qualified for mass production by a mainstream memory chip manufacturer in China.

This tool provides 50% more throughput there.

Slide number two.

But with a Seton medical center.

Any other important tool to support the high volume production line and are one of our key memory customers. We expect to have 18 chamber cleaning platform to play a important role with this customer and others for three D NAND, DRAM and advanced logic or production.

On February 13, we also announced volume purchasing order or 29, I'll just C. WB, what webpage tools for 300 millimeter wave applications from several China based customers why is this.

Semi critical tools, we believe our newly developed low pressure Joy technology allows us to gain workbench market share. So a majority of our major international competitors and it gave us a strong advantage over <unk>.

More local competition.

Sure.

I will now provide updates on our major customer image Atms.

First for a major U S customer our U S service team is tougher.

<unk> is engaged in daily dispatches to propel the deliver of the tool will out youll see SaaS pine saw timber Canadian tool.

Malaysian tool is in final assembly and we remain on track to deliver it later this quarter.

The production tool is assumed to quote we believe a successful evaluation could lead to.

Roger the opportunity with this and other major customer in the region.

Second with a global IBM with a China based packaging facility with deliberate first out Youll see peer web stripping system in Q4 2021.

Second the tool in Q1.

We have also received orders for two additional system to be delivered in Q3.

Well hopefully not.

That success with our first product.

And lead to broader adoption of others A&P tools <unk>.

Could easily be a D and this important customer.

Sure.

A major global semiconductor manufacturer with the China Fab the order onshore seats.

So our chamber cleaning tool to evaluate in the China facility and we are on track to leave the tool in Q2.

Finally, we see the older Ultra ECP map copper plating tool for regional Asia based semiconductor manufacturer. This tool was delivered in Q1 and that the customer has began the evaluation with our service and process Pete.

We are confident that the successful qualification of this opportunity can result in larger deal opportunities and we continue.

To build our sales pipeline with other top tier players.

We continue to move forward with our inbound construction and plan to complete the first production beauty in the beginning of 2023 with a protection.

Commerce in the middle of the year.

We are also plenty R&D centers and Wuxi in Beijing, the saltwater server key maintenance China customer.

We are considering.

A more meaningful investment in South Korea, we currently have more than 100 army engineer and supporting staffers.

Two leased.

<unk> facility.

In addition, we're actively evaluate land in South Korea, and build our own facility and to further establish a local printer near two additional major player and to provide customer with a secondary production center to ensure robust supply chain and.

Production continuity.

Now, let me discuss our app.

Look since we have access to their wireless and we are increasing our production and logistics activities, we feel that the worst impact of the lockdown could be behind us. While there is some uncertainty on the pace of the CD of Shanghai reopening.

Our order book remains intact.

We believe we can make.

Make up lost ground for the full year, starting with the second quarter.

As such we are maintaining our full year guidance.

<unk> revenue in a range of 365 to four 5 million.

Other factors are looking assuming a timely return to scare of ACM production.

And she began operation in Shanghai.

Absence.

Our expected interruption of our supply chain and continued demand by our customers.

Before I turn the call over to Mark I want to update you on our auditors situations.

As we have previously discussed in early months, we are in cool.

The list of our Noncompliant company.

Due to our use of China based auditing firm for 2021.

As indicated in our prior.

Press release, when we begin to interview potential U S auditors and it would allow us to complying with a P. C O b infections.

Though the current SEC guidance allow us until the 2023 fiscal year two transition we are in advanced stage of what you're evaluating potential auditors and we are can meet to engage <unk> compliant on either firm for 2022 physical <unk>.

Year.

Now, let me turn the call over the Mark.

Ill reveal detail.

Our first quarter results Mark.

Thank you David and good day, everyone. Please turn to slide five before I begin keep in mind that unless I note, otherwise I will refer to non-GAAP financial measures, which excludes stock based compensation.

The unrealized loss and trading securities a <unk>.

Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release.

As David noted our Q1 results were impacted by the Lockdown in Shanghai.

With revenue and shipments below plan and we have 13 completions tools that could not be shipped in Q1 due to logistical issues to be clear. These tools were included both repeat shipments and first tool shipments.

As a review of our results keep in mind that we believe year over year comparisons are less meaningful due to the circumstances created by the lockdown.

Revenue for the first quarter of 2022 was $42 2 million down three 5% revenue for single wafer cleaning tools, which includes staffs T. Both tahoe and semi critical cleaning just $26 million down 19, 7%.

Meaning was 62% of sales in Q1 2022 versus 74%.

Revenues for ECP furnace and other technologies was $12 2 million up 127%. This category represented about 29% of sales reflecting growth in our new product group.

Revenue for advanced packaging, excluding ACP services, and spares was $3 9 million down 42, 3%. This category was about 9% of sales total shipments for the quarter was $67 million versus $74 million in the first quarter of 2021.

Gross margin was 46, 9%.

41, 4% this was higher than our normal expected range of 40% to 45%, reflecting a favorable product mix. We expect gross margin to continue to vary on a quarterly basis due to a variety of factors, including product mix and manufacturing utilization.

Operating expenses were $27 7 million versus $13 5 million.

The majority of the year on year increase was from R&D with modest growth in sales and marketing and G&A expenses. David noted Q1, R&D expense significantly due to more fire power.

And also in the first quarter was particularly elevated due to the process of building development tools for the FERC for the full year, we now expect about 16% R&D and tech intensity at the midpoint of our outlook range.

Operating loss was $7 9 million versus operating income of $4 7 million in the year ago period unrealized loss on trading securities of $3 9 million in the first quarter of 2022 versus an unrealized loss of $1 million a year ago quarter. This noncash item excluded from our non-GAAP results income tax benefit was.

$4 million versus the benefit of $2 $8 million in the year ago period as described in our earnings release change in the U S. Internal revenue code section 174 that went into effect on January one 2022 has potential increase.

Effective tax rate for the full year.

Still evaluating impact 2022 tax provision and we note that Congress is considering legislation to deferred capitalization requirements to later years.

Net loss attributable to ACM research was $6 million versus net income of $7 7 million in the year ago period.

Net loss per diluted share was <unk> <unk>.

Compared to net income per diluted share of <unk> 12 in Q1 of 2021.

I'll now review selective balance sheet items cash cash equivalents and time deposits $533 million.

$63 million at the end of the fourth quarter 2021, total inventory was $271 5 million at quarter end up from $218 1 million at the end of last quarter.

This included finished good inventory of $106 6 million work in process of $56 8 million and raw material of $108 2 million. These items were above normal levels at quarter end due to the impact of lockdown or the <unk> tools that we could not ship in the first quarter reflected both in finished goods inventory and.

Working process inventory.

In closing as David noted, we believe the effects of the Shanghai Lockdown will be temporary and we are making steady progress for gradual return to scale production demand for our tools remains solid and we have several strong product cycles ahead, and we will continue our investments in new products, new customers and capacity as we look through their lockdown and.

Drive forward with our mission to become a major player on the global semiconductor industry.

Now, let's open the call for any questions that you may have operator. Please go ahead.

Thank you to ask a question you will need to press star one on your telephone towards draw. Your question. Please press the pound key please standby, while we compile the Q&A roster.

And again Thats star one to ask a question.

Our first question comes from <unk> Desilva with Roth Capital. Your line is open hi.

David Hi, Mark.

So a couple of questions first of all on the whitelist activity that called you a central business. How soon does that imply you can get back up to full production full shipment.

Great. That's a good question.

Actually as I mentioned, we already have or two point wireline and closed loop production.

And we're adding the people.

To our facility.

So well.

Well my current pace, we calculate Brian probably take a few week.

Graduate editor.

Hopefully you don't really by end of this month, we can have or other.

Employee.

Walker and start getting to there.

Our China factory.

In the Meanwhile, also we're studying spend people into our <unk> office, which is what design.

Engineers right.

Hopefully also gather are.

<unk> Walker Engineering Engineering design engineer back on Sunday August two.

Okay.

That's encouraging to hear and then.

David perhaps or Mark the ECP furnace category has grown here it's.

29% of revenue, which you know what are the sub segments. There that are showing the most growth visit across the board and what what how does that mix look like it's going to look a year out I know the single wafer cleaning is also growing very well. So curious if that is going to grow in the mix a year or two out.

Yes, I think there, but this year because this is a carbo brady and owners where growth rate and no major issues do come from there.

Brady as you will see last year of a turnkey tool the ship for a couple of good design and establish for the firms. So this year I would say revenue wise, obviously couple of taking on more than firms and Meanwhile, Steve I'll say, all our convenient tool steel demand very strong as we you could see that.

However, a single wafer <unk> and also ever launched eight new deals there.

That will actually.

Also later this year, we'll probably get into or.

Supercritical Cotwo.

The Canadian tool in market right and then Meanwhile, also avid as a big order for the <unk>.

<unk> bench and we're just grabbing announced order too. So also by the way as I mentioned, although bench, that's key technology for low pressure join.

And we'd give out of the last two year.

Define as we'll become.

The driving.

Factor will also gain the market share from competitors. So also leading other small combating China. So we're still maintained very strong leading position in China Canadian market.

Okay. That's great and then lastly on the tools. The 13 that you were unable to ship I'm curious what proportion of those roughly as is the first tool because I imagine those maybe take a little longer to get in place versus the repeat tools as you've kind of recover the shipment process here.

Yeah, I mean this.

<unk> two is mixing our you know our cleaning.

Dominion tool a batch to uncover banking and also advanced package weight and the obviously the 13 tool can shaping.

Right and.

Some of them actually have some ships already so all of the 13 tool can be.

About probably by middle of May where all shipping and.

Logistics.

Okay. One last question, if I could sneak in and have your customers capacity expansion plans also been impacted.

I imagine they have and then if so are those getting back on track because obviously, that's the that's the field via demand to kind of re we achieve your accounts 22 number so what's going on with the customers' capacity expansions and their ability to kind of installed tools.

Well almost keeping weekly dialog with the customer right and there are some dual suppose shipping in April timeline, we couldn't do that and some of which are really quick the issuers. Throughout now also there also you know I tried to push it off for April and May and June different tool. So are our engineers are working very hard.

I think here.

Tried to.

The manufacture of scale and hopefully we can get into Q2 and based on obviously Q2 will be better than Q1, obviously.

Okay. Thanks, so much for taking all the questions. Thanks.

Thank you. Thank you our next question comes from.

Quinn Bolton with Needham <unk> Company. Your line is open.

Hey, Jason since demand and bookings remain strong I just wanted to focus more on the production on the Lockdown effect first David just wanted to clarify your response to the Shanghai facility getting back up and running at full capacity did you say.

In response to <unk> question that you would be back up and effectively back to full capacity by the end of May.

Yes, I think that's a.

The plan, we're gradually put the people in there.

I'm actually and Thats our goal right hopefully we can go earlier, but that's probably realistically a plan and we're gradually got you know 3%. The event you don't get to 90% right now.

There.

Our goal.

Obviously, all goes by and risk models, what we tried to comprehend your percent.

Got it and then sort of it yes.

Go ahead Craig.

Just to kind of clarify one thing because.

What David mentioned is all of our employees back to the facility is our target by the end of the month.

Logistics will still have to catch up to get our supply chain and then some.

Details worked out so.

Gradually get our overall output.

The full capacity.

Okay good year.

Of our staffing.

We're targeting that by the end of this month.

Got it.

Sort of a related question.

Next Mark was obviously you haven't shared the quarterly progression of your annual plan, but through the Lockdowns.

Yes release that Youre going to come in well below your internal plan as you sit here today.

Are you going to be below the internal plan at the beginning of the year in the second quarter, and then expect to catch up in Q3 and Q4, such that it's a much much heavier back end.

Loaded year or do you think the second quarter can be back in line with the original operating plan.

Let me add something right in there.

I mean, what's happening is obviously.

I am order those pods in the from the oversea supplier and also supplier.

China.

Closing with Shanghai, and most of all of us.

Our machine shop foundry, Shanghai, they're not they're shut down at me. So those parts have been machine has been fabricated already obvious key is try to deliver that.

Where do you guys.

<unk> production, so we have a similar special permission.

Or just.

The car or they're a chalk collodi.

<unk> and <unk>.

To our factory now right so.

And that Saturdays.

Appeals deal on there and the demand is still strong and our lung alone leaving items on a line of both some of them waiting for clear the customer.

Port of Shanghai, but Thats, why I shouldn't say, probably maybe on Q2.

Still got it has an impact however.

Pumps those the other thing what we eventually see with no no delay right and then we're trying to catch up in the Q3 Q4, that's why we put this years are.

Our revenue and also including shipments probably in students.

Our plan of course I have to do a lot of good work and to manage it well in al Walker sufficiency and it will probably run more than two ships and considers reshape right. That's all we could consider to catch the demand and also meet our requirement update every time and for our customers.

Got it. Thank you for that David and then just lastly on the new the two new platforms.

Since the R&D folks had to work from home have there been any delays in the intended launch dates of those two new platforms or do you still expect to introduce one in the first half and one in the second half of 'twenty two.

Yes, I think that's still I shall lastly, Pac and then the reason I see the idea that to our platform partially designed by our Caribbean team and positive designed by our Shanghai team right. So obviously the current team has no impact right. There. They walk you still pretty normal and the Shanghai team walking.

At home and they're still they are working very diligently right now so we're not seeing much impact.

Well there are secondly, second half year to live with or early first and then later.

Alright, and Thats our plan.

You know, what we're going to make it.

Excellent. Thank you David Thank you Mark.

Thanks Julien.

Our next question comes from Charlie Chan with Morgan Stanley . Your line is open.

Hi, David Hi, Mark Hey, how are you.

Yeah, I know, it's a tough.

Or for you, but the.

It seems like a full year and he's still fine.

My question is about.

First of all would have.

Because the other big foundry like TSMC and UMC.

They mentioned at all some bottleneck of global equipment.

So even you you still have the purchase order of that.

My concern is that Oh, given those to other equipment bottleneck.

Are you a China customer okay can re.

P O dose a put option lie on Pi.

Because even for.

TSMC that you can then delayed like three to six months.

USD.

New fab seems to have problems to come take downtime.

I wanted to get.

You thought it would or that it's going to impact your future older. Thank you.

Yeah. Good question, Ryan and it's awful hard to comment you know what there are customers are progressing on time on up and but I'd say at this moment all customer in China is real one other day live on time, right, where they want to go.

But we cannot do it at this moment.

I see customers pursue their full speed and to do there.

Production line insulation.

And the small.

And so our job assuming you know there are other parts other importing equipment.

International bigger guy and the bandwidth.

So Paul.

It tends to anybody delays that pushed you a you know I mean, plus wallner deliver and would not have any customer in China.

And told US postpone their school to the delay I mean did you have an interest rate that's as bad as right now.

Okay got you and then another thing it's more about the company.

<unk> landscape.

So with that there isn't it.

A few competitor way.

Boy cleaning category called the power IC and site management come from.

Lam research.

So I'm not sure.

Outerwear of Pizza competition.

And.

What what would that change your long term market share targets, especially in China. Thank you.

Yeah, Okay, you mean, the China market right. That's your question.

Okay.

Yes, I am sorry, I am talking about a.

New competitor called the <unk> power.

And you can say they want to make it in euros to the.

Quickly any markets.

Ah another company for my model.

Okay.

Yeah.

Okay well.

I mean.

There.

I'm proud of the international Big three will have also a local player coming.

This more than I think your word come any competitor right. This is a we start beginning in a single wafer fab tool.

First P O from Korean market.

International be Guy also Korean local guy competing.

So I think we're okay with all competition right our goal.

China is a very clear with our technology is superior G single or the bench and a SaaS Ebola novel molecules under critical product and with Avenue, leading position in this market.

I think are again right in there.

I'll go past, 50% of the market.

Restaurant.

<unk> <unk>.

Three international player and also there are new.

Well I mean coal company in China, and that's OK and there we were we like competition and as long as you know the competing product right and so we're okay I think are pretty.

Competence and also a very strong relationship and the customer like untrue I call innovation.

Also they like us wherever their future solution right and not just also could even find out who don't haven't come up with e-commerce and assume that come with two new platform.

Second half of this year, so we're really multi product platform company.

We feel very comfortable about there are a bunch of growth right.

Okay. Okay got it just wanted to make sure you are aware of our new competition.

And if you ask them.

Maybe a quick.

Yeah, maybe that's a question Mark right. So I know you.

<unk> full year revenue targets.

The CFO perspective.

You.

Kind of a rolling through the full year project for the bottom line.

Absolutely stocked out do you see kind of any downside to your original budget for our bottom line for 2022.

I just want to make sure what are the following quarter can fully make up.

Is lost.

Can you first quarter. Thank you.

Yes, So hey, Charlie so.

On the bottom line, but we certainly talk about the top line of $3 65 to 405 or maintaining that outlook. So.

We would anticipate that.

You run through your <unk> operating model for the year.

And it would probably be not that changed from from from what we anticipated.

Before the Lockdown just looked at the <unk>.

Revenue shifted to the back half of the year.

We are evaluating are there going to be additional costs associated with the lockdown I mean at this point.

There may be some but we don't.

Really think theyre going to be that material.

The value of it.

Through the year.

Okay, Yeah, I just wanted to make sure. It is therefore fully temporary.

That's why I ask thank you.

Thanks for your useful.

Yes, Thanks Charles.

Thank you and our next question comes from Mark Miller with the Benchmark Company. Your line is open.

Thank you for the questions.

They're paying tolls I could not be shipped in quarter. One kidney can you estimate approximately what revenue this represented.

David do you want to take that first.

Please.

Yes.

Hey, Mark Chris Oh, Yeah, I can hit that.

David talked a lot about the spotlights spot Lockdowns that started in mid March and then the <unk>.

That product so called five day, Lockdown, which started at the end of March.

And of course, we didn't completely shut down.

On the 30th tools, we're not really going to quantify the exact specifics.

But.

It's five.

<unk> cleaning tools, a couple of ECP tools.

As a remainder where advanced packaging. So we did mention that those tools are reflected both in finished goods inventory and working process on the balance sheet.

You also had some impact from.

Acceptances and qualifications that were delayed.

And of course, some slowing of production I'd.

I'd also point out.

This is typically our seasonally weak quarter right because of the Chinese new year.

And so a lot of the business would fall in the last month of the quarter.

With me are quarters, you'd be would be more linear.

So.

And and.

The overall miss relative to our plan.

It doesn't take a lot of tools given the asps is really to move back so.

I don't know if David do you want to add any more to that.

Yeah.

Yeah, I think pretty well.

Yeah.

Yes, that's a pretty good.

Okay. Thanks Mark.

Correcting these tools to ship by the middle of May.

Yes, I think well start shipping some of them already right and they were bounded completing all Shimon I amenable to me.

Yeah, that's our plan.

Youre interviewing auditors when do you think that process is going to be complete and you'll have an order that are selected.

Okay.

Yeah, Mark Mark on that threat.

We remain committed to the NASDAQ confidence.

We've been evaluating auditors for the past several quarters.

As David mentioned, we are in advance stages of selection.

And we're working hard to a 0.1 for 2022, which would be a year in advance of the mandate.

Not going to give a lot more detail on that I mean, when you have something to announce.

Certainly do so.

Thank you.

Thank you as a reminder, Thats star one to ask a question. Our next question comes from Cherilyn Chen with Credit Suisse. Your line is open.

Hey, Debbie and Mark Thank you Julien.

Very quick question about the R&D expense.

Did you mention earlier it will be around 16%.

Yeah, and actually our goal right obviously, the holding this year, our trade spending anywhere between probably 15, 16% range.

And obviously the higher you know a couple of points higher than last year.

The reason for that is that will increase the more R&D and for there.

Existing product line expansion and also are you know this phone us and including influence EOD and plus we do have are two new platforms nine of their new product or adding on there.

Engineering of the men, Poland and also building the development tool capacity on the stock so and offer titanfall is all the stuff. So that's why we're.

Plenty increased our viewpoint and to R&D for this year's budget.

And Mike anything you want to add on that.

Yes, I wouldn't add a lot.

I mean, our our overall operating spending I mean, there's always a mix between sales marketing.

And R&D right.

We're clearly investing in our new product opportunities and there was some elevated cost in Q1 because of the year.

<unk> tools.

Yes.

Okay.

Our next question is on the competition front and just by the way.

The local company toward that Charlie makes you already issued the IDT energy I think why Investor call last I know, that's a teacher to different brokers right now.

My question is a follow up.

The ultra ECP side because.

It looks that drug companies I'll try it used to be scheduled.

All of those.

I'll focus on the announcement in February .

C and D. So.

Local competitors in China for our ultra ECP tool.

Another question for Ultra ECP aside I remember back in February you also mentioned that one of the ECP two orders from our top tier Chinese foundry.

Top tier Chinese foundry also O E C pizza.

Petrodelta application. Thank you.

Yeah, I'm going to become a company of course, right and a couple of <unk>.

In reality when you would take all the right and you look at the real competitor in the war right.

Few companies can do that.

The reason is really difficult do you have there.

Number one number two also have also IP.

I called the very right in front of people getting into the business.

So I think ACM Islam.

Company Holdings in tire.

Cold or IP for the couple of trading technology, both in there.

The application also you know the most packaging too.

So regarding the local comparator.

I think it's still they have to pick a time right I mean number one they've got to create a new level, we'll make sure. Another step on other include ACL either be guys number one number two you have to really overcome a few key technologies you Barry. So this moment we're pretty.

Confidence.

All of our technology.

And also wherever you know real penetrated very fast with a Chinese local accustomed right either damages application or packaging tool to so with that in the end there, but we're very strong competence right and it wasn't where now they tried to only capture their local.

Chinese market and also with all partial plating technology and was a high speed the Cabo crazy for the AP.

I think we're also.

Aimed to the international market and a long term wrong, we won't save 50%, China and 25% of global market and that's our goal. So I'll answer the second question, yes, and all major copper.

Here.

No customer in China in all have all played into it right.

SMIC One example.

And also one PC and also six empty.

All have a couple of things right and but we're also.

Together, our applications in the second tier and third tier of the foundry in China.

Of course.

Once we announce.

We are just received.

Very volume purchase order from one center.

The most kind of as a company in China.

As can be 10 tend to order real confidence to show their confidence and to our technology and also with our performance.

Okay.

Yeah.

Thank you that's very clear.

Debbie I want to <unk>.

Sorry can you share a bit more.

Production capacity in Korea, and Taiwan.

The tools and the ramp up schedule for next year.

And part of that revenue guidance for this year how.

How much upside.

Okay.

Our core opposite okay. Thank you.

Okay. Good question and there yeah.

As I mentioned, we do have a two facility rate and which is R&D manufacture.

In Korea and the <unk>.

Study, making our for example, the bench partial debenture tool right and also.

<unk> of their fund is tool right and also some of them made they're always looking to China have come in Asia.

As time goes along and also where say we want always expanding manufacture in the career and by well consider buying the land and building longer bigger space to take care of our manufacturing R&D.

Korea right because.

We won the building R&D manufacture center close to there.

Alright, and Thats when we told them many times and this is really a bigger movement and also we believe will have a two man if I extend that when Shanghai. One is career really maker at robust supply chain and also keeping corner continuity of the production is really what the benefit.

And to our customer both inside China also global customer.

So that's what we'll keep delete and we're not stopping the career as we do the more business in Taiwan AUM.

U S and we will also beauty unscented Josephine G, including Europe .

As I said, the semi casaba its international business and we want to put.

Our best on the engineer close to the customer and therefore, they can better service supporting the customer.

Thank you David and then one last question for me.

I hate myself this question as well for.

Quick question of that investment has been asking me from Laclede accident.

Well, so I'll find bathrooms are very curious that there are also other semiconductor maker.

Baker in the Shanghai, We've got major productions in Shanghai.

It sounds a little upside there.

As most of us.

Uh huh.

Rather than in the first quarter.

Curious why.

Is there any reason.

If you have to say I mean.

Employee loss side Hall.

No just to issue all of our customer acceptance issue.

The small chew all raw material issue what is.

Batch for our.

Weak revenue performance in the first quarter.

Yeah and.

I know what you mean here obviously in a different company.

When it come and what they are what they are accustomed to combination quarterly quarter difference.

Somehow this quarter, we got a combination I'd say either theirs, okay, you're talking about Chinese.

Romney, Rick lesion rate and charter at an issue really for us.

You ship the tool and to the customer side, Okay, and that's something you recognize audio symbol right by U S recognition upon shipment.

So the question here is the yes, where we are I mean this is a recognition rule by the U S rule is impacting a lot because you can kind of shift would be the order to revenue kind of recognized right. So that's the way I can see that all actually our China revenue was higher than U S revenue potentially right.

I see that is still not a sudden despite where the China ran deals why and we also have some customer delay there for that.

My Oh.

Corporate facility to build up so we ship off almost 10 tool in their facility, but they came out of their in store online right. So anyway, it's really.

This one quarter and raise strategy.

All combinations together like Chinese new year, and some delays in installation and also as I said this is a shut down altogether.

Anyway, I mean, it's the linked quarter right I mean, I don't seem to make a major impact to our long term business.

We would probably be helpful. About this our future preparation for this kind of shut down and now we start stop after that would cause us to spot wireline will continue for a while until those all paradigm. The company go away. So we're real propel from now on we'll make sure the recycling happening again it was the <unk>.

Maintain healthy production and the hotel and the fact.

Factory with a batting the bus and moving closer to production right. That's our goal and it will probably go through order through this year and even since you've got a better mix.

Make sure we got robust and production system and not impacted by this COVID-19 spread out.

Alright.

And you can point al Walkers My view.

Of course expecting they didn't come back again like I'm again, you're a supply chain issue.

So so far so good we hoping everything got better from Miller.

Okay I understand thank you Debbie.

Thank you. Thank you.

And to ask a question Thats Star one.

And at this time I'm showing no further questions I'd like to hand, the conference over to Mr. Wang for any closing comments.

Okay.

Again, there is there I think.

Thank you for everyone.

For Philippe the our conference call and there were reports you next earnings. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference you May now disconnect everyone have a wonderful day.

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