ACM Research - Earnings Call - Q1 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to ACM Research First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. I'd like to hand the conference over to your first speaker today, Mr. Gary Dvorchak. Thank you. Please go ahead.

Speaker 2

Good morning, everyone. Thank you for joining us on today's call to discuss ACM Research First Quarter 2020 results. We released results after the U.S. market closed last night. The release is available on our website as well as through newswire services. There is also a supplemental slide deck posted to the investor portion of the website that we will reference during our prepared remarks. On the call with me today are CEO, Dr. David Wang, our CFO, Mark McKechnie, and Lisa Fang, the CFO of our operating subsidiary, ACM Shanghai. Before we continue, 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. These forward-looking statements represent ACM's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially.

Those risks are described under the risk factors and elsewhere in ACM's filings with the Securities and Exchange Commission. Please do not place any reliance on these forward-looking statements, which reflect ACM's opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certainly, the financial results that we will provide in this call will be on a non-GAAP basis, which excludes stock-based compensation. You should refer to our press release for our GAAP results and reconciliations between GAAP and non-GAAP amounts. With that, let me now turn the call over to David Wang, who will begin with slide three. David?

Speaker 1

Thanks, Gary. Welcome, everyone, to today's call. I hope that each of you and your families are staying safe and healthy in light of the COVID situation. Our hearts go out to those who have been personally impacted by the pandemic. I also want to thank all the healthcare workers around the world who are fighting the virus on the front line and saving lives. To support the effort, in February, we donated 30,000 masks and 300 full-cover hazardous suits to Wuhan. More recently, we donated 10,000 masks to New York and California. Despite the virus impact, we had a busy and productive first quarter. Our first priority was the safety of our employees. After that, we focused on making progress in our goals for the year. We achieved customer acceptance for demo tours, introduced new products, and delivered solid financial results.

We are moving forward with key strategic actions that support our mission to become a major supplier of capital equipment to the semiconductor industry. Now, some highlights for the quarter on slide three. We are pleased with our financial results. We delivered $24.3 million in sales, up 19% year-on-year. Shipments were $12 million. We delivered double-digit revenue growth, even though some shipments delayed from Q1 into Q2. Spending was up as expected. We invested in focused R&D to support new product introduction. We increased sales and marketing to penetrate new customers. We had a higher G&A to prepare for our stock market IPO. We ended the quarter with a solid balance sheet, with $52 million of cash and another $59 million in receipt cash from last year's private equity rounds. Please turn to slide four. During the quarter, we achieved a major milestone with our Tahoe product.

On last quarter's call, we reported positive results for Tahoe in a production environment at our lead customer. I'm now excited to report that Tahoe achieved first-to-acceptance at that customer, resulting in revenue recognition in Q1. This represents a great achievement for ACM and for the industry. Tahoe is a unique platform compared to other single-wafer SPM cleaning tools. Tahoe offers the same or even better performance while using only a fraction of the sulfuric acid. Sulfuric acid is an environmental problem for the entire industry. Our tool is a one-of-a-kind solution that delivers good performance, benefits the environment, and reduces operational costs with significantly less chemical use. Even more exciting, today we report that we received repeat orders for Tahoe from this lead customer. We plan to deliver tool for revenue in the coming quarters.

The environmental advantages of Tahoe put us in a great position to engage with new potential customers in Taiwan, North America, and Europe. We expect more momentum from Tahoe, including orders for additional demo tools as the year progresses. Our customers are happy with our current products and are pushing us to provide more tools for cleaning and for other manufacturer staffers. In response to this demand, I have a few exciting new products to share with you today. Please turn to slide five. Yesterday, we introduced the latest addition to ACM cleaning product line, three new semi-critical wet cleaning tools for front and backside wafer process. The new tools are first, the Ultra 3D for the backside cleaning. Next, Ultra 3WD for automated wet bench. And the third, Ultra 3F for scrubber. These new tools expanded our opportunity to even more cleaning staff at our major customers.

We estimate they added approximately $800 million to ACM's total available market opportunity. While these are semi-critical cleaning steps, these tools feature the same high quality that our customers expected from us. We are off to a great start with these tools. We have already delivered a number of these tools as demo tools to current customers, with some already recognized for revenue and some still in qualification. Next, turn to slide six for another major announcement, the Ultra Furnace. This broad platform is our entry into dry processing application. This opens another large market for ACM beyond wet processing. In our view, innovation in the vertical furnace technology is still required for industry to progress to more advanced manufacturing nodes. That is why ACM entered the market. We have been hard at work for furnace for more than two years.

It is a joint development project of our world-class technology teams in China and Korea. The two teams developed a new hardware platform that combines our proven stable software and proprietary control system. The Ultra Furnace delivers reliable control of pressure, depth, and temperature. The Ultra Furnace is optimized to deliver high-performance batch processing of up to 112-inch wafers. It initially supports low-pressure chemical vapor deposition process, or called LPCVD. With additional development work, the furnace tool can be expanded to address oxidation, annealing process, and future atomic layer deposition process. We delivered our first Ultra Furnace demo tool to a key customer in the first quarter and expect the qualification by the end of this year. Please turn to slide seven. This represents ACM's view of the market opportunity addressed by its full product line.

You are all familiar with our core single-wafer wet cleaning product: SPMs, Tahoe, and TEBO. We estimate this product represents a $1.5 billion market opportunity for ACM. We estimate our four recent announced products: the ECP, the SFP stress-free polishing, and semi-critical cleaning, and the vertical furnace products, extending our reach by another approximately $3.5 billion, taking us to up to $5 billion in total market opportunity. ACM commits to gaining market share through innovation and new products. We have a multi-year product roadmap, and we are committed to further developing our technology across current and new product lines to address technical challenges faced by our customers and more advanced nodes in the future. Turn to slide eight. We are confident in the opportunity to expand beyond our current base of five major customers. We believe every major semiconductor manufacturer can benefit from our technologies.

We began to broaden our sales team last year with the addition of a new sales manager in the U.S. and Singapore. In early April, we announced the appointment of Jim Strauss as the Vice President of Sales for North America. Jim brings to ACM nearly 30 years of sales and business development experience in semiconductor capital equipment. He has a track record of success selling into top five global IC manufacturers. We are excited to have Jim on board. He will lead our effort to expand adoption of our core technology at major IC manufacturers in North America. Now, an update on two major strategic efforts for 2020. Please turn to slide nine. First, our land agreement. In December, we announced a framework agreement to acquire land right in the Lingang region of Shanghai, 30 miles from ACM headquarters, Shanghai.

This will be the future site of a fully owned R&D and production facility. Negotiations are in the final stage. We expect to reach agreement very soon. If our agreement is reached, we would expect to start the construction later this year, which is going to begin initial production in later 2022. Second, we are making steady progress on the Shanghai stock market listing. We are on track to submit ACM Shanghai's IPO application in mid-2020. We are hopeful for a timely review by the Shanghai Stock Exchange (SSE) and registration by the China Securities Regulatory Commission (CSRC). If all goes well, we will be pricing the transaction by end of the year. We are confident the stock IPO will raise ACM's profile in Asia and improve ACM's standing with the local customers and the supply chain.

The stock market IPO would also inject sizable capital into our China and global operations at what we believe will be favorable valuation. This will help take ACM to the next level, enable us to accelerate our long-term business plan at a critical stage in our development. Before I turn over to Mark, I would like to update you on the COVID-19 situation and discuss our 2020 outlook. I'm happy to report that all of our staff are back to work at both of the Shanghai facilities, as shown on slide 10, and at our Korean R&D center. The Shanghai region has stabilized further since our last call, with no new local COVID-19 cases. All our production lines have returned to 100% stocking. We are working closely with our supply chain to ensure timely deliveries.

Most importantly, we are working hard to expand our capacity to handle additional loading for the rest of the year. Since outbreak, we have been in constant contact with our customers, in particular YMTC. YMTC is the first factory and is the center of operation in Wuhan. They are fully committed to scaling production. We are happy to report that Wuhan has officially opened, and we are on track for delivery to YMTC in the second quarter and beyond. Our other customers in last effect city have also returned to work in an ordinary fashion. Operations appear to have returned to normal. Please now turn to slide 11. As we look ahead, we remain optimistic. Let me share our current outlook, which is unchanged from last quarter. Human revenue achievements expected were impacted by the COVID-19 pandemic, while part of our business shifted from Q1 to Q2.

Our internal forecast for repeat orders and first tour remained largely unchanged for the full year. Our visibility is supported by firm orders, customer forecasts, and tour awaiting acceptance. Accordingly, we reaffirm our full-year 2020 outlook. We expect revenue to be in the range of $130 million-$150 million. This represents 30% annual growth at the middle point. Our outlook is based on a couple of key assumptions. First, COVID-19 situation further improved in China and stabilized in the rest of the world. Second, the low end of revenue range, assuming muted DRAM recovery and limited revenue contribution from new customers. To conclude, I would like to thank our customers, partners, and shareholders for their continued support and confidence in ACM Research. I also want to thank our employees for their hard work and dedication during this challenging time. We are executing on our strategy.

We are investing in R&D to enhance current products and to develop new products. We are building our global sales and marketing resources to penetrate new customers in new regions. We are scaling production capacity to support our long-term growth plan. I will now turn the call over to Mark, who will discuss financial results in more detail. Thank you, David, and good day to everyone. We're off to a solid start here in 2020. Unless I note otherwise, I will refer to non-GAAP financial measures. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release. Turn to slide 12 for the first quarter. Revenue was $24.3 million, up 19%. Q1 revenue and shipments were impacted by the COVID-19-related shutdowns. Revenue growth was driven by an increase in front-end equipment, partly offset by a decrease in back-end assembly and packaging equipment.

Total shipments were $12 million versus $14 million in the year-ago quarter and $25 million in the fourth quarter of 2019. Total shipments included deliveries for revenue in the quarter and deliveries of systems awaiting customer acceptance for potential revenue in future quarters. We expect shipments to rebound in Q2 and Q3. Gross margin was 42.2% versus 43.2% in the prior year period. Gross margin was within our long-term target of 40%-45%. Gross margin varies on a quarterly basis due to a variety of factors such as sales volume and product mix. Operating expenses were $8.4 million, up 43%. The increase in operating expenses was related to higher R&D on new products, sales-related activities, preparation for the China Star Market IPO, and COVID-19-related spending to ensure the safety of our operation. Operating income was $1.9 million versus $3 million in the year-ago period.

Operating margin was 7.8% versus 14.6%. Net interest income was $0.2 million versus the net expense of $0.1 million in the year-ago period, due primarily to increased interest income earned on larger cash and restricted cash balances. Net income attributable to ACM Research was $2.4 million versus $2.6 million last year. This included a net benefit of $0.6 million in Q1 of 2020 versus the net expense of $0.1 million in Q1 of 2019. That factors in a normalized tax rate of 12% and removes the realized operational income or loss from foreign exchange fluctuations in each period. Net income for diluted share was 11 cents compared to 14 cents in the same period last year. This includes a net benefit of 3 cents for the tax and foreign exchange items for the quarter versus a penny expense in the same quarter last year.

Now, I'll review the balance sheet items for the end of Q1. Cash and equivalents were $52.3 million, down from $58.3 million in Q4. The decline was primarily due to a reduction of short-term borrowings offset by positive cash flow from operations and other items. Restricted cash was $58.7 million, down slightly from Q4 due to exchange rate fluctuations. Restricted cash reflects the proceeds from ACM Shanghai's private equity rounds, and it will be released when we submit our China Star Market IPO application, which is expected by the middle of the year. Short-term borrowings were $3.9 million, down from $13.8 million at the end of Q4. Total inventory was $45 million. Finished goods inventory decreased to $11.6 million from $19.3 million at the end of the last quarter and $13 million in the year-ago quarter.

The quarter-on-quarter decline reflects the net effect of first-tool shipments and customer acceptances in the period. Cash flow from operations was $3.8 million for the first quarter, and capital expenditures were $0.1 million. To conclude, we are participating in the growth of major new IC fabs. We're ramping production, and we continue to develop and deliver innovative products. We're optimistic about our opportunities in China and expansion outside of China, in spite of the disruptions caused by the COVID-19 pandemic. We remain committed to achieving our mission to become a major player in the semiconductor equipment market. Let's now open the call for questions that you may have. Operator, please go ahead. Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question, please press star one on your telephone and wait for a name to be announced.

If you wish to cancel your request, please press the pound or hash key. Your first question comes from the line of Quinn Walton from Needham & Company. Please ask your question. Hey, guys. Congratulations on the results, and great to hear that everybody's well and operations are back to 100%. David, I wanted to start with kind of the introduction of the new tools. It sounds like you've significantly expanded the product line over the last quarter or so with the semi-critical cleaning and the furnace. Can you give us some sense on just timing of revenue acceptance for those new platforms? It sounds like some of the semi-critical cleaning may have already been accepted as revenue, and I think you mentioned furnace first eval tool accepted by the end of the year. Just hoping you could share a little bit more color on the new platforms. Thanks.

Okay. Thank you, Quinn. As we say that, this quarter is a heavy quarter to announce quite a bit of product. We are giving you the first strategy guide with the Ultra Furnace. ACM has been working on the wet process tool for a long time. However, with our goal to become a major player, and this is one major step, we are getting to the dry process step. This tool, as I mentioned, has been delivered to customers. We are expecting to be qualified and recognized revenue probably by the end of this year. With the further other semi-critical cleaning tool, as I mentioned, some of them, especially backside cleaning tool, have been recognized revenue, and some of them still in their qualification. With the scrubber tool, we just shipped the first tool in Q1 of this year.

We hope this will be recognized by the end of this year. With the auto bench tool, there is some that has been recognized, but still some of them are still in the qualification process. Again, all this new tool this year, we hope will contribute some to our revenue, obviously, and some will be probably beyond this year. We also expect to continue to receive the repeat order from the customers regarding their semi-critical cleaning product. For the furnace, and probably we're thinking about either the end of this year or next year, we'll receive the repeat order or other new order from customers. Great. Thanks, David. That kind of leads to my second question, perhaps for you or for Mark. If I look at the first quarter revenue of $24 million, you had shipments of only 12.

It looks like you must have had multiple new customer tools or new platforms accepted for revenue. You mentioned the first revenue acceptance for Tahoe, so congratulations on that. Is the difference that the first acceptance on the wet bench and the backside cleaning tool, is that kind of the delta between shipments and what was recognized as revenue in the first quarter? Yeah. I can talk something maybe Mark can add on that. Actually, yes. At Q1, we have quite a more acceptance from the tool we were shipping last year. So that becomes our first tool record revenue. And then during even the shipping, the $12 million new tool, some of them will be record revenue upon shipment. Some of them still go to the customer side. So that's probably the number you can feel about this together. Hey, Mark, want to mention anything about there? Yeah.

You bet. No. So Quinn, I think you're thinking about it the right way because we did talk about revenue. We got acceptance for Tahoe and some of the new semi-critical tools. Yeah, as David said, we focused our Q1 efforts really on acceptances and new products and firming up the year outlook. Really good acceptance. Tahoe was something we're proud of. We do expect the shipments to rebound pretty substantially in Q2 and beyond. Let's remain Mark on the Tahoe repeat orders. Can you give us some sense? I know that's a pretty high ASP platform. Were these multiple units? Any sense of how large that repeat order was on Tahoe? Thanks. We're not saying much more than just a good repeat order from our lead customer.

We do expect some orders and demand for demo tools for Tahoe from both current customer base. Yep. Okay. Thanks, David. To add on that, we do have a two, I call it a deliver, and from the repeat customer this year. We will probably have additional, we are targeting two additional new tools for Tahoe for the new customer, right? That is so far we see right now. Hopefully, we can report more on their next quarter's earning call, give you more of an update on their Tahoe progress. Thank you. Great. Thanks, Quinn. Maybe Operator will go to the next question. Sure. Our next question comes from the line of Patrick Ho from CIBC. Please ask your question. Thank you very much. Congrats on the nice quarter, and lots of blessings here everyone as well.

Maybe for you, David or Mark, as it relates to COVID-19, your gross margins held up very well given the dynamics in the quarter, especially with some, I guess, evaluation tools being recognized in revenue. Can you just give specifically any, I guess, incurred costs on the gross margin line, whether it was manufacturing utilization, whether it was supply chain, procurement of parts, or even logistics, how that may have impacted gross margin, and whether that continues into the June quarter? David, do you want to start and I can finish or? Yeah. Yeah. Sure. That's good. Okay. Thanks, Patrick. I think, as we mentioned before, our gross margin is in the range of 40-45%, and that's still in the range we're talking right now.

We think the 40-45% is our next near-term for a few years, our goal, right, to reach another margin there. The reason for that is we're balancing our penetration product market and also versus profitability. I should say, I mean, after our major leading tool be accepted by the key customer or more customers, and then our margin can be increased beyond 45% in the stability. At this moment, you can see that as we get into the semi-critical cleaning tool, and there's certain some of the semi-critical cleaning tool margin is lower, but some are still good margins. As I said, as we more get revenue and go to penetrate the customer, we'll be in the range of the 40-45% is our current goal. Hey, Mark, anything you want to add on that? Yeah. No, I sure would.

Patrick, related to the COVID-related expenses, in our prepared remarks, we pointed out that we had some additional expenses in our G&A, in our G&A line. We did not call anything specific on our cost of goods sold. We did not have, there was not a major impact on cost of goods sold from the COVID spending. As David said, we are very confident in the 40-45% gross margin range. Thanks. Great. Maybe as my follow-up question, in terms of the ramp through the rest of the year, obviously, there is likely to be some central demand that is coming out of your customer base. You talked about extending your manufacturing capacity to meet that. I guess how much more incremental costs are related to that?

Will you be able to get that expanded capacity in place as fast as possible, given probably the demand that's out there? Okay. Thank you. Very good question. Actually, as we reported in last earning call, we see the Q2 is better than the Q1. It was very strong in the Q3. Actually, Q3 has more of a, I call it a recognized revenue shipment and also many new first tools. That definitely gives us a challenging and for our quickly get the people trained and also get the first facility to be production for this high volume. The next thing is, obviously, the supply chain. We are very carefully monitoring our supply chain. At this moment, we have not seen any, I call it, big delay or major concern for our supply chain right now.

However, we do want to very carefully watching those trends changing, especially this COVID, how it impacts our later delivery, right, of the components or the subunit system in the probably Q3 timeline. Again, we'll be very dedicated working, and our procurement guy will work with all partners, supply chain, and make sure those supply and delivery is on time and not impact our shipment in Q3 and Q4. Hey, Mark, anything you want to add on that? Yeah. I mean, the only thing I'd add is, given since the last call, we got through our first quarter, and things played out a lot like we had planned. We feel a bit better about the year following than we did when we reported last quarter. We worked the firm up the years. We got some key acceptances.

We are doing a lot of work with our supply chain, and so we feel confident that we'll be able to deliver product. I think if there's any major disruption by the industry, that's something we'd have to manage around and deal with. We are confident with our outlook at this point. Thanks. Maybe we'll go to Operator next question. Sure. Your next question comes from the line of Suchi DeSilva from Capital. Please ask your question. Hi, David, Mark and Lisa. Good to hear the team is doing well and safe, and congratulations on the results here. The new products you've announced, can you talk about the—if I'm sorry if I missed this—the ASP range for those products relative to the SAPS and TVO products you already have in the market? Okay. I mean, again, the different product, different, I call it, configuration.

Looking at the scrubber, it's much lower than our typical chemical cleaning tool, right? They're only running water-based. I should say the average price is under $1 million for the scrubber. The auto bench, anywhere average pricing $2.5 million. That's a range. Some is higher as a more complicated chemical combination. As a matter of the backside cleaning tool, it's reasonably okay. Anywhere between $3 million-$3.5 million, $3.5 million in terms of a chamber tool. Okay. Yeah. Hey, David, you might hear all of—hey, Suchi, sorry to cut in. That's for the new semi-critical tools. David, if you look at the portfolio of the furnace, the SFP, the ECP products, maybe David, you could say a little bit about the prices on those too. Yeah. Okay. Again, our other product in this moment was still in the market.

ECP, you do have front end, back end, right? Again, some tools still in the qualification in the range. Front end, we still talk about the $4 million. The back end is really hard to tell because they have different chamber, different combination, and lower from $2 million and higher to probably $4 million and depend on the configuration of the plating chamber. As a matter of SFP tool, so far, we only sold to the back end application. That's about roughly about $3 million range average sale price. Great. Okay. Thanks. Thanks, David and Mark. Also, just looking at the shipments, I think you talked about this a little bit, or just the linearity of the last few years. The first quarter seems to be low, and the March quarter seems to be low, and the September quarter seems to be a peak.

Can you just explain if that dynamic still applies for this year, or whether because of COVID, there's a different sort of linearity to the shipments this year? Yeah. David, do you want me to answer that? I can give a good answer there. Yeah. Actually, the first quarter, obviously, in China, there's a Lunar New Year, right, associated with that. That's typically you got a work force, go home, and start back again, even I call it normal year, right? So that's you can see typically Q1 is kind of light. Also, custom locally in China, some in Korea, same thing. They probably ask you to deliver end of last year, and then they can go Lunar New Year preparation. That's maybe the nature of the business here with the culture related. They can say normally repeat last year, same thing, Q2 is higher than Q1.

Q3, Q4 really depend on market, all the customer requirements. Like you're right, typically Q1 is a light quarter. Okay. Very helpful. Have your lead times—last question—have your lead times for the tool deliveries to customers stretched out at all with the COVID disruptions? So far, we're still okay, right? If we repeat order, we still talk about four months. Some other first tool or new tool, we maybe, I should say, four to five months. That's a typical delivery time. As I said, we so far have not seen any supply components or subsystem delay, but we're very carefully watching that delivery time, especially in the two quarters beyond. Okay. Great. Thanks, David, Mark, and congratulations on the new products you launched. Thank you, Suchi. Thanks, Suchi. Yep. Next question, Operator. Sure.

Your next question comes from the line of Christian Schwab from Craig-Hallum. Please ask your question. Thank you. Congratulations on the great start to the year and the new products. David, could you tell us on the Tahoe repeat order, was the customer excited about that? Was the customer more excited about the better performance of the tool or the environmental positive impacts? Okay. Actually, Christian, they're both, right? And first, obviously, top performance is number one, right? They're more of a concern about—I mean, they're more of an expecting performance. So we reached their equivalent performance as their single wafer SPM process in line. And so they are very hyped about data and also inline data and some obviously the process, I call it, year data. And furthermore, it's the real chemistry consumption reduction, right?

As we said before, so far we confirmed more than 80% reduction in the sulfuric acid usage. That is real. They love it, right? Because of not just cost and per tool whole year, the CO receipt saving more in the environment pressure they release from the local government. Both of the reasons, you can see that is they want us to deliver two tools this year for this first customer. They are very happy about this data and also performance. The data that they have, sometimes new customers like this would be willing to let you use that to show to new customers outside of them. Is that the case with this customer or not? I mean, customer gives us, "Give me two repeat order, deliver," right?

That's not easy if anybody spends $1 million, multimillion dollars to show the new customer, right? I mean, again, they're very happy with the performance first. Second, I want to also mention another thing is we do deliver even 90 nanoparticle data for their production line and probably not immediately required right now. However, they want to ensure this technology can extend into the future, 40 nano or even beyond manufacturing process. They did also intensive future particle performance looking. Our 90 nanoparticle data looks great. They're very happy with the data, and they're comfortable with this tool expandability to the future advanced manufacturing nodes. Perfect. My last question has to do with the recent Department of Commerce regulations. Is there any chance that any of that will impact you guys? Okay. It's a good question.

So far, we have not seen any impact for us. We sell to our customer either in domestic or in China or outside of China in Korea so far right now. Obviously, we're going to follow regulation, right? Both inside China, also we'll follow U.S. export law requirements. One thing I can tell that is we're in a regular position. As you will see that we're a U.S. company and have operation in China. We both have a flexible structure. We also added our Korean manufacturer on the center and future possible to be manufactured in Korea too. That would give us a lot of flexibility to maneuver with our capability to deal with any dynamic or any future, I call it, trader intention.

Very good structure and good position compared with other local guy and also other, I call it, big guy in terms of this trader situation. Hey, Mark, anything you want to add on that? Yeah. I mean, no, I think you answered that well. I mean, we expect the trade war tension to be with us for a while. We expect it to be volatile, but we'll do our best to plan around it. As David said, it's dynamic. We'll follow all the regulations. We don't see anything immediate to impact our outlook. Perfect. No other questions. Thanks, guys. Thank you. Thanks, Christian. Your next question comes from the line of Tony Tang from Nomura. Please ask your question. Hi, good evening. Thank you, Benjamin, for taking my question and congratulations on good resulting first quarter. My first question is a housekeeping question.

If we look at your shipment sales and actual sales, it's like the first quarter actual sales was better than our previous expectation. Apparently, the gap between shipment and actual sales is quite big. Can we say that the second quarter actual sales may be relatively flat or it's not growing that much compared with first quarter? What kind of shipment growth magnitude should we expect into second quarter? It looks like the shipment growth could be pretty strong in the second quarter. Okay. Danny, good question. Normally, at this moment, we do not give guidance for the, I call it, next quarter, right? As I mentioned, the scale and also the quantity we deliver at this moment, one tool if we miss the shipment at the end of the quarter can be a big impact on the ratio of our projection accuracy.

Normally, we do not give precisely, I call it, the projection. However, I can comfortably see that Q2 is better than, much better than, Q1 in terms of revenue and also shipment. Also, we are looking at even stronger, much stronger, Q3 on the line. As I mentioned previously, analysts, we are trying to prepare for our capacity really to be able to ship in a Q3 bigger order, not just only the, I call it, repeat order. Also, we have a bunch of tools. It is the first order or first tool we need to be shipping in the Q2 and Q3 timeline. Yeah. Sure. Just a quick follow-up on the numbers. You mentioned about the new products, right? Can we have a rough idea what kind of gross margin would be compared with our current corporate average level for the new product?

I think our new product and the, I call it, new product average of new product gross margin is still within the range of 40-45%. Obviously, depending on customer configuration and also customer requirement, there's slightly varying of their gross margin, right? Okay. Thank you. My second question is regarding to the customers' order. It could be a little bit long question. I break it down your customers into three categories. One is China customer. Second one is a Korea customer. The last one is maybe potential global leading customers. For China customers, are you seeing any early pull-in for their orders due to the potential restriction from the U.S. commerce? Also for your Korea customer, are you seeing any early sign of maybe their DRAM capacity expansion in the near future?

For the global potential leading customers, could you give us an update on your progress there? Thank you. Okay. Good. A long question. Let's go one by one. Mark, you can add on more. For the domestic customer, I do see the demand strong, right? As I mentioned, domestic customer in China is more of a they have a long-term strategic investment plan going on. Also, most of them in the half of the expansion for their manufacturing fab. This COVID-19, whatever, did not impact their, I should say, did not impact, what do you say? They still follow their plan as even the year before their study, and their investment keep going. I think that most of the last impact by either market demand or market situation. The second one you mentioned about is our customer in Korea.

Again, the market, you know that the DRAM is still in the middle to recover. We do see they have demand for technology migration because our tool, as goes to the small geometry, advanced nodes, they have added more process staff. We see that the demand for that application. We have not seen any capacity expansion yet, right? We are carefully watching, and hopefully, something will be changing in the Q3, Q4 timeline. They are just restarting their, if the situation is going well, they are going to restart expansion in their production line. Last one for the Taiwan customer. Again, yeah. Global, I see that Taiwan is the next major, I call it, penetration. We are trying to also penetrate the US customer product type of fab in China too. We are working very close with the top-tier customer.

It's hard to really tell what time breakthrough, but we're expecting maybe we can trace to one of this top-tier customer in this year. If we're lucky, maybe we can break through, right? That's our strategy to pull our technology into the top-tier customer. We have a strong confidence. They need our technology. Also, we have a company has been into the, we call it, critical stage, right? We have a very good balance sheet and also have a reasonably about 340 people, 50 people right now in the reach of their, they call it, their critical size. We can support them with a large volume with a multi-system repeat order. We're good to propel. We're trying to work in also hard and get into the top-tier customer. It's really a matter of time. Thank you, Sir.

I'll back in. Great. Yep. Thanks, Danny. Next question, operator, please. Your next question comes from the line of Jeff Su from Morgan Stanley. Please ask your question. Hi, David. Hey, Mark. It's Charlie Chen from Morgan Stanley. First of all, yeah, great to hear everything goes well. First question is really about the opportunity of your new product. In your slide, page seven, you said fabs and the table is around 50% of your kind of total addressed market. With those new products, what would be your total addressed market now? Is it still a $3 billion or more than that? Yes. Okay. Actually, I have a new product going right now, and maybe I'll go give the center point here. Obviously, there's a semi-critical or, I call it, semi-critical intelligent product. Three products together, we're estimated about probably $800 million total available market for us.

Then beyond that, we have our ECP. ECP, we have a front-end, back-end, and they all add together roughly about $5 million for their ECP. And our SFP, actually, at this moment, we're most focused on right now is the front-end. I mean, the back-end right now. However, they do have a potential to get in the front-end, right? If we can add all together, our estimation is almost about $500 million for copper polishing. As a furnace, right, it's actually huge, right? It's almost, by their market data, almost $1.5 billion. Obviously, they have different kinds: anneal, oxidation, LPCVD, and ALD. As our plan, at this moment, we're getting LPCVDs. However, as they're going on, we definitely will get into another three new processes. Eventually, we'll get into ALD process too. You put it all together, that's almost about $3.5 billion.

Then the add with our total, our cleaning original, our leading-edge technology cleaning is about $1.5 billion. That is about $5 billion market we are targeting right now. Again, with our plan to get a sub-market and with some more funding, we believe that will continue to support our growth and to become their multi-product company and cover both wet process and dry process. Okay. I think thanks. I think for your current work cleaning, it is quite differentiated, I would say, given the Megasonic technology. For those new business firms and also the Ultra C, do you have a kind of specific technology differentiation, and who are the main competitors in this area? Okay. Obviously, great. At this moment, you can see that there are semi-critical cleaning ultra-furnace, and there is quite a bit in the player there, right? Maybe I do not need to mention full name here.

Even in the furnace, major ones are PELL and Kokusai and Hitachi. The reason, as I said, is that we get into the Ultra Furnace. We do believe there's innovation continually needed when the people go to advanced nodes. That's the real major reason we're getting into the business. At this moment, we're working on carefully, and also we're working on the innovation side too, which will deliver something different to the market. With the semi-critical market, that probably, I should say, it's more like a customer wants us getting the market. The reason for that, they want one-stop shopping, and also they want to gather; they like our tool quality. It's kind of how do we fuel customer demand? That's the reason we're getting into there.

As the future is going on, we believe we're still focused on our innovation product and especially penetrate the first-tier customer. However, with other non-critical or semi-critical products, we're still trying to meet other customer or second-tier customer requirements for those products. Mark, do you want to add on? Nope. Nothing to add. Go ahead, Charlie, with your next question. Thanks, David. Thank you. Yeah. Go ahead, please. Hello? Oh, yeah, Freddie, maybe you can try getting Charlie back on. It looks like he dropped and came back. Actually, let's go to the next question. We'll bring Charlie back later. Yeah. Okay. He's back. He's back. I'm sorry. Oh, okay. Oh, yeah. Oh, okay. Go ahead, Charlie. Hey, Charlie, please. Sorry. Yeah.

New customers in Taiwan or U.S., my question is that whether you are aiming for the kind of the legacy production line, or are you guys aiming for just the new geometry, new generation? Yeah. Actually, I think for the top-tier customer and definitely their interest ACM for differential technology, right? And so it's not a legacy tool. It's more of our SFP tool and Tahoe. And at this moment, they are most interested for their major product. And maybe as time going on, maybe SFP, stress-free polishing can be another targeted product. So we're going to penetrate the top-tier customer with our, I call it, differentiated proprietary technology. That's our strategy. Okay. Got it. Thank you. Yeah. Next question. Thank you, Charlie. Please, you got it. Yeah. Thanks, Charlie. Sure. Your next question comes from the line of Mark Miller from Needham & Company. Please ask your question.

Let me just extend my appreciation that you seem to be doing well. There was no serious problems with the COVID virus for your staff. I just wanted to, could you kind of more quantify? You said some shipments were delayed into 2Q. Is there a figure you can apply to that? Yeah. David, do you want me to answer that? He's asking a little bit for detail. Yeah. Yeah. So Mark, yeah, there's a number of tools, a couple of several tools that got delayed from Q1 to Q2. We're not going to give a lot of detail, but it was a number of tools. Yeah. Okay. They'll be revenued in the second quarter then, those tools? Yeah. We expect that in the majority in the second quarter. Yeah. I think you also had last quarter. Yeah.

Some of them were revenue, and some of them probably the first tool, right? Also delayed from Q1 to Q2 because of the reason of this Wuhan situation. Yeah. You also had some slippage into the third quarter, I think, at YMTC. Has there been any more slippage at YMTC? Most of our tool, actually, will be tried to deliver in Q2 timeline. Again, maybe the end of Q2 or beginning of Q2, I call it Q3, but the most likely in the middle of the year. That's our delivery for the YMTC. Because of the virus, again, we're working with them on other new products, and some other new product will be delivered maybe in the Q3 and Q4 timeline. Okay. Because of the new virus, there was a spike in purchase of certain type things like laptop PCs, which really produced a strong quarter.

We've been looking at DRAM and also NAND pricing for some time, and that had steadily been rising for both types of chips since late October. Over the last several weeks, we've seen kind of a flattening of the increase. In fact, DRAM prices have come down. I'm just wondering what you're seeing at your customers in terms of capacity utilization. Has that continued to stay up, or has there been some slackening off of capacity utilization? That is a good question, right? Again, we have both customers in the DRAM, another one mostly in the 3D NAND business. Look at their 3D NAND in China. Obviously, their capacity increased, and they're trying to increase their capacity, go to 50,000 per month level.

Also, in recent months, the 128 layer of the 3D NAND process with even better driving speed and also better intensity compared with other guys, 128 layer because they put the drive circuit and also the cell circuit in two different wafers, right? I think in that sense, they're in the regular shape, expanding their strategy and deliver their milestone goal. So far, I saw they're doing very well. Every time they commit to something, they made it, right? We have very good confidence. That is why also they have become our major customer, our revenue stream for this year will continue next year. Regarding the DRAM customers, as I mentioned, they do have some demand. As I said, mostly the technology migration, right? Because this is 1.1.1.1Z, whatever they are doing, that migration to need our product, right?

There is a demand for that too. We have not seen any capacity expansion at this moment. Things are changing as time goes on. We just, at this moment, watch carefully. Thank you. Thanks, Mark. Have a good day, and we'll move on to our next question. I think we have time for one more question. Yeah. Sure. Your next question comes from the line of Chris Funke from Cohen & Company. Please ask your question. Yeah. Hi. Thanks for taking my question and squeezing me in. Hey, Mark. Hey, David. How are you guys doing? Hey, Chris. Good. Thanks. Hi. I had a couple of questions, and maybe I'll just target it to David. On the Ultra Furnace product, is this mainly competing against TEL or Kokusai?

Is this a customer pool, or is this more a function of you folks trying to diversify the business from wet to dry? I have a follow-up. This is a real, I call it, high-concentrated customer base. I mean, the vendor base, right? This is a major player. It's a top two. It's a real Japanese player, which they are doing very well for this way. However, we do believe there's an opportunity going on because of rising market in China. Our customer are more like close supporting, and they want to also R&D engineer, very localized to their fab, so they can give their demand or their special requirement. Therefore, we can build a tool and also do the R&D and even meet their future requirements. That's a requirement they come out. That's a huge market first.

We see the market potential there. We do a lot of wet process tools. However, this wet process tool will be followed by the dry process, right? When we get into dry process, it also helps our wet process tool to be technology innovation. With that in mind, that's why we're getting into the dry process. We're very, I should say, excited and getting into this dry process. We're prepared for continued innovation, which is rebuilding our DNA. We try to also innovate as a product as the customer migrates to more geometry. There are also a bunch of new requirements that come out. That's our intention. Got it. Got it, David. Just along the path, clearly on the batch furnace side, it's mostly the memory customers who use it. Looks like the advanced logic and foundry customers already moved to single wafer.

Is there a risk that the memory companies also move to single wafer, or do you think they're going to stay with batch for a long time? Good question. Actually, a lot of people talk about single wafer process, right? Either it's a Neo or it's LPCVD. And there's always a benefit of single process wafer, right? That will have more better uniformity and better, I call it, quality. However, there's still some good advantage for the batch process because of the throughput, right? Even consider ALD, there's a lot of slow process ALD, right? That's really the painful for the single wafer process. There's a certain process step which can be done in the batch process too. I continue, as I said, we believe there's still a big potential market in the batch process there. That's why we got into this product. Got it.

Got it. David, if I could just squeeze in one last question from my end. You spoke about working with advanced logic and foundry customers who are in outside China and outside Korea. What metric or what specification are they looking for? Is there a certain magic bullet you need that convinces them to buy tools from you, or is it just a process they have to go through? Okay. Great. Actually, looking at our wide process equipment, right, we do have a SAP is a mechatronic cleaning, especially for the flat wafer and especially for cleaning small particle, especially particle less than 90 nano. We do have strong data, strong correlation from customer. We are the best in terms of removal of small particle in the flat wafer compared with typical water, gas, jet spray technology.

With also our Tahoe mechatronic technology, we do prove we can do the pattern wafer cleaning without damaging, without this air bubble bust, or we call the cavitation, non-stable cavitation, and generate the microjet to destroy the pattern wafer. Our Tahoe technology real fundamentally solves that bubble bust, I call it, problem or difficult. We can do the stable cavitation without the bust. That real put the mechatronic in the new of the application. We can do pattern cleaning with either FinFET or future any 3D structure. That is today no any solution that can do the physical cleaning with a small geometry pattern wafer. That is the second technology, right? With Tahoe, we also mentioned about the sulfuric acidity, a bigger 80% more saving. With these three key technologies, we have a strong confidence.

Our customers, especially even existing customers, also future potential top-tier customers, they need this technology while they have to improve their product yield, right? Also have to reduce the environmental concern and obviously sometimes the cost related there. That is our strong point and penetrate our product into the top-tier customer. Also, we do have a plating and also have a polishing tool. That is also on the line. We believe they also can offer special innovation and also special performance, which were needed for the customer in advanced nodes. Got it. Thanks. Thanks a lot, David and Mark. Thank you. Yep. Thanks, Chris. Operator, I think that is it for the call. Maybe you can close it up here. Yes. There are no further questions at this time. I would like to hand the conference back to Mr. David Wang for closing remarks. Okay. Thank you, Operator.

Thank you all for participating on today's call and for your support. Before we close, Gary is going to mention some upcoming investor relations event. Gary, please. Thanks, David. On May 27, ACM will attend the 17th Annual Craig-Hallum Institutional Investor Conference, which will be a virtual conference. On the 28th, we'll participate in the Cohen & Company 2020 Virtual Technology Media and Telecom Conference. Attendance at those conferences is by invitation only. Please contact your respective sales rep if you want to schedule one-on-one meetings with us. This concludes the call. You may now disconnect. Thank you.