ACM Research - Earnings Call - Q3 2020
November 6, 2020
Transcript
Operator (participant)
Right, good day ladies and gentlemen, thank you for standing by and welcome to ACM Research's Third Quarter 2020 Earnings Conference Call. At this time, 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, I'll turn the call over to Mr. Gary Dvorchak, Managing Director of The BlueShirt Group. Mr. Dvorchak, please go ahead.
Gary Dvorchak (Managing Director)
Thank you, Amber. Good day everyone. Thank you for joining us on today's call to discuss third quarter 2020 results. We released results after the U.S. market closed yesterday. The release is available on our website as well as through newswire services. There's also a supplemental slide deck posted to the investor portion of our website that we will reference during our prepared remarks. On the call with me today are our CEO, Dr. David Wang, our CFO, Mark McKechnie, and Lisa 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, and other information that might be considered forward-looking. These forward-looking statements represent ACM's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under risk factors and elsewhere in ACM's filings with the Securities and Exchange Commission.
Please do not place undue reliance on these forward-looking statements, which reflect ACM's opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certain of the financial results that we provide in this call will be on a non-GAAP basis, which excludes stock-based compensation, a loss relating to a change in fair value of financial liability, and an unrealized gain in trading securities. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website. With that, let me now turn the call over to David Wang, who will begin with slide three. David?
David Wang (CEO)
Thank you, Gary, and welcome everyone to today's call. Our third quarter results represent another productive quarter with strong financial results, a new product launching, and greater progress on our strategic initiatives. Revenue grew to $47.7 million, up 43%. Shipments were $59 million, up 37%. Both revenue and shipments were at record levels. We deliver a good balance of growth and profitability, with 43% gross margin and 22% operating margin. We are committed to delivering profitable growth as we continue to invest in R&D for new products and global sales and marketing. We ended the quarter with $92 million of cash. We also had $24 million of trading security on our balance sheet from our investment in SMIC stock market IPO. I will now discuss recent operational highlights. Please turn to slide three. Our momentum continued in the third quarter.
We had a strong shipment of new products to both our existing customers and our newest customers. We delivered another Tahoe tool for revenue to our leader foundry customers, making our third Tahoe in production environment. We continue to see strong interest from current and prospective new customers. Tahoe delivers a unique combination of strong cleaning performance while using 80% less sulfuric acid. We delivered two ECP AP tools for repeater shipments to our leading packaging customers.
Our Ultra ECP AP is a backend tool that provides better plating performance by putting a more uniform metal layer in the notch area. We also delivered the first tool of the newest member of the ECP family, the ECP 3D, to a leading foundry customer in China. The Ultra ECP 3D is a front-end tool that offers enhanced gap plating for high aspect ratio TSV layouts.
This is a critical technology for high-density stacking of 3D chips as our customers move into more advanced production nodes. In September, we delivered a second-generation TEBO tool to our existing leader customers. We had a significant technology upgrade, including a process that delivered a higher particle removal efficiency, PRE, with a wider damage-free process window. We expect this will help accelerate the adoption of TEBO. This is the first tool, and we expect revenue recognition upon qualification and acceptance.
Also, last week, we announced an important milestone for TEBO. The United States Patent and Trademark Office approved a fundamental TEBO patent. This strengthens our leadership position in advanced damage-free megasonic cleaning technology for sophisticated 3D semiconductor device structures with patent protection for near two decades. Our third quarter shipments, including multiple semi-critical first tools to our newest customers, are leading China-based analog and power IC manufacturers.
The first tool includes Scrubber, Thin Wafer Backside Cleaning Tool, Ultra C Bench, and also SAPS II Cleaning Tool. We expect acceptance and revenue to be likely 2021 events. Look at these achievements. I'm proud of our engineering team. Over the past several years, the team has added many new and innovative platforms to expanding our products, offering beyond our flagship cleaning tool to ECP plating tool, SFP polish tool, and vertical furnaces. Now, turn to slide four. For those newer to ACM, I will review our product portfolio and market opportunities. We estimate our current product portfolio addresses $5 billion of total market opportunities. This spans CIS, 3D NAND, foundry, power, and analog application devices. Our core market as for cleaning tools started with our flagship single-wafer cleaning products, SAPS, Pivot, and Tahoe, and our three semi-critical cleaning products.
We estimate these tools address about 80% of the $3 billion wafer cleaning market for $2.4 billion market served by ACM cleaning products. Our newer products add another $2.6 billion, including $1.6 billion from the vertical furnaces and $5 million each from ECP and stress-free polishing products. We are focused on gaining market share by extending our product line and winning new customers. Our roadmap for expansion extends many years into the future. We have an unwavering commitment to expand our market opportunity with new products. Please turn to slide five for discussion of our customer base. We have five major front-end customers across the DRAM, foundry, and 3D NAND. We have several backend wafer packaging and assembly customers, and our newest customer manufactures power and analog devices. We believe these customers alone represent a significant opportunity for ACM.
Many of them are still in early and middle stage of multi-year capacity expansions and are only buying a fraction of our full product portfolio. Naturally, we expect to continue to add new customers as we believe every major semiconductor manufacturer can benefit from our technology. As we discussed on previous calls, we are actively engaged with a number of potential first-year new customers in North America and Taiwan. Please turn to slide six. We are actively adding production capacity and development capacity to support our near-term and long-term growth plans. Our regional facility in Shanghai remains. Headquarters are in Shanghai, which includes our R&D, SG&A, and prototyping and production of newer products. We began production at our second factory in September of 2018 and opened the second floor for the production in the third quarter of this year.
This increased capacity at our second factory from $250 million to more than $350 million. Our long-term solution is a Lingang facility, which will become our R&D center, providing employee housing, and will have the floor space to increase our production capacity by fivefold. We broke ground on the Lingang facility in July of this year and plan to begin production by the middle of 2022. Before I discuss our 2020 outlook, I would like to discuss two important items. First, I want to address the short seller report that was published in early October. We stand by comments made on October 8th, responsible press release, and we fully refute the allegations made in the report.
Over the past few weeks, ACM Shanghai's China IPO team, which includes Haitong, the IPO's investor banker, CBO, our auditor, and the KWM ACM Shanghai's China legal team, has performed a detailed review of all the allegations. Most of the items were easily refuted, as the 43-page report from this short seller included many misstatements of facts, contradictionary opinions, and general misunderstanding of our industry. For other items, the team performed confirmatory legwork, including interviews with customers, suppliers, and management, and documentary review.
The team has delivered a comprehensive report of their findings to the Shanghai Stock Exchange Listing Committee. This report fully refuted all of the allegations on a point-by-point basis. At this point, we have not decided if we will release the report, but we are happy to take any questions after the call. Second, an update on ACM Shanghai stock market listing in late May 2020.
We submitted IPO applications to the Shanghai Stock Exchange. After two rounds of question and answer, in late September, the stock market listing committee approved applications. At this point, the listing is subject to submission of a formal registration and review and approval by the China Securities Regulatory Commission. With the timely registration, we expect to launch the process later this month and price IPO by year-end. Before I turn the call over to Mark, I would like to discuss our 2020 outlook. Please now turn to slide seven. Looking forward, we are excited by our business opportunities. We remain optimistic about the remainder of 2020 and our growth prospects for 2021 and beyond. Accordingly, we have updated our full year 2020 outlook as follows. We have reached the low end of our range.
We now expect revenue to be between $145 and 155 million, compared to the prior range of $140 to 155 million. The revised revenue range represents 39.5% annual growth at the midpoint. The implied revenue at the midpoint for the fourth quarter represents 58% year-on-year growth. Our outlook for the remainder of 2020 is based on several key assumptions. First, the COVID-19 situation remains stable in China and is not worsening on a global basis in the coming months. Second, the Chinese semiconductor industry's fast investment continues. Third, the revenue range assumes good growth from NAND and foundry logic customers and the news of the DRAM recovery. Our outlook also assumes limited contribution in Q4 from SMIC. Our results and outlook demonstrate the successful execution of our strategy.
Our strong growth is providing the capacity to accelerate our R&D spending in new products and deliver the profitability that our investors expect. We are building our global sales and marketing resources to penetrate the new customers in new regions, and we are scaling production capacity to support our long-term growth plan as we continue our mission to become a major equipment supplier for the global semiconductor industry. To conclude, I would like to thank our employees for their hard work and dedication. I also want to thank our customers, partners, and shareholders for their continued support and confidence in ACM Research. I will now turn the call over to Mark to discuss the financial results in more detail.
Mark McKechnie (CFO)
Thank you, David. Good day, everyone. We had strong financial results in the third quarter. Unless I note otherwise, I'll refer to non-GAAP financial measures, which exclude stock-based compensation, change in fair value of financial liability, and unrealized gain in trading securities. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Turn to slide eight. For the third quarter, revenue was $47.7 million, up 42.6%.
Growth was driven by solid demand for our front-end equipment and backend tools. We had a strong contribution of revenue from three of our major front-end customers and also one of our backend customers. Total shipments were $59 million versus $43 million in the year-ago quarter and $45 million last quarter. As David noted, this marked another record level of quarterly shipments, an important demonstration of scale to the industry. Total shipments include deliveries for which revenue was recognized in the quarter, as well as deliveries of systems awaiting customer acceptance for potential revenue in future quarters. Gross margin was 42.8% versus 49.1%.
Gross margin was within our long-term target of 40% to 45%. Gross margin varies on a quarterly basis due to a variety of factors such as sales volume and product mix. Operating expenses were $10.1 million, up 29%. The year-on-year increase was driven by higher R&D on new products, higher G&A expenses related to the STAR Market IPO. Operating income was $10.3 million, up 19.8%. Operating margin was 21.6% versus 25.7%. Now, some detail below the operating line. Non-GAAP results exclude stock-based compensation and two additional items. The first, change in fair value of financial liability is a non-operating, non-cash book loss of $6.5 million, as described in last quarter's call and in our 10Q filings.
The liability was related to private equity investments in ACM prior to the 2017 IPO. The PE investment was restructured through a number of agreements to comply with the Star Market IPO. The liability was terminated on July 28th with the issuance of an equity warrant, after which it became a balance sheet item and will no longer impact our income statement in Q4 and beyond. Second is the unrealized gain on trading securities of $9 million from our SMIC investment.
The investment was marked to market at quarter end, and the gain reflects the increase in value from the original IPO price. We will exclude this item from the non-GAAP results until the gain is realized, when or if we sell the shares. Net interest expense was approximately $0.1 million, unchanged from last year. Other expense was $1.8 million versus other income of $1.8 million.
This is a significant year-on-year swing of $3.6 million that impacted our bottom line. Other expense is primarily due to realized gains and losses caused by currency fluctuations on our working capital during a given quarter. Tax benefit was $1.7 million versus $0.3 million. The large benefit in Q3 of 2020 was due in part to option exercises, which had a favorable impact on our global tax rate. The 2019 result also included a benefit that resulted from the release of valuation allowance. While a tax rate can have big fluctuations on a quarterly basis for a number of factors, we suggest you model 12% to 14% non-GAAP effective tax rate for future periods. Non-controlling interest was $1.4 million versus $0.3 million.
While this line can vary as well, we encourage analysts to model about 8.3% of net income for this line item as a proxy for the minority interest in ACM Shanghai held by PE investors. Net income attributable to ACM Research was $9 million versus $10.3 million. The currency and tax items contributed a net benefit of $0.3 million in the third quarter of 2020 versus a net benefit of $3.4 million in 2019. Net income for diluted share was $0.42 versus $0.53. If we exclude the currency items as discussed above and normalize tax at 12%, the apples-to-apples comparison is $0.40 versus $0.36. Now, I'll review the balance sheet items at the end of Q3. Cash and equivalents were $92.2 million, up from $86.4 million at the end of Q2.
The quarter-on-quarter increase was due primarily to net cash provided by operating activities and a higher draw on our line of credit. In addition to the cash balance, we also had trading securities of $24 million on our balance sheet related to our SMIC investment. This is treated as a current asset as we were locked up for a year from the initial share purchase date. Short-term borrowings were $28.3 million, up from $25.8 million at the end of Q2. Total inventory was $64.2 million, up from $49.7 million at the end of last quarter. Of the total, finished goods inventory increased to $23 million from $17 million at the end of the last quarter. The $6 million quarter-on-quarter change represents a net increase of first tools that have been shipped to customers for valuation.
Note that finished goods inventory is carried on ACM's balance sheet at cost, pending customer acceptance and future revenue recognition. Year-to-date, we have spent a total of $16 million on Lingang-related investments. This includes $9.3 million for the land rights and $7 million in deposits for employee housing. In addition, we've spent $3.7 million in capital expenditures. We anticipate another $9 to 10 million of Lingang facility CapEx and employee housing in the fourth quarter for a total of $29 to 30 million of total CapEx and Lingang-related spending for the full year.
To conclude, we are participating in the growth of major new IC fabs, ramping production, and we continue to develop and deliver innovative products. We're optimistic about our opportunities in China and expansion outside of China, and we remain committed to achieving our mission to become a major player in the semiconductor equipment market. Let's open the call now for any questions that you may have. Operator, please go ahead.
Operator (participant)
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question now, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Once again, ladies and gentlemen, it's star one for questions. Our first question comes from the line of Patrick Ho from Stifel Nicolaus. Please go ahead.
Patrick Ho (Managing Director)
Thank you very much, and congrats on a nice quarter-end outlook. David, maybe first off, in terms of the market environment, you've obviously posted very strong shipments and revenues in the September quarter. Can you discuss with your customer discussions whether you're seeing an accelerated shift of a localization effort and how that's potentially helping you as you look at 2021 as a whole? Are you seeing more chipmakers come to you as the geopolitical tensions rise and the effects of that for your business?
David Wang (CEO)
Okay. Hi, I'm David. Thank you. Okay. For this year, Q3, we have very strong quarter shipments, and we're also going to continue that trend in Q4. We also have good indication given the first half of the next year. However, as we normally give a projection of next year, normally by early January. Probably we'll do the next year guidance by that time. Again, this is real, I see the opportunity here. We have China Fab continuing investment, and our major customer continues committing expansion to Fab.
We also see that DRAM recovery maybe at some point next year. We do have new customers added in our customer base. We see there is also a new product together: Qualify, like ECP, semi-critical 3D cleaning tool, and also a Tahoe, including also our recent vertical furnaces. We will see probably multiple contributions from those other above products. By end of Q3, we have about a $40 million deferred revenue in the end of the Q3. Mark, any thoughts on that?
Mark McKechnie (CFO)
No, I think you covered it well. Patrick, if you have another question. Yeah.
Patrick Ho (Managing Director)
Yeah. Mark, my follow-up question more for you. You mentioned that inventories went up primarily due to the inventory you were building for some of your evaluation units. Given that there's still a little bit of disruption in the supply chain related to COVID and the ability to procure parts, other equipment companies have talked about just building, I guess, standard inventory for parts given the increase in demand. Can you just give a little bit of color of whether you're building any inventory for your general core product lines, whether you need to do that as well, or has the supply chain basically opened up enough where you feel comfortable in the procurement of key supplies and parts?
Mark McKechnie (CFO)
Yeah. No, thanks for the question, Patrick. Yeah. First on them, yeah, you did call out a lot of the inventory uptick was from demo tools. That was a big factor. We carry those at cost, and those are really a number of tools that a range of tools that our customers are evaluating.
Typically, two to four quarters, we'd expect to take revenue on them. In terms of our overall chain, there's always work to be done on that. We did see some lead times of some items got a little longer, but we're working really closely with our suppliers. We don't feel like we really built any additional inventory because of any potential tightness. The inventory that we may have built up was really just in front of a good ramp that we expect next quarter.
Patrick Ho (Managing Director)
Great. Thank you.
Mark McKechnie (CFO)
Thanks, Patrick.
David Wang (CEO)
Thank you, Patrick.
Operator (participant)
Thank you. Our next question comes from the line of Charlie Chan from Morgan Stanley. Please go ahead.
Charlie Chan (Managing Director)
Hi. Good morning. Good afternoon. Again, congratulations for your great execution and also your clarification about the J Capital, the short-selling reports. I think that's very helpful. As usual, I still want to follow up your progress at some top-tier customers, for example, the leading logic foundry and also the US memory accounts. Can you give us some updates there? Thank you.
David Wang (CEO)
Great. Again, we're still continuing working with our leading customer, right, and probably both in Taiwan and also in North America. I should say we're making progress, and especially one of their leading customers, they're very familiar with our tool. We're talking about their for the demo tool. Hopefully, by end of this year, we can receive that demo PO, then we'll deliver probably next year and eventually probably take another 6 or 10 months of public qualification.
Meanwhile, as I said, we're still working with multiple other customers in North America and also in Taiwan. We believe next year can be another exciting year for us to penetrate in top-tier customers. The reason I say that is we have a strong confidence in our Canadian tool, TEBO, and Tahoe. Plus, also I see the customer in Taiwan interest for a plating tool too. Time going on, and we'll see that progress.
Charlie Chan (Managing Director)
Okay. Good. David, I think you must see that there's a big M&A announced that Intel's demand is considered to sell to Hynix. Since Hynix is the customer you have disclosed, do you think that is kind of a tailwind for you to expand your business in NAND Flash, I mean, from this merger?
David Wang (CEO)
Yeah, definitely, right? I think obviously I heard this news, right? The process takes time. I heard that. Not in [inaudible], very rapidly. It probably will take a couple of years to finish all their completion of the M&A. Anyway, since Hynix is our customer and also there is a Fab or Intel Fab located in Taiwan and China, we see the good positive sign for us to get into their 3D NAND business. Plus, we have a lot of process built up in our YMTC in Wuhan. We are very familiar with 3D NAND process and with, as I mentioned, our Fabs and our future Tahoe and also our even three semi-critical process tools also contribute a lot in the 3D manufacturing business. It is a good sign for us.
Charlie Chan (Managing Director)
Okay. Thanks. Next, I want to follow up the question from the first speaker about the China CapEx. I know you cannot dive for 2021 for the time being, but in terms of the China CapEx for 2021, do you think the CapEx size is going to be larger this year? Because there could be some challenges. For example, SMIC already had around $6 to 7 billion this year. It is going to be a tough comparison for next year. I heard that there could be some scrutiny about China memory projects because there were some projects that were successful or ROI was too low. What do you think about the China CapEx size for 2021 compared to this year? What would that mean to your 2021 growth? Thanks.
David Wang (CEO)
So far, I think our customer like YMTC and Hua Hong and also our new added new customer, including DRAM customer too, they have a very good plan indication next year. That is why we see their good indication for the first half of next year and continue their expanding. Regarding SMIC, obviously, at this moment, we are not sure what is going on, right? Is that to be released or, I call it, loss of the license for the 20 nanometer or not?
We do not know yet, but we are really carefully watching the progress. At least in this moment, we still can supply our tool to SMIC. We are expecting those situations getting improved and they can build in their [inaudible]. That is something we expected and expansion if all this license problem gets solved, right? We are keeping cautiously watch out progress, right?
Charlie Chan (Managing Director)
Okay. Lastly, I am not sure if you can talk about this here, but what is the expected market cap of your China subsidiary for the IPO?
David Wang (CEO)
Oh, wow. That's a good question. Again, we're in the sensitive period. I really cannot comment on that. One thing, you look at our market cap in the Nasdaq and you look in all the semiconductor companies in the stock market, right? Those PS and PE ratio is a multiple of the US. Anyway, we have, I should say, positive and expectation for us to be a good pricing and IPO, right? Raise a good pricing and balance the company interest and also balance the investor interest.
Charlie Chan (Managing Director)
Okay. Gotcha. Thank you very much.
David Wang (CEO)
Thanks, Charlie.
Operator (participant)
Thank you. Our next question comes from the line of Suji DeSilva from Roth Capital. Please ask the question.
Suji Desilva (Managing Director and Senior Research Analyst)
Hi, David. Hi, Mark. Congratulations on all the progress here. A couple of specific questions, maybe. On the Ultra C Tahoe product, you've had success in the foundry segment. Is the memory customer base looking at that aggressively, or will that take longer?
David Wang (CEO)
Okay. Actually, our Tahoe product, we are shipping three products already, right, including our first one. This all comes to their foundry repeater order customers. They like the tool and they like this product. That is why they give two additional repeater orders. We do have a good conversation and engagement with multiple memory customers and also another foundry customer too. We really, I said multiple foundry customers too, by the way. We think that the Tahoe tool will really give our customer benefit in terms of control the chemistry consumption, cover at least 80% or more, and also at the same time provide a good performance. We are expecting more customers after the tool, and we are also expecting to give a good contribution for our revenue next year.
Suji Desilva (Managing Director and Senior Research Analyst)
Okay. My follow-up question is, could you update us on the China analog customer that you announced last quarter, also the US OEM partnership? Those two are new announcements last quarter. Any update there? Thanks.
David Wang (CEO)
Yeah. Okay. I think, as I said, we do have two new customers in analog and power devices. We're delivering tool and especially the heavy to one of those customers. Another customer, we probably will deliver heavily Q1 next year. Also, we have our, I call it OEM customer US and the tool. We're already qualified the process. I think they like our performance in terms of cleaning. I hope this cleaning capability will really add his benefit to enhance their tools' quality. We're working very well.
Suji Desilva (Managing Director and Senior Research Analyst)
Great. Thanks, guys.
David Wang (CEO)
Thanks, Suji.
Suji Desilva (Managing Director and Senior Research Analyst)
Yep.
Operator (participant)
Thank you. Our next question comes from the line of Donnie Teng from Nomura. Please go ahead.
Donnie Teng (VP of Semiconductors/Hardware Technology)
Good evening. Good morning, David and Mark. Thank you for taking my question. My first question is regarding to the assumption of your 2020 guidance. In the point four, you mentioned about your outlook assumes limited contribution in Q4 from SMIC. Can I have some more colors on this assumption? The reason is because I think not all the equipment or material suppliers received U.S. government's notification on not shipping any equipment to SMIC. Just curious about if we are a little bit too conservative to assume we have limited contribution in Q4 from SMIC, or is there any other reason behind? Thank you.
David Wang (CEO)
Actually, we have a good delivery in Q2 and Q3 for SMIC. And we'll consider probably this year their contribution for SMIC will be maybe 10% to 20% in that range. We will not see for next year because we do not know. So far, all the PO we have seen so far, all the requests made so far, we will keep on schedule, right? As a matter of next year, how much they can do their expansion, probably we will just, as I said, watch carefully and maybe cautiously see the progress. For next year, we are not going to put too much count in the projection for SMIC in our next year's projection. Maybe things are changing, but anyway, at this moment, we will cautiously project our revenue contribution for next year.
Donnie Teng (VP of Semiconductors/Hardware Technology)
Okay. David, sorry. I just rephrased what you said. Basically, we have gained quite meaningful shares at SMIC in Q2 and Q3. In Q4, probably the momentum is temporarily slowing down maybe due to customers' sales recognition schedule. Another thing I would like to clarify is that just wondering, have SMIC received any notification from U.S. government or not? If we do not receive anything, does that mean we can continuously ship into SMIC as long as they are still investing into the capacity expansion?
David Wang (CEO)
Let me say again, I think the cleaning technology was our product and the IP has been developed in Shanghai, right? Started 2006, 2007. I should say I could not comment on the letter, but we really can see that we still can deliver tool to SMIC. That is based on their export control law in the U.S. and also our consulting work with export control lawyers in the U.S.
Donnie Teng (VP of Semiconductors/Hardware Technology)
Okay. Thank you. My second question is regarding to the gross margin. I know Mark has already said that our long-term target is like 40% to 45% range. Could you elaborate more on what kind of gross margin level we have on different kinds of equipment as we now have quite diversified equipment in the pipeline? Could you give us more color on how should we rank the gross margin by different kinds of equipment? Thank you.
Mark McKechnie (CFO)
Yeah. David, do you want me to answer that, or do you want?
David Wang (CEO)
Yeah. Let me kind of touch a high level, maybe give more detail, right? I should say, obviously, you look at here, single wafer tool has a more high margin and Tahoe. You look in semi-critical, I call it cleaning tool, Auto Bench is a pretty mature technology. They have a lower margin for this way. Also, Scrubber, low margin. For the backside cleaning, that's a pretty good margin. Regarding the plating tool, you also have a front end and a back end for the packaging. Also for the front end, damaging covering the connection, very good margin. For the packaging, it's very because of a competing price from the, I call it packaging house.
That margin will be lower than the front end. As for the vertical furnace, that's pretty fine, right? I should say the middle range of margin. That's basically the layout to the margin side. Again, every quarter, a different combination and different kind of, I call it product mix. That's why our margin can be some high, go higher, some high, go lower. I said in the premier, a few year timeline, we still project our margin between 40% and 45%. It's really a balance between our advanced tool selling versus revenue and also sometimes requests that customers, they do need to remake our more portfolio product. It's going to balance, right? I still say 40% to 45% is our near-term, next few years' margin target. Hey, Mark, anything on that?
Mark McKechnie (CFO)
Yeah. No, thanks, David. You covered most of the points. I mean, just to summarize, big picture, ACM, every tool we provide, there's going to be some innovation. We don't like offering me-too type products. Some of them a lot more than others. Like David said, our flagship cleaning tools, SAPS, TVO, Tahoe, and ECP, those will get really good margins. We have good margins for our semi-critical as well, but they're lower than some of the flagships. But we try to balance strong innovation with a very good cost structure to deliver the gross margins in that range.
Donnie Teng (VP of Semiconductors/Hardware Technology)
Okay. Great. Thank you, David and Mark.
David Wang (CEO)
Thank you. Donnie.
All right. Thank you. Next question comes from Charles Shi from Needham & Company. Please ask your question.
Charles Shi (Senior Analyst)
Hi, David and Mark. Good evening, good morning, depending where you are. My first question, maybe a quick follow-up to Donnie's question on SMIC. I heard, yeah, that you probably qualitatively give us a picture about the demand profile of SMIC this year. Can you provide a little bit of quantitative help to us? How much of a revenue exposure do you have to SMIC this year? Any of the directional comment would be great. Thanks.
David Wang (CEO)
Okay. Probably I should say that in the last two years, our revenue from the SMIC is about less than 10%, right? That's the range. This year, I should say increase. And probably the range, I say this year, depending also first quarter ending, we're expecting 14% maybe, 14% to 15% range in terms of revenue come from SMIC. So that's this year's status. Obviously, increase from last year.
Charles Shi (Senior Analyst)
Great, great, great. That's really helpful. Thank you. So my next question is actually a three-part question, really about the market demand outlook. So when I look at your revised 2020 outlook, the implied growth rate, exactly like you said, is about 40% for you. We know that the SK Hynix Wuxi leading customer, their spending is likely much lower than last year, but the domestic China WFE is up from about $6.5 billion last year to about $10 billion plus this year. Looks like you have outperformed the market and gained some market share in domestic China. My question really is about next year. Do you expect that kind of strong double-digit WFE growth from domestic Chinese customers, and do you see additional share gain opportunity among those customers?
David Wang (CEO)
Okay. Let's comment even Hynix. This year, we still have PO, multiple PO from Hynix. Also, we see that some pickup in Q1 next year too. We are expecting if DRAM pricing goes to reasonable, and we are expecting their expansion, their DRAM fab, right? Probably both in China and also in Korea. For other domestic customers in China, we see their very strong demand there. As I mentioned, we have top one PC, Hua Hong Huali. Also, we see our newest customer, even a DRAM customer, Hefei. Also, with our new power devices and also this analog devices customer, they are continuing expansion too.
We also do see additional new customers in that region, either their product CIS or their product in the power devices, continue maybe become new customers next year for a revenue pipeline. Beyond that, I still say we're real active working with a customer beyond China and mainland China, customers in Taiwan, customers in the U.S. ACM's goal is real to try to balance ourselves inside mainland China or outside China. We believe our product, it will benefit the customer globally, right? That's our, I should say, visibility for our next year.
Charles Shi (Senior Analyst)
Great. Maybe just a very quick follow-up to what you answered. Do you expect the revenue or maybe let's make it a little bit more generic. FAB spending of SK Hynix inside China will increase next year, or do you see more of a still seeing a lot of uncertainty around that?
David Wang (CEO)
I'd say the continuous going growth. You look into this year, next year, I didn't see any slowdown. Again, if the bigger situation, no changing, I think that trend will continue, right? We have, as I mentioned, even have a good indication of first half next year. We're continually expecting ACM to continue to grow in the market. Most growth at this moment in the domestic mainland China, but also expecting our growth outside China too.
Mark McKechnie (CFO)
Hey, Charles. I might. Maybe Charles. I might add.
Charles Shi (Senior Analyst)
Yes.
Mark McKechnie (CFO)
Hey, Charles, if you don't mind, I would just kind of add just from a big picture perspective, we're planning for growth next year. I think, as David mentioned, general tailwinds of our major customers that are in early to middle stages. We would plan for some sort of a DRAM recovery at some point next year. We see good opportunity to gain share with our new products. Our new customer that we're delivering a lot of tools to this year, I think David mentioned, the finished goods inventory we have, it's about $40 million worth of revenue. There are a lot of things that drive our optimism for growth next year.
Charles Shi (Senior Analyst)
Thanks for the color, Mark. Maybe my last question, probably following up either Patrick or Charlie ahead of me on the inventory. I think I understand you have many evaluation units in the field, which either as new products or existing products at the new customers. We kind of speculate in the growth phase why your inventory, especially the finished goods parts, could remain high relative to your peers.
I just wonder, since your base of inventory is slightly in the high end, if I look at your peer group, still within the range, but still stay at the high end, slightly above 200 days, do you see a path for that number to go down below 150 days? I just want to understand how you see that trend and what kind of time frame you are seeing in that aspect.
David Wang (CEO)
Maybe a comment.
Charles Shi (Senior Analyst)
Yeah.
David Wang (CEO)
Timing more and more. For the existing tool, or call it mature tool, go to the new customer, a typical time, I should say six months to one year, because some customers still try to verify yield everything, right? Even the existing mature tool. Second one is really new tool and to the most either new customer or existing customer. Those kind of new tools, and you need certain modifications, certain qualifications. Those kind of tools normally one year, right? Again, we're in expansion of our new products, and especially vertical furnace. Again, I'll give one example. We are moving the first tool by the Q1 this year. We're expecting probably by end of this year, we can qualify. If not, maybe Q1 next year.
About a one-year timeline. Last year, this year, including future, we're still continuing expanding a new product. Also, that really probably impacts some of their, I call it deferred revenue or your finished goods. Again, that's the process. That's the way we have to take it. As time going up, probably have more of a when the product becomes mature, and I think we'll see that a shrinking or shortening of time. That's the status right now. Hey, Mark, anything on that?
Mark McKechnie (CFO)
Yeah. No, you bet. Thanks, David. Yeah. Charles, the one thing I'd add is I'd encourage you to look at our inventory without the finished goods, right? I mean, the finished goods, again, it'll be two to four quarters for us to get acceptance. We look at that as a positive indicator because it's demo tools that our customers are looking at. It's generally new products. I mean, our internal models, we'll look at the—we'll break that out to kind of count the days, and we comp them against the peers that you mentioned. If you take our general inventory internally, we're very efficient with it. We will build, we'll move it around quarters, and we'll add if we see a big ramp coming ahead. We think our inventories are at appropriate levels.
Charles Shi (Senior Analyst)
Okay. Thanks for the color. That's all my question. Thank you.
Mark McKechnie (CFO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Chris Chanco from Cohen & Company. Please ask your question.
Chris Chanco (Analyst)
Yeah. Hi. Thanks for taking my question, David and Mark. David, I had a question for you first. You spoke about gaining traction with the large US logic customers. I'm just kind of curious. When publicize your struggles with manufacturing and how they're going to be outsourcing to foundries, the longer it takes for you to get qualified, is there an opportunity cost where the potential upside for you diminishes? Just kind of curious how to think about that. And then I'll follow up.
David Wang (CEO)
Okay. Let me ask. Mark, you want me to address that or?
Chris Chanco (Analyst)
Yeah. No, I can hit that. Yeah.
Mark McKechnie (CFO)
Chris, you asked a little bit about, I mean, for winning a big logic customer. Obviously, the sooner you get in, the better. We think it's a pretty significant opportunity. Whether it's we'd love to have had the demo tool in there last year, we don't think the overall opportunity really changes that much based on a quarter or so here or there.
Chris Chanco (Analyst)
Got it. Got it. That's very helpful. Just as a follow-up, you guys introduced the furnace product earlier in the year. Can you just talk a little bit about where we are in that in terms of either customer adoption or momentum? Thank you.
David Wang (CEO)
You're asking our existing customer momentum?
Chris Chanco (Analyst)
Yeah. David, he wanted to know. Yeah, about the furnace. Yeah.
David Wang (CEO)
Okay. Yeah. Okay. As I mentioned, the furnace, and we delivered the first tool, right, in Q1 this year. We have very good progress. We are expecting probably product qualification either end of this year or Q1 next year. We do see additional, I call it interest or I call it demand from existing and also new customers too. We are expecting to get a repeat order. Also expecting to get a new customer in this vertical furnace. The reason is really they like a local supplier. Our product has a very good software control and also the control system. Because the vertical furnace, one key challenge is stability, or I call it software stability and control system stability.
Because you have more than 100 wafers inside that furnace. If something goes wrong, it can be a big loss for the customer. With our software has been improving in the cleaning tool in the last 10 over a year, we have a very strong confidence and also good stability software and those control systems. That has real added the value, also added our confidence, also demonstrate to the customer our product can be very mature at the beginning without worrying about the software or general control failure for the product.
We have again good demand and good basic technology. We will see that we will add more of a revenue next year. That is definitely another product we try to get in. At this moment, we are in the LPCVD, and we are expanding probably from now on to the high temperature anneal. Possibly we are getting to ALD business. That is a great future, right? $1.7 to 1.6 billion market. We have very good expectations for this product.
Chris Chanco (Analyst)
Thanks, David. Thanks, Mark.
David Wang (CEO)
Thanks, Chris.
Operator (participant)
Thank you. If there are no more further questions in the queue, I'll now turn the call back to Mr. David Wang for closing remarks.
David Wang (CEO)
Okay. Okay. Thank you, operators. And 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 events. Gary, please.
Gary Dvorchak (Managing Director)
Hey, thanks, David. On November 11th, we'll attend the Roth Virtual Technology Conference. On November 12th, we'll be at the Benchmark Technology Virtual One-on-One Conference. On November 17th, we'll participate in the Craig-Hallum Alpha Select Virtual Conference. Attendance at all of these conferences is by invitation only. Please contact your respective sales representatives if you want to schedule any one-on-one meetings with us. This concludes the call, so you may now all disconnect. Thank you.