BE Semiconductor Reports Strong Q1 2015 Earnings

Company Name: BE Semiconductor
Company Ticker: BESI NA
Date: 2015-04-30
Event Description: Q1 2015 Earnings Call
Market Cap: 1,066.50
Current PX: 26.64
YTD Change($): +8.11
YTD Change(%): +43.767
Bloomberg Estimates - EPS
Current Quarter: 0.520
Current Year: 2.013
Bloomberg Estimates - Sales
Current Year: 422.000
Page 1 of 10
Q1 2015 Earnings Call
Company Participants
• Richard Blickman, President and Chief Executive Officer
• Cor te Hennepe, Senior Vice President Finance and Legal
Other Participants
• Unidentified Participant
• Peter Olofsen, Analyst
• Hans Slob, Analyst
• Edwin de Jong, Analyst
• Philip Scholte, Analyst
Presentation
Operator
Ladies and gentlemen, thank you for holding and welcome to the BE Semiconductor Industries' Event Call. At this
moment, all participants are in listen-only mode. After the presentation, there will be opportunity to ask questions.
I would now like to hand over the conference to Richard Blickman and Cor te Hennepe. Please go ahead, sir.
Richard Blickman, President and Chief Executive Officer
Thank you. Thank you all for joining us today. I will begin by making a few comments in connection with the press
release we issued earlier today and then we'll take questions. I would like to remind everyone that some of the
comments made during this call and some of the answers in response to your questions by management may contain
forward-looking statements. Such statements may involve uncertainties and risks as described in the earnings release
and other reports filed with the AFM.
For today's call, we'd like to review the key highlights for our first quarter ended March 31st and also spend some time
updating you on the market, our strategy and outlook.
First, some overall thoughts on the past quarter. Besi recorded another strong quarter in the first quarter of this year
with solid revenue and earnings growth. Revenue of EUR94.9 million and net income of EUR17.5 million increased by
35.6% and 149% versus Q1 last year, that exceeded expectations. Similarly, net cash increased by 60.3 million or
82.8% year-over-year to reach EUR133.1 million reflecting strong profit generation and improved working capital
management.
Our order book continued to develop favorably in this quarter. Orders were up 28% sequentially versus Q4 last year,
reflecting particularly strength in TCB systems for memory applications and some initial orders for wearable
applications. Order strength also resulted from increased Asian subcontractor bookings for die attach and ultra-thin
molding systems, for Asian handsets and automotive electronics applications. Strong growth in these areas
compensated for slower growth in high-end smartphone applications during the quarter as certain customers digested
incremental capacity added into 2014.

Date: 2015-04-30
Current PX: 26.64
Current Year: 2.013
Page 2 of 10
Besi's favorable Q1 order trends also reflects continued share gains in our addressable assembly equipment markets in
an environment less favorable than 2014. Besi's Q1 '15 financial performance was stronger than anticipated. Revenue
and gross margin significantly exceeded prior year results primarily due to a broad-based revenue growth in our
equipment portfolio and materials cost efficiencies, the depreciation of the euro versus the US dollar and a one-time
restructuring benefit.
Such favorable developments more than offset cost and expense headwinds from roughly 14% average quarterly
year-over-year increase of the Swiss franc versus the euro and higher incentive based compensation due to 166%
increase in our quarter-end stock price versus the prior year. As a result, net margins increased to 18.5% in the first
quarter of this year versus 10% in the first quarter last year, reflecting the continued profit enhancement of our business
model.
With that, I'll turn the presentation over to Cor for more color on our financial results.
Cor te Hennepe, Senior Vice President Finance and Legal
Okay. Thank you, Richard. Besi's 6.6 sequential revenue increase versus fourth quarter of last year was above prior
guidance primarily due to a 10.8% increase in US dollar versus the euro during the period. The 35.6% increase versus
Q1, 2014 was primarily due to broadly increased sales of die attach systems for smartphones, Asian handsets,
intelligence, automotive electronics and memory applications and benefits from the depreciation of the euro versus the
US dollar.
Orders increased favorably in Q1, 2015 rising 28% sequentially due primarily to higher bookings or TCB systems,
initial orders for wearable certifications and stepped up demands by Asian subcontractors for Asian handsets and
automotive electronics applications.
Sequential subcontractor orders more than tripled increasing by 32.7 million this quarter, IDM orders decreased by
EUR9.9 million or 15%. Orders declined by 6.2% year-over-year due to primarily lower packaging and plating systems
bookings. Die attach orders were relatively flat as compared to exceptionally higher levels in Q1 2014.
In addition to higher than anticipated revenue growth, gross margins also expanded above guidance this quarter,
reaching a record 49%, switch [ph] level of 5.2 points higher than Q4, 2014 and 6.7 points higher than Q1 2014. The
large sequential increase was due to a number of factors, including a 2.4 points gain from net foreign exchange
benefits, improved material cost margins, lower inventory provisions and net restructuring benefits of EUR0.7 million.
As compared to last year, the 6.7 points improvement reflected similar underlying trends as experienced in the current
sequential period.
As mentioned during our last call, we decided in Q1, 2015 to translate certain functions and personnel from our Swiss
die attach operations to our Singapore facility. This action resulted in a total net pre-tax restructuring benefit of EUR3.7
million consisting of a pension related curtailment gain of 5.3 million, partially offset by restructuring charges of
EUR1.6 million. The transfer is expected to occur by the end of Q4 2015 to significantly reduce our Swiss franc
exposure and result in annualized cost savings of approximately EUR6.5 million.
Excluding restructuring benefits, Q1, 2015 operating expenses were EUR28.3 million, an increase of EUR3.7 million
and EUR6.8 million respectively versus Q4, 2014 and Q1, 2014. Sequential expense growth was due to primarily a
variety of factors including 1.7 million of higher expenses from increase of the Swiss franc versus the euro,
EUR900,000 of increased incentive compensation expense, lower R&D grants of 0.7 million, lower capitalized R&D
of EUR0.6 million and as you can see on slide adjusted expense growth versus last year reflected similar underlying
trends as experienced in the current sequential period.
Given our solid revenue growth, strong operating leverage and favorable ForEx tailwinds, net income and margins have
been reaching record levels in recent quarters. In Q1, 2015, net income of EUR17.5 million more than doubled first
quarter of last year. Net margins were 18.5% versus 10% last year. Adjusting for the restructuring benefit this quarter
and the deferred tax benefit last quarter, net income was EUR14.2 million in Q1, 2015, up EUR2 million versus Q4,

Date: 2015-04-30
Current PX: 26.64
Current Year: 2.013
Page 3 of 10
2014 and still double Q1, 2014. Effective tax rate in the first quarter was 12.9% as compared to 14% in Q4, ex-deferred
[ph] tax benefits. We think the rate of above 10% to 12% is reasonable this year with the current mix of business.
And now a few words about our liquidity. We had a strong cash generation this quarter wherein our cash increased by
EUR26.2 million versus last quarter of last year to reach 161.6 million and net cash increased by EUR15.1 million to
EUR133 million. As compared to March 31 of last year, Besi's net cash position increased by more than EUR60
million, we have a substantial cash backs [ph] to finance our development programs and strategic initiatives even both
the proposed May 2015, cash dividend payment of approximately 57 million.
And with that, I'll turn the presentation back over to Richard.
Now, I'd like to spend a couple of moments updating you on the market and our strategic priorities. After a strong
growth in 2014 of approximately 24%, VLSI forecasts much more muted growth of 3.4% in 2015. As in recent years,
we anticipate quarterly order fluctuations due to the seasonality of our business, although our visibility for H2; this year
is limited at this point.
In the long-term applications such as smartphones, tablets and automotive electronics, the Internet of things, wearable
devices, memory and streaming video content should further push demand for our advanced Packaging equipment.
Despite a typical volatility in our end markets, we adhere to a simple business strategy. We will continue to develop
new best-in-class advanced packaging systems to address the next wave of product applications, including the Internet
of things, wearable devices and other applications requiring under 20 nano geometries.
Our TCB success this quarter and initial orders for wearable applications is a good example of our leading
technological position in the assembly equipment market, leveraging our technology strength and position with clients,
we anticipate increasing our market share gain in 2015. In addition, initiatives are in place to continue driving down
costs and increase flexibility to generate optimal profits in various market environments.
Finally, we continue to evaluate acquisition candidates where we can expand our position in advanced packaging
and/or capitalize on opportunities to better utilize our business platform.
Now a couple of words about our guidance for the second quarter of this year and the first half. Based on current
backlog and feedback from customers, we expect sequential revenue growth of 10% to 15% in the second quarter this
year, reflecting positive business momentum. Gross margins are anticipated to be between 46% and 48% as compared
to the 48.2% realized in Q1, ex-restructuring benefit.
Operating expenses are expected to grow in addition to 5% to 7% ex-restructuring benefit, as we continue to be
adversely affected by the strong Swiss franc in the near-term and invest more R&D, in TCB and in other wafer level
development programs. As a result, Q2, 2015 net income should increase strongly over Q1 and our first half revenue
and profit should increase versus the first half of last year. Visibility is limited at present as to second half order trends,
given the uncertainty direction of the global economy in the semiconductor industry.
In summary, we had another solid first quarter with good top and bottom line growth and a strong order book to
generate a favorable outlook for the second quarter and therefore, the first half of this year. Revenue growth, operating
leverage and strategic plan execution have resulted in an expansion of gross margins and net margins. Foreign
exchange trends have been generally favorable to our revenue and gross margins, but a hurt operating expense
development.
In response, we've taken swift action to adjust the Swiss-based cost structure and supply chain. Given, going forward,
we are developing more leading edge new products and have operating initiatives in place to further drive operating
revenue and profit growth.
That ends our prepared remarks, I would like to open the call for some questions. Operator?

Date: 2015-04-30
Current PX: 26.64
Current Year: 2.013
Page 4 of 10
Questions And Answers
Operator
Ladies and gentlemen, we will start the question-and-answer session, now. (Operator Instructions) The first question is
from Mr. Peter Olofsen from Kepler. Go ahead, sir.
Peter Olofsen, Analyst
Good morning, gentlemen. Couple of questions. First on the gross margin guidance. You are expecting sales to be up
quarter-on-quarter, the US dollar has strengthened a little bit further, yet, your guidance implies in gross margins will
be down quarter-on-quarter. Can you explain what are the drivers for that? And then two questions on orders. First, you
mentioned, orders related to wearables. Could you maybe tell us a bit more, what kind of products will benefit most
from, yeah, new wearables being introduced in the market? And then on the statement that you have limited visibility
on the order trends in the second half, if you compare the situation with 12 months ago, is the visibility less than what
you had last year, at this point of the year?
Okay. First question, sales up, however, gross margin down. As we explained, the gross margin of 48.2% excluding the
benefits from the Swiss restructuring is a significant gross margin, we have not reached so far. The guidance 46% to
48% is not far different from that level. It's always in order mix, it has to do with cost currencies, exchange rates, we
see a dollar today at EURO1.12, that is significantly below the dollar we've seen at EUR1.657. Who knows? So
basically, a strong order mix, a strong backlog, and looking at a growth quarter.
Wearables, we have all kinds of watches, also our wearables which more has to do with healthcare. But clearly, another
chapter in end products, which require ultra-thin, ultra-fine interconnect technologies and that is where we have across
the board a strong market position. The limited orders visibility as we mentioned in the prepared remarks, the forecast
of VLSI for this year's growth for assembly equipment is around 3% to 3.5% as opposed to the 24% reached last year.
We have started off on a significantly higher growth rate, if you look year-on-year over 35% compared to Q4, so we
have not seen that negative trends.
However, we are all in the same world, so that has led us to make a careful comment that (inaudible) the visibility in
the second half of the year is less than the visibility was last year for the second half of last year. So that is the
explanation.
Okay, thank you.
Operator
The next question is from Mr. Hans Slob from Rabobank. Go ahead, sir.
Hans Slob, Analyst
Yes, good morning, gentlemen. First question is on the OpEx level. You're guiding for an OpEx level of around 30
million for the next quarter. Should we also take it as a run rate further in the year or should your OpEx go down

Date: 2015-04-30
Current PX: 26.64
Current Year: 2.013
Page 5 of 10
because of the relocation of the activities to Switzerland? That's my first question. And second question is, you're
mentioning slower growth in the high-end smartphone segments, how long do you expect this to last?
The first question, in the course of this year and especially, in the second half of this year, we should see the cost base
significantly decrease in Europe and a slight increase in the cost in Singapore. There is a factor three in cost between an
average employee in Switzerland and in Singapore. So that 30 million is basically a peak level and that will go down in
the third quarter, but even more in the fourth quarter, more closely towards and depending of course, on the
development programs towards the mid-20s.
Then on your second, slower growth. It is all about models. We have the iPhone 3, 4, 4S, 5, 6, 7, 8 and now we have
seen the Samsung Galaxy3, 4, 5, now 6. So it's all depending upon the next generation products. And that is tied to
certain technology shifts to smaller geometries, we all know, the timing of that is difficult to forecast. But one can be
sure that in the future, we will have next generation products. And if Besi is similarly positioned as it is today, we
should have another next great grant. So we call that a seasonal effect, so far we have seen annual models. but that's
across the board. Whether that continues, it will be interesting to see in August -- July, August what will be the
program for September, October, introduction of new products.
Hans Slob, Analyst
Okay, thank you. And also in previous press releases you mentioned to grow, let's say, in a more volume segment
smartphone, area (inaudible) how is that developing this year?
If you analyze our numbers, you can see a significant growth in revenue from Q4 to Q1. And also a significant growth
from Q1 last year to Q1 this year. Remember, revenue was 70 million in Q1, 2014 and 95 in Q1 this year. That is a
very strong year-over-year growth, and that comes from a very broad customer base in these end products, whether that
is in communication devices, smartphones or other products or whether that's in automotive. So basically, a much more
broad and solid marketing position -- market position year-over-year, which is an excellent platform for next
generation.
Hans Slob, Analyst
Okay. Thank you.
Operator
(Operator Instructions) There is a question coming from Mr. Philip Scholte from Kempen. Go ahead, sir.
Philip Scholte, Analyst
Yes, good morning, everybody. I was wondering whether you could say anything more about your TCB progress. Is
there anything to mention and maybe new customer gains. It seems like you were mentioning now strengthening
memory which sounds a bit like a new area for you or am I completely wrong in that? And the second question is on
R&D costs. I now finally see a significant increase in R&D expenses, I guess that has to do with the Swiss franc as
well, but are you indeed also stepping up R&D investments and then how can we model that going forward? And the

Date: 2015-04-30
Current PX: 26.64
Current Year: 2.013
Page 6 of 10
third, a bit of a detailed question is your financial line, it has a 1 million charge, can you explain that, please?
Of course. Well, your first on TCB. We have focused on memory TCB applications since three years, because of the
simple logic -- the simple fact that that in volume, we'll always be largest market. And from requirements, difficult and
especially from cost. And we have succeeded in the past three years to develop the system, which is today the chosen
one in the industry.
And we have been fortunate to receive an additional 14 lines in Q1, which is if you know the average cost of -- or the
average cost of such system, which is close to million, that is becoming a decent business. So it's not new, so maybe
you were not informed right, but that is very important to understand. We're also not only at one customer but at several
customers. Everyone who is going into TCB is in very close development with us and also ordering systems.
If you look at your second question, R&D costs. Yes, it's going up for several reasons. We are investing strongly in
TCB, but also in next generation more tighter specs, smaller, thinner, more complex stacked dies and yes, the Swiss
franc does have an impact. But basically going forward, if you look at our overall spending in R&D, that is all customer
related and business directly related. So if things go well, that should also point to higher revenues and further market
share gains going forward.
Depending upon the revenue development, 10% of revenue -- slightly below that, 9% is what is usual. In large up
cycles it drops down to 8%. But that we don't expect to change. There is also a significant portion in, yeah, how we
account for the R&D cost. So that also shows the success of the systems we developed in the previous years.
But the details are in the box, you can find capitalization, amortization specified in the box. So if you take the total
R&D in Q1, which was EUR7.9 million, it's about 8.3% of revenue.
Then if you look at the -- if you are referring to the -- so to say, realigning expenses in 9.7 million (inaudible) partly
that's a Swiss franc and partly it's related to what Richard said, TCB and applications, but those costs are 10.2% of
revenue in Q1. Of course, influenced by amortization, capitalization and the one-time gain that we've discussed relating
to the restructuring in Switzerland and that is 2 million.
So what Richard said is, specifications in the box and an increase in the real cost is related to Swiss franc TCB and
some other developments. And also mentioned amortization (inaudible) and that's an indicator of successful product
introductions into the market.
Then, your question about the 1 million cost. Yeah, we have in our results usually some costs related to -- or positive
can also be to ForEx, basically there are some foreign currency effects in our P&L every quarter, usually it's at EUR0.2
million to EUR0.3 million, because of course, we have a very strict hedging policy. But there is no such thing as a
perfect hedge, so there are always some results.
In the first quarter of this year, we had a two special effects. One is to do with a significant order in one of the Group's
-- where we received already down payment and we hedged fully, so economically there was no risk. But in IFRS, for
specific reasons, we had to record foreign currency loss, we did well than the reversed in revenue. And so, it will
change from one line to the other and it's also in a different time.
The other event is of course the very rapid increase of the Swiss franc in Q1. And with Swiss -- significant fluctuations,
also there the perfect hedge doesn't exists. So there's always a risk of some increase in foreign currency effects, but now

Date: 2015-04-30
Current PX: 26.64
Current Year: 2.013
Page 7 of 10
looking at last year's, this is exceptionally -- and there are two exceptional situations that I just explained.
Philip Scholte, Analyst
Right. Okay, thank you, gentlemen.
Operator
The next question is coming from Mr. Edwin de Jong from SNS. Go ahead, sir.
Edwin de Jong, Analyst
Good morning, gentlemen. I have few questions left for me. Also on TCB, you were talking about 14 lines in Q1. How
should I see that, is that revenues or shipments or what is that? And then more on TCB memories you are getting --
going to be large client. We're seeing Micron [ph] stepping up its efforts for free nand, I think that's probably also a
large client of yours. How do you see developments and further comment going into the second half of 2015? That's
one part of the question.
The second is on the TSMC, Intel CapEx spreads. How do they affects you and maybe related to that, TSMC and Intel
said they were going to reuse or remodel a lot of their tools. Is that a development that's also going on for you guys in --
at you higher technology machines? And the last question on revenues. If I want to get out -- take out the currency
effects, what is the organic development exactly? Those were the questions.
Okay. Let's start things at in the first question. They are orders, yes. and they will be shipped in Q2. There is also
significant further program if this really becomes mainstream, then this can be a very significant portion of the
business.
Yeah, so it would be, let's say at -- I mean, Q1's revenues, it would be already 15%? And the reporting lines that you
mentioned in your order?
Yeah, go ahead.
It would be a huge development, I mean, your end Q4, you were not even on 5% I think of sales?
But again, these things -- the timing of these technologies becoming mainstream. Yes, it's difficult, but it looks very
promising, let me put it that way. Your question about CapEx of Intel and TSMC, we are using -- I did not fully
understand, can you comment a bit on that.

Date: 2015-04-30
Current PX: 26.64
Current Year: 2.013
Page 8 of 10
Whether you have seen a trade efficiency in Intel that they use the tools or they order, for example, for (inaudible)
especially in the Fountain [ph] business of course, they upgraded them so they can use them at higher technology
nodes?
Okay, then I understand your question. That is -- for us, luckily very difficult. So they need new equipment for every
new route. And the reason is, because the dimensions are different, often the materials used are different. It also means
that the specs of these machines are significantly different. So to have kits to modify and prepare for the next
generation, so far we have not seen that. It changes our too significance to upgrade existing machines.
Then the revenue, if you want to take out the currency effect, that's a difficult question, because you also then have to
assume that the business would have been the same at exchange rates in prior periods. A clear argument you hear by
other companies reporting, is that the higher dollar, slows down the investments. With us you haven't seen that, you
have seen the Country, our investments have increased with the higher dollar. If you simply make that blunt
calculation, the currency effect on the order intake is around 2%. So without the higher dollar, we would have had then
2% lower order intake.
Okay. And then that's something that I could use for the revenues in Q1, as well as a sort of --
Yeah. But then the question is with again a weaker dollar, where you can translate and immediately in higher or lower
bookings. If you understand what I mean, that's a difficult question.
All, right, sir.
On the cost side, you could even argue the other way, because we have a significant portion of materials we purchase in
Asia. There is a direct link to the US dollar, so that cost has gone up. And we have less and less euro content, so the
increase in the gross margin to above 48% is then even more strong.
All right, clear.
Okay. Any further questions.

Date: 2015-04-30
Current PX: 26.64
Current Year: 2.013
Page 9 of 10
Operator
Yes, sir. There is a question coming from Mr. Peter Olofsen from Kepler. Go ahead, Mr. Kepler -- Mr. Olofsen, excuse
me. Mr. Olofsen.
I have a follow-up on the plating business. And in particular on the solar opportunity, I think this could be a big
opportunity for you. Do you think this may already show in sales in 2015 or is this more something for the
medium-term?
No. That's already 2015, already also in '14. We have a more and more successful technology introduced for
mainstream solar cells, using more copper as opposed to silver to make it very simple. We've been qualified by the
largest solar panel suppliers. They have acquired systems and if that continues that could develop into a very solid
business. For '15, I think as a percentage of revenue, you're already talking about 5% overall Besi revenue.
Okay. And is that then based on these customers using this in already in a high volume production or are they still in a
very early stage of the adoption?
Two customers are using that in iPhone [ph] already.
Okay. That's clear. Thank you very much.
Operator
The next question is coming from Mr. (inaudible) from IBIS Capital. Go ahead, sir.
Unidentified Participant
Yes, hello, maybe only some short follow-up. First on the exchange rate, you have based your quarterly forecast, is that
the actual change rate of $1.10 or what is the basic? And secondly, did I get it right that so far you don't see weakness
in the ordering regarding the second half and your cautious comments are only based on the general market uncertainty
on semiconductor and economy. But use of how yourself, you can't see it? And finally on TCB, like I said it's hard
when it gets mainstream, but if you get mainstream given maybe the economics of this business much more expensive
machines, much slower throughput. That could maybe if you stay successful maybe to a new dimension because the
market is much larger?

Date: 2015-04-30
Current PX: 26.64
Current Year: 2.013
Page 10 of 10
Yeah, well thank you (inaudible) for your questions. The exchange that we use this end of quarter. And then the second
question about, yes, it's more a general the view following VLSI's forecast for 2015. Otherwise, we would not have
guided higher revenue in Q2. And if you add Q1 and Q2, the first half year of '15 should be significantly higher than
14. But this industry is volatile, it's also hard to forecast. So the reason why we give such a comment is that we don't
think we are smarter than VLSI. So, anyway we are still in an excellent shape. We're doing very well, but that's more
passing on a general comment.
Then on TCB, yes, if that becomes mainstream, but also you formalized it very correctly. It is significantly higher cost
than flip chip interconnect solutions. It has the advantage that you can stack more memory and have a shorter
connection and that means less power, which is highly critical for next generation technology. And, yeah as it is
developing so far, maybe we can also explain, it's well above our own expectation. We expected development to be
slower. But that's very positive, especially with such large orders that means that our systems are doing very well.
Unidentified Participant
Okay, thanks a lot.
Operator
Chairperson, there are no further questions from the audio. Please continue.
So thank you, everyone, very much for listening to the call, participating. Any further questions, don't hesitate to
contact Cor or myself directly. Goodbye.
Operator
Ladies and gentlemen, this concludes the Besi event call. You may now disconnect your line. Thank you.
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