[Operator Instructions]. Our first question today is coming from Tom Diffely from D.A. Davidson..

Yes. So I guess first question on the PIXALUX line. Obviously, very nice to see that being accepted by customers. Curious, you talked about how it benefited the margins during the quarter.

Was that because some of the tools were already accounted for? Or is that the kind of true margin structure of the product that's helping the margins?.

Tom, it's Lester. For the quarter, the contribution to the higher gross margin by PIXALUX was because of the fact that, like many new tools, it's already been expensed through R&D until market acceptance. So all 5 tools is a complete fall-through in terms of -- into the gross margin..

Okay. On a go-forward basis, do we expect the tools to be above corporate average for margins? Or....

Yes, we do. We believe the gross margin for the PIXALUX will be among the higher among the company. PIXALUX is the most technologically advanced and fastest tool on the market, and so it has a very low-cost of ownership for our customers. So we believe that the margins will remain high..

Okay. Good.

And how big do you think that market is at this point?.

Tom, can you repeat the questions?.

Yes.

How big is the market for the PIXALUX or for other micro or miniLED solutions?.

Okay. We believe this market is going to grow significantly, and we are at the early stage of a big lighting application for consumer electronics. So for us, we do believe, depends on the ramping schedule of our customers. We target about 5% to 10% annual revenue in 2020. So that's our plan.

And I think in the future, could -- getting bigger as adoption of mini and microLED continues..

Okay.

And just for clarification, is this for mobile screens or computer screens? What size the screens is for today?.

Well, actually, the display size is -- can be very from small to big screen. The big screen actually is already live. But direct view display, actually probably in the future, we still need to increase the productivity. But actually, we are working with multiple customers and including the customer in consumer electronics, display and auto industries..

Okay. Great. And then a quick question on the model itself. It sounds like the OpEx is similar to where it's been.

I was wondering on the margin front though, when you look at relatively flat revenue, a lot of times in the fourth quarter, you see a little bit of a boost in the margins because you're higher on the wedge bonder side, a little lower on the ball bonder side. Curious if you're going to see -- expect any differences sequentially on the margin front..

Well, Tom, I think the margin, what we're looking at is still probably between 45% to 47%. That's the margin -- the corporate margins that we're looking at..

Our next question today is coming from Craig Ellis from B. Riley FBR..

Congratulations on the strong earnings performance in the quarter, guys. The first question I had was really more of a clarification. It relates to one of Tom's question. So I think what I've heard is that there are eight systems that have shipped for sale in the last two quarters, three a couple of quarters ago, five in the most recent quarter.

Can you just discuss how broadly those are being accepted by customers? Are we talking about one customer, a couple or even more than that?.

Craig, it's Lester. We're talking about a couple of customers. So it's not one customer. So now it's going through evaluation at several customers. The sales have been spread among several customers. So we believe that going forward, the ramp will be, as Fusen said, probably in the second half and at 1 or 2 different customers..

Okay. And clearly, the expectation since this product was announced back at SEMICON West, certainly, it sounds like from Fusen's commentary that, that there would be a material ramp in front of us.

But as we look at the business' shipment and rev rec capability on five systems, are there any capacity issues that we need to be aware of? What's your internal capacity to ramp this system? Is it in the tens of systems? And if so, where would that be?.

Well, no, Craig, we prepared for the ramp. We know it's coming for a while. So we do not believe that our production capacity will be a bottleneck during the ramp. So I think we're ready to produce as many systems as is required..

Excellent. And then I wanted to go back, Fusen, to one of your questions. You mentioned that there were a number of new revenue opportunities that the company was pursuing, and it sounds like you've got very good visibility on growth there.

I was just wondering if you could help us just by ranking some of the new revenue opportunities that you see? I assume PIXALUX is near the top.

But could you help us prioritize that list?.

Okay. So first of all, I think there are a few positive signs from our industry. And that made us quite positive about 2020 and over. Historically, the semi downturn is no more than 6 quarters. And clearly, we see that March 2019 is our trough.

And we also seen the wholesale customer adding capacity, and they are adding capacity for the whole industry, not only for themselves, right? And the memory, I think, is a good story ahead of us.

We see the big growth actually quarter-to-quarter for the past two quarters, and the industry actually expect to expand memory recovery throughout calendar year next year, 2020, with the NAND first and then followed by DRAM.So for us, specifically in addition to the market conditions I just described, I think PIXALUX actually is a bright spot for us, and it's going to be a ramping year in 2020.

And I said this a few times, depending on customers' ramping schedule, can be 1 or 2 months late or whatever, but we do expect a 5% to 10% of calendar year revenue. That's a good one. We also expect free chip and TCB show good traction in the market because we have -- we are engaging with multiple customers for qualification.

And also, some of our customers already have it in production. So we do believe good traction in 2020 and show fast growth, both of which in TCB in 2021. So that's all we have seen in our market and for the industry..

Okay. That's very helpful. I'll ask a longer-term question on gross margin to Lester. Lester, with the benefit of some favorable mix, the business is operating well on the gross margin side. And yet here we are very near the trough, and the company has the target model out there.

Can you just help us understand, as you look at the things that are going to bridge the gap between where we are to the low end of the target model, I believe, at 49%, what does it take to get into the long-term target model range?.

Well, Craig, I think what we -- on the long-term target model range, what we're looking at is some of those tools that Fusen talked about as PIXALUX becomes more of the company's revenues beyond 2020 and '21, '22 as well as Katalyst as well as APAMA and the new -- what we call TCB 2.0 kicks in. Those are higher-margin tools.

We believe that, that would drive the gross margin forward. As you well know, a huge focus for Fusen always has been cost. We continue to reduce costs across the board in terms of our core businesses. And then also, one of the initiatives that Fusen has been pushing for over 3 years is increase our APS sales.

APS carries higher gross margin than our capital equipment. So I think between those different elements, we believe we can drive towards the gross margin target we presented..

Okay. Last one for me and then I'll hop back in the queue. Fusen, you were quite prescient in terms of being very early to call the March quarter as a trough. And the company really did a great job putting its money where its mouth is with the $100 million of share buyback in the quarter.

Can you gentlemen just help us understand how you're looking at buyback intensity at this point now? Now that we're into what looks like the early stages of a recovery, should we expect a similar level of share repurchase activity or something closer to what we were seeing in the 6 or 7 quarters prior to the most recent quarter?.

Okay. So Craig, before I answer you with a number, I want to tell you our thinking logic. I do believe at the company, the most important is to have capability, we can open the growth, right? So for us, I think our capital allocation is including dividend payback, stock repurchasing and M&A.

So at a certain point, for sure, I think we will be engaged with M&A, but we want to make sure our organic development proven. We have a strength. We have knowledge. We have commitment. And I think we are seeing a traction.

So I think in the near-term horizon, I would say, yes, a year from now, we already seriously consider M&A.So because of our -- we need to use our capital among M&A, repurchasing and also dividend, I think it's going to be a balanced view, right? So it's very difficult to answer you with a precise amount, but we are committed, continuing to repurchase and continue -- we are committed to the dividend, and we'll continue the repurchase program.

And among them depend on when we decide to trigger the M&A activity. I hope I answer your questions..

Our next question today is coming from David Duley from Steelhead Securities..

Just a clarification.

I think in your prepared remarks, you said -- in reference, was it to the wire bonder business or the total bonder business that was up 17% sequentially and up 64% from the bottom?.

Actually, it's overall of equipment. Of course, the ball bonder is a big part of that. I think in the past few quarters, we actually see wire bonder coming back and strongly. I think they represent about 50% of our revenue. So I would say we're talking about overall, including ball bonder..

Okay. And what -- could you talk about -- I don't think you mentioned the utilization rates of the wire bonder fleet. Could you perhaps give us a measure there? And then help us understand if the utilization rates are higher or lower in China or what you're seeing from that market..

Sure, Dave. So utilization rates we see in the field is in the high 70s. However, I'd like to point out that it is not uniform across all the businesses as well as end customers and the region. Specifically to your question about China, China is actually at the highest utilization rate of all the regions we see.

Actually, it's in the 90s, while Taiwan has come down in the low 70s and Korea as in mid-70s. So I think a lot of the utilization rate growth has been driven by China..

Okay. That's very helpful. And as far as the -- you mentioned the automotive and the memory businesses have stabilized now. And I guess you're kind of expecting a gradual improvement in 2020.

Could you just talk about in each one of those segments what the key trigger is to spur growth? For instance, in the automotive space, is it more electrical vehicles or more electrical vehicle content? Or what will get these two segments of the business up and running again?.

So what we will assume, the memory, we will assume, I think, our server and high-performance computing. This was consumed fairly largely among -- in memory. And automotive right now, I think, in the bottom. But we do believe, based on our historical results, we can expect auto to also increase from here.

But auto, I don't think we'll consume that much memory, right? So I still believe it's traditional in server and also in the computing areas, lower memory growth. And the first sign is the big growth quarter-to-quarter. I think we already see 2 quarter growth.

And the next step is the price holding up, and then the whole industry will recover, and that will be our expectation..

Okay. And then as far as -- maybe just looking to next year, it seems like you have core business recovery happening, and you have a bunch of new product contributions starting to ramp up in the LED space and some of these other spaces.

Do you think that -- is there any reason to think that you can't get back -- I guess the first question is, is there any reason to think that you can't get back to peak revenue levels? Is there any segment of business that may not recover and allow you not to get back up to $200 million or $250 million per quarter kind of run rates?.

So Dave, I think we are cautiously optimistic about the recovery, both in general semi, LED as well as eventually, as Fusen said, auto. And memory was particularly coming in. But I think the $250 million a quarter is a pretty high target. And while we think there will be a significant recovery, I'm not sure we're going to hit that in 2020..

So David, maybe a little bit more color. We do believe this recovery is a greater recovery for all of you. So let me give you an example. I think Christian asked me a few times about our model, 2021, the original model for the $1.1 billion. So this probably -- if I answer, it probably can give you a little bit of the color in our mind.

So assume the current recovery will bring '22, I'm talking about 2022, a year after we set the original goal of the 2021, to 2018 level of $900 million as a baseline. I'm talking about as a baseline. So that's $900 million total revenue as a baseline.

In the next 3 years, '20, '21, '22, 3 years, we believe we probably can add additional $200 million, additional revenue from the organic growth product we introduced to the market.

This is including our free chip, TCB, PIXALUX and also Lester mentioned the APS additional revenue, right?So to reach $250 million quarterly average revenue, it's about $1 billion, right? So right now, as we look at it, I think probably 2022 will be the time we're probably going to reach the $1.1 billion to $1.2 billion.

But despite this, I do believe we will hit $250 million from time to time. Maybe this is about '20 -- 2020 and beyond like 2021. So that will be our expectation..

Our next question today is coming from Christian Schwab from Craig-Hallum Capital Group..

Fusen, can you give us an idea in both the automotive and memory business peak to trough quarterly revenue if you have that this cycle?.

Christian, this is Lester. So right now, we believe auto and memory is near the trough. So auto is roughly 50% of what 2018 quarterly run rate was, while memory is about 1/4 to 1/3..

Okay. Fantastic. And so the memory could see a more material -- if we have a true memory cycle and equilibrium supply and demand pulls out in second half of this year, we get back to spending money again on the CapEx side. That could ramp up more quickly, in my opinion.

Is that fair? Is that a fair assessment?.

I'd say it's fair. Right now, memory is close to 4% to 5% of revenue. At its highest, it's closer to 20%. So I think if there is a recovery, we're seeing some recovery in NAND. If DRAM comes back, I think, significantly, both, I think, there could be a faster rate..

Yes. And Christian, as you know, we actually have very high market shares in the memory space..

Right. Right. And then on the automotive side, a recovery in that business. I know there was a series of questions about it. It wasn't clear to me.

Is an automotive recovery based upon units? Or can that business, if units should stay kind of at these type of levels for the next year or two with greater electronification, for lack of a better word, going into vehicles, could that see a nice recovery over time? Or is the automobile business much more of just a gradual recovery?.

Well, Christian, you know any segment recovery will not be sudden. So it's really my expectation. The auto will take a little bit more digestion and maybe show a stronger momentum. I would say maybe second half of next year..

[Operator Instructions]. Our next question is coming from Krish Sankar from Cowen & Company..

This is Robert Mertens on behalf of Krish. Just a real quick housekeeping one first, and then I had a follow-up.

What's the size of the advanced packaging business this quarter?.

The size of advanced packaging was about 14%..

Okay. Great. And then you're guiding next quarter sort of flat quarter-over-quarter, where it's typically seen some seasonal weakness.

Could you just give some sort of puts and takes around which areas you're seeing strengthen into the December quarter? Is this sort of broad-based continuation? Or is there one area that's going to be a little bit stronger and some softness in other ones?.

Well, I think as we have indicated on the call, we still think memory and auto is recovering, but they're still soft right now. I think the recovery is much more ahead in general semi and LED and particularly in China. As I indicated, the OSATs are running at a very high utilization rate in China.

So we believe that the growth or the maintenance of the revenue at flat is coming from general semi and LED..

Thank you ____________Before closing, we wanted to inform investors that we will be participating in several upcoming conferences and roadshows throughout the December Quarter, in Dallas, New York City and London.

Additional details can be found at investor.kns.com.Also going forward, we will be adjusting the timing of our earnings calls to pre-market at approximately 8am Eastern-Time.Thank you all for the time today. As always, please feel free to follow-up directly with any additional questions. Operator this concludes our call, good day..

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today..