ACM Research Inc (ACMR) Q2 2021 Earnings Call Transcript

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ACM Research Inc (ACMR 0.50%)
Q2 2021 Earnings Call
Aug 6, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the ACM Research Second Quarter 2021 Earnings Conference Call. [Operator Instructions]. Now I will turn the call over to Mr Gary Dvorchak, Managing Director of Blueshirt Group. Mr Dvorchak, please go ahead.

Gary Dvorchak -- Managing Director of The Blueshirt Group

Thank you and good morning everyone. Good evening in China. Thank you for joining us on today's call to discuss second quarter 2021 results. We released results after the U.S market closed yesterday.

The release is available on our website as well as from 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 Feng, the CFO of our Operating subsidiary ACM Shanghai.

Before we continue, please turn to Slide 2: 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 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 the 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 will provide on 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 liabilities and an unrealized gain in trading securities.

For our GAAP results and reconciliations between GAAP and non-GAAP amounts we 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 Dr. David Wang, who will will begin with slide 3, David?

David Wang -- Chief Executive Officer

Thank you, Gary. Good day and welcome to today's call. We had another productive quarter with a solid financial results. We delivered right of the revenue and shipment with a good profitability. Second quarter results reflect ACM's growing customer base, technology leadership, expanding product line, and increased production scale.

Revenue growth to $54 million up 38% year-over-year. Shipments were $82 million up from $45 million in the second quarter of 2020. We delivered a good balance of growth and profitability with the 40.5%, gross margin to 10.4% operating margin. We are committed to drive profitable growth as we increase our investment in R&D to drive innovation, further strengthening our existing product portfolio, and grow our addressable market with new product. On the bottom line, we reported $0.19 net income per diluted share compared to $0.29 back in the same period last year. We ended the quarter with $7 million of cash. In addition, we hold SMI SAFE STAR market share worth $31 million as of quarter end.

I will now discuss the recent operational highlights on slide 3: First, our Q2 revenue growth was broad base driving by current and new products with current and new customers. Our wet cleaning and other front-end product tools represent 85% of the total sell in Q2 we had a good growth from our flagship SAPS product with incremental contribution from our semi-critical tools, advanced packaging, other service and growth significantly country to 15% of our sale versus about 3% last year.

The strong growth of this Group was driven by advanced packaging tools, including weather developer and coater [Phonetic] and a big increase in our service and spare part tools [Phonetic]. This first generation semi critical and advanced packaging tool accelerated our revenue growth and further strengthening our position as a leader supplier in the China semi-conductor industry.

The higher mixing of this product, however, partially dilute our gross margin during this introduction stage. We incur this new market segments to capture the strong demand for our China-based customer and to deepen the mold that differentiate our flagship product from competitors. In cleaning, our newer semi-critical tool, it's the ACM flagship SAPS, TEBO and Tahoe product recovered more than 80% of the [Indecipherable] opportunity in advanced packaging our newer ECP AP product line extending our current portfolio with a highly SMIC product put it altogether. We remain committed to our 40%, 45% corporate gross margin target.

As a part of our normal product management, we expected improvement in gross margin for our semi-critical and advanced have you grow this will come from these highly featured content as we early model and then arranged for customer evaluation and cost reduction in later generation models. We also expand our cost benefit from volume production, new wire [Phonetic], gross margins while our flagship cleaning products remain consistent with the past appeared, which we expect continue.

ACM strategy to enter a market with advanced SMIC products such as our flagship cleaning product, our ECP tools, advanced furnace tools and other new innovative product. This product allow us to win major customer and provide to us the profits, to find a future product development. It also allows us to enter middle range or lower end product that may come with a lower margin in early stage, but allow us to capture a much larger market opportunity as we scale the business.

We remain committed to our gross margin target which we believe, we can achieve by balancing continuous innovation and high-end with that gets planned, product management, cost engineering, and production scale.

Less than two slide, we find to discuss ACM growing customer base. We have a 5 major front-end customer in foundry, 3D NAND and DRAM. In 2021, we expect Huahong Group and YMTC to remain our top two customers, we expect good growth from them. This year, however, each may represent a lower percentage, our total revenue as we expect to see significant growth from other customers. We also expect the contribution by SMIC, SK Hynix and 6MP [Phonetic]. Importantly we [Indecipherable] sake. New orders for several tools for SMIC for the second half of the year.

During the past 12 to 18 months. Our team has done a great job, a broader broadening ACM tool compound as including a full range of cleaning product and study tools. We are getting indication of higher demand. So as say it was on segment, but it is still early as I must say demand is subject to further licensing progress by then with other US become supplier.

We recently added a number of new China base me come semiconductor customers who manufacture Pole analog, CMOS image sensor, compound semi-conductor, and other devices. This customer, including 4 or 5 tier 2 player and then hand the floor of new Tier 3 and other customers, although is a rally small that's grew over new Tier 2 and Tier 3 customer, as a whole could contribute 10% or more in 2021 as newer customer investing in new capacity to supporting growth of IG, IoT, and EUV technology.

ACM, a good penetration with a range of tool including SAPS, semi critical, ECP, and the furnace products. Our 3rd customer growth is advanced packaging and other processing companies and also processing customers. Top customer have including JCAP, Tohoe, Mappers, and the wafer works. In Q1, we discussed and order from Xu Advanced Packing House and we now expect to add more customer as we move in through the year. Collectively, we expect a significant growth from the Group driving by increased industrial focus on advanced packaging penetration of new customers and a new product cycle for ECP AP costs.

Looking ahead, we believe that our current customer base represent a significant opportunity for ACM. Most of this customer still in early or middle stage of the multiyear capacity expansions. We remain committed to further broadening our customer base as we believe every major semiconductor manufacturer can benefit from our technology.

Please turn to Slide 6: We delivered total shipment of $82 million in the second quarter, a new record in the company's history. Shipment in Q2 was $28.0 million higher than revenue the difference largely we present shipment of First Tool awaiting customer acceptance. We view this as a positive indicator. As we think we flat demand for new product and from new customers.

This level of shipments is a testament to ACM production team in our Chuansha factory. we are scaling capacity to meet strong customer demand in a generally supply chain environment. Our unit cost high performance battery and the strength of our manufacturing team are helping us manage near term supply chain constraint that give us confidence in our ability to navigate the environment entering the second half of this year.

We plan to begin production in a second building of our Chuansha factory in the 3rd quarter of this year. We have increased our capacity plans and now target a run rate beginning in Q4 of this year that represent more than 500 million of annualized production capacity up from 315 million at the beginning of this year. We expect to further increase production capacity in 2022. Our long-term plan is a build their production and R&D center in the Lingang region of Shanghai. There are 1 million square of our floor space will enable us to increase our annual production capacity to $1.5 billion US. We completed additional architecture and design work in the second quarter with initial production now part in the beginning of 2023.

Please turn to slide 7, we continue to invest in new product to broaden our offering. Today, I'm pleased to announce Bevel Etch, extension to our weather product line. This uses a wet etch method to remove dielectric, metal, and organic material films, as well as contaminants on the wafer edge. ACM edged approach minimize impact of edge condemnation or later positive steps and thus improving manufacture yield the product leverage ACM wet processing expertise to deliver performance benefit compared to joint approaches in the consumer less technical and support the broader range of a device type and process including 3D MAP, DRAM, and advanced logic process we expect to ship our first tool for high volume manufacturing for China based larger manufacture this quarter.

Additionally with ACM proprietary technology, this new panel product can achieve more accurate and efficient wafer centering on it. This enables our preciseBevel Etch and our enhanced product yields and a wafer throughput. In addition, we are currently developing advanced technology to deepen our leading market position in cleaning, which we will add more products to our portfolio in 2022.

We remain bullish on our ECP product line in front-end smaller geometry require advanced plating solution. Meanwhile, back-end advanced packaging are becoming more important as industrial looks for packaging innovation to drive a higher performance as the industry moves beyond Moore's Law.

Our ECP product line indicate ECP MAP, a front-end tool for tempering copper interconnection. The ECP PSV for uniformed metal layer and also for front-end and you see the AP for the packaging. We believe the total global market for ECP triple from $5.0 million last year to up to $1.5 billion in the coming years. Although we did not revenue in the second quarter, we delivered to first 2-3 customer. We expect to deliver a high volume of ECP tools in the second quarter, second half of this year.

With the good revenue contribution from the the shipments in Q3 and Q4. We also continue to see strong interest for our Ultra ECP and furnace joining profit tool portfolio. we deliver several first two including over the built-party LPCVD. In the first half and expect to deliver additional units as we progress through the year. We remain on track, high temperature observation and viewing at our ability to our furnace product line in the 3rd quarter of 2021.

3D or Maps, the next major development in our furnace roadmap is a patch Atomic Layer Deposition or air deposits. We view this as a most of challenging and promising product for advanced manufacturing nodes. We expect our furnace pilot cycle to become more meaningful in 2022 timeframe. We are making significant R&D investments in 2 major new product categories to achieve our goal over seventy, our total adjustable market from $5.0 billion today to more than $10.0 billion.

We continue to bring top engineer opinion to support this programs and are confident our team will deliver products and move forward with customer evaluations on first product line, in the first half of next year and the second product line, in the second half of 2022. I'm happy to report we made a good progress with the potential US and Taiwan based customers since our last call. Despite the COVID related travel restriction, our team is heavily engaged in business development.

We are confident that we can secure orders from at least one new major first tier global semiconductor manufacturers in 2021. Before I provide our updated 2021 outlook. Let's discuss the status of the STAR Market IPO of ACM Shanghai. We continue to make a good progress on June 10, 2021, the Shanghai Stock Exchange Commission from ACM Shanghais application for registration the STAR Market IPO for China Security Regulatory Commission, CSRC. Moving up, they have a closer toward our goal. We're hopeful that the CSRC approves and complete our registration soon. When we see this CSRC approved. We estimate that the issue process will take another one to 2 months. Keeping in mind that the timing is subject to numerous factors. I will say ACM control. We are confident that our eventual STAR Market this being combined with our obviously can provide a strong foundation to accelerate our mission to become a major global player in the semiconductor equipment industry.

Now let's move to our 2020 outlook on Slide 8: Our guidance reflect optimism about our growth opportunity for 2021. Based on our strong results through the second quarter and include visibility for demand and our supply chain through the year-end. We have read outlook for the full year. We now expect the revenue to be between $225 million and $240 million from the prior range of $205 million to $230 million.

The revised revenue range represent 48% annual growth and EBITDA point. Our updated outlook for 2021 is based on several key assumptions:

First, the global COVID-19 situation continues to improve.

Second, the stability US-China trade policy.

Third, a range of spending scenario.for the production range of key customers.

Fourth, various in the trajectory of the DRAM recovery.

And finally, a range of the timing of customer acceptance of First Tool.

Our results and outlook stands with a successful execution strategy. Our strong growth is supporting additional R&D spending. Our new products, we are building our global sales and marketing resource to penetrate the new customer, a new region and we are production capacity to support our long-term growth plan. Our mission to become a major supplier for the global semiconductor industry remains on track.

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 the confidence in ACM Research. I will now turn the call over to Mark to discuss the financial results in more detail. Mark, please.

Mark McKechnie -- Chief Financial Officer

Thank you, David, and good day everyone. We delivered solid financial results in the second quarter unless I note, otherwise I will refer to non-GAAP financial measures, which excludes stock-based compensation and unrealized gain in trading securities. Reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our earnings release.

Now on the second quarter shown on slide 9: Revenue was $33.9 million, up 37.9%. Revenue for single wafer cleaning tools, which includes SAPS, TEBO, and Tahoe and our semi-critical cleaning was $45.5 million, up 36.4%, $33 million. We had net revenue for ECP furnace or other technologies during the second quarter, as David noted, however we delivered 3 first tools in the quarter and we expect more revenue contribution in the back half of the year.

Revenue for Advanced Packaging excluding ECP, services and spares with $8.4 million, up from $1.2 million in 2020. Total shipments were $82 million versus $45 million in the second quarter of 2020 and $74 million in the first quarter of 2021. This include deliveries through revenue in the quarter and deliveries of systems awaiting customer acceptance for potential revenue in future quarters. This represents another quarter of record shipments, a great accomplishment by our production team in an industry wide supply constraints.

Gross margin was 40.5% versus 49.7%. This was at the lower end of our normal expectation range of 40% to 45%. The decrease in gross margin, as David mentioned was due in large part to product mix, we expect gross margin to continue to vary on a quarterly basis due to a variety of factors including product mix and manufacturing utilization.

Operating expenses were $16.1 million versus $11.2 million. The increase in operating expenses reflected higher R&D on new products, our expanded US sales team and legal costs related to our US civil suit and the China STAR Market IPO. R&D expenses grew by 52% to $7.7 million or 14.2% of sales versus $5.5 million or 12.9% of sales last year. The increased R&D intensity reflects ACM's commitment to new products and innovation.

We expect to continue to increase our R&D spending in 2022. Operating income was $5.7 million, down from $8.2 million. Operating margin is 10.5% versus 21%. unrealized gain on trading securities related to the change in the market value of our SOIC investment was $3.8 million in the second quarter of 2021 note that we exclude this non-cash item from our non-GAAP results. Tax expense was $15,000 versus $1.9 million in the year ago period. Net income attributable to ACM Research was $4.1 million versus $6.2 million in the year ago period. Net income per diluted share was $0.19 compared to $0.29 in Q2 of 2020.

Tax items and the effects of foreign exchange fluctuations on operating results provided a net headwind of $0.3 million or a penny per share in the second quarter of 2021 versus a net headwind of $0.9 million or $0.04 per share in the second quarter of 2020.

We'll now review selected balance sheet items. Our cash balance was $70.2 million at the end of the second quarter versus $78.8 million at the end of the first quarter. In addition to the cash balance, we also had trading securities of $31.3 million related to our SMIC investment. This includes a significant unrealized gain from our original purchase price.

Total inventory was $136.9 million at the quarter end up by $33.6 million from the prior quarter. The quarter-on-quarter increase was driven by 2 items first finished goods inventory grew by $68 million to $64 million. This represents first tools that have been delivered to customers for evaluation and are carried on our balance sheet at cost pending potential customer acceptance.

The second item is work in process and raw materials, which in total grew by $16.8 million from the prior quarter. This was due to purchases to support shipment growth expected for the remainder of the year.

Short-term borrowings at quarter-end were $22.8 million, down from $23.5 million at the end of the first quarter. Long-term borrowings were $18.7 million, up $1.3 million from the first quarter. Cash flow used by operations was approximately $10.0 million for the second quarter but it was slightly positive for the first half of the year. In 2021, our base case plan for capital spending is about $15 million. This includes $2.8 million already spent, through the first half of the year, our 2021 investments will be primarily focused on capacity increases at our transfer factories investments to support our R&D programs, and planning and some initial spending on Lingang. And some, we continue to execute on our strategy, we are providing, --we are participating in the growth of major new IC fabs. We are ramping production and we're developing and delivering new products to a growing list of customers. We are positive on our opportunities in China and expansion outside of China. We remain committed to achieving our mission to become a major player in the semiconductor equipment market.

Let's now open the call for any questions that you may have. Operator, please go ahead.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. We'll pause for a moment to compile the Q&A list. We have our first question comes from the line of Patrick Ho with Stifel Financial Corp. Your line is open. Please go ahead.

Patrick Ho -- Stifel Financial Corp.

Thank you very much. Yeah, directly [Phonetic], nice outlook maybe to David or Mark, The semi equipment industry has gone through a lot of supply chains and strength over the past quarter given Result let your outlook, it looks like then very well. Can you just qualitatively, give a little bit of color and then whether you're seeing any supply constraints your supply chain is probably a lot different than some of my American companies, but I was just wondering how you saw supply chain constraints during the quarter or if any going forward.

David Wang -- Chief Executive Officer

Okay. Thank you. Actually because the market is moving the component supply together tight hesitated Bank. So we do see some long leading item get for the longer, so only way we're many that, is that where based on our projections fell in the half even beyond. And then we're looking there early ordinary early purchase it right and there is a long leading item. So we do see some components get a longer which impact on us. However, we get a pretty much could and we'll continue to see that there, hopefully this is get input and this moment, we feel comfortable about our revenue this year. And actually also. We also comment about also our shipment this year too.

Patrick Ho -- Stifel Financial Corp.

Right, that's helpful. Maybe in the smart collected from Mark gross margin between the 40% to 45% range. Lot of moving pieces. Every quarter as we look at the high segment. We have the first time to customers. How do you balance that versus your overall I guess normal operators because if you get a quarter of the multiple system, is that could weigh in gross margin, the out of that, what are some of the steps you're taking to try and ensure that in the gross margin. Still, you say your stated given the number of First Tool the evaluating out in the field.

Mark McKechnie -- Chief Financial Officer

Great. So, Patrick, I'll take that and maybe David, if you wanted to add to it, but, Patrick.

David Wang -- Chief Executive Officer

Sure

Mark McKechnie -- Chief Financial Officer

...It's an art and a science, certainly I mean right now. Demand is quite strong and so we're focused on our production.We do what we can of course to balance our revenue items versus our shipment our first tool shipment items and to the balance to gross margins. But many times, really it's we --our customers have strong demand. And we do what we can to support our customers. So we are --it's very important for us to focus on innovation at the high end, but then we're also moving to deliver some round out the product market to create a moat between us and our competition. And so we do feel very comfortable that we can balance all the items to deliver at gross margins in the range in the 40% to 45% range.

David, do you want to add anything to that?

David Wang -- Chief Executive Officer

Yeah, actually you mentioned quite a bit. Good. I want to add something really at this moment. I think,we together balance the product portfolio, right, and you will see that there, say a year ago. Most our is single wafer community and there was a normally higher margin and the margin still keeping changing as we introduce the semi critical product and also moreover advanced packaging tool and their slightly lower-margin product come out. Right. So we combined together does kind of margin. You see that dilution a. However, as we continue to mature, our products. You mean in the semi-critical tool and also control our cost manufacturing I gear production plus we're additional innovation product ECP continue mature cell and also at the bulk of the come out and so you that and is continue I. So we believe this moment we tried to also secure position and also especially keeping competitor get into our flagship product, as it the most organic semi-critical, all other relatively low profit product. However, as I said, we've got confidence with our also future innovation keep going even add a new cleaning function more of a new feature even to our community major products that were see that margin eventually get back. I mean it was still confident. at 40%, 45% and as I said, continued innovation and new property that will help our margin keep going in the range.

Patrick Ho -- Stifel Financial Corp.

Great, thanks very much.

Operator

Our next question...,

David Wang -- Chief Executive Officer

Thank you.

Operator

...comes from the line of Quinn Bolton from Needham and Company. Your line is open. Please go ahead.

Quinn Bolton -- Needham and Company

On the ECP sort of outlook and hoping you might be able to spend just a little bit more time talking about the ramp that you expect for ECP, maybe if you could give us a sense how many tools you have? ECP tools you have waiting customer acceptance and any thoughts whether ECP might be able to get to 10% of revenue next year, is it ramps and customers accept tools?

David Wang -- Chief Executive Officer

Okay. We're looking at ECP product, we've got actually a major I should say 3 major categories. Let me clear that one is a damaging process we call ECP MAP. And the second line recorded ECP PFC, number three is actually advanced packaging tool which will deliver for the packaging fan-out and a pillar or advanced packaging requirement, number four, we come is actually another copper plating for the compound semiconductor, it's a relatively small size 6 inch in mostly, eventually 8-inch. So with, not all product were fully expanding.

This year we see a quite a bit of a shipment and to the new customer. We're looking for actually probably tiny plus total tool we're deliver total again this year and some of them a record revenue, but most of them, I mean as you say, is how the enough, but there, some of them will be tactical, but again, obviously next year what become a repeat order and then that will be real other, bigger ramp booster or revenue. I call the product and to our portfolio of next year.

Quinn Bolton -- Needham and Company

So it sounds like, if you've got 20 million plus of tools delivered this year repeat a lot person is...

David Wang -- Chief Executive Officer

No, it not a 20 million, 20 tool number. Not a 20 million tools.

Quinn Bolton -- Needham and Company

Wow. Okay.

David Wang -- Chief Executive Officer

Yes.

Quinn Bolton -- Needham and Company

Got it.

David Wang -- Chief Executive Officer

You. have a wrong number right? Quinn?

Quinn Bolton -- Needham and Company

Got it. Thank you. That's why I get the 10% of revenue pretty quickly. Got it. Thank you David.

Mark just. Yeah. Thoughts on OpEx. I know you guys are increasing the R&D to invest in all the new products. But as we look at the quarterly progression of OpEx, Can you give us any sense as to what kind of increases you might expect into Q3 and thoughts whether OpEx would increase further in Q4, whether it would fall followed normal seasonality and maybe tick down a little bit in the 4th quarter. Thank you.

Mark McKechnie -- Chief Financial Officer

Yeah, I mean we don't, we don't give a lot of detail on our OpEx, we tend to guide on the, on the top line, but for the year. We think the OpEx would be 28%, 29% of sales, a good mix of R&D that we've talked about sales and marketing and then followed by G&A. So, yeah, you don't expect any, any kind of significant changes in the back half of the year, but so you should get a little leverage in the back half of the year. On the, on the overall revenue growth.

Quinn Bolton -- Needham and Company

Got it. Thank you.

Operator

Our next question comes from the line of Krish Sankar from Cowen. Your line is open. Please go ahead.

Krish Sankar -- Cowen and Company

Yeah, hi, thanks for taking my question. I had two of them, first one, David, on the Bevel Etch chemistry. What are the main competitors because it seems like most of them new drive and this trying to figure out who the Comecer on the that and then I have a follow-up.`

David Wang -- Chief Executive Officer

Great. I actually, --like you said. --And so, --I mean, I should say, a large part, of [Indecipherable] right. A lot of Bevel Etch, buying etchy pockets, which is, I should say, it's pretty good performance. However you have there, a particle remaining and just switch right and they for that a portion how to really get to in a cleaning, again, I mean the wet process etchy tool you adjust buses they can the much better profile and also give you clear at your result almost nobody could on top. So that's really helping reduce the film --the particle contamination and adds to the edge die for our case, actually also innovative method. As I mentioned, we have a very precisely alignment to control the center or to pass the center wafer. And so, therefore we can reach much better centering performance therefore region much better control for the Bevel accuracy, leading to the better yield right That's our product.

Krish Sankar -- Cowen and Company

Got it! Very helpful. And then just a follow-up on electroplating, thanks for the color on the different drivers for electroplating, I'm just kind of curious, David, you mentioned the plating market could triple to $1.5 billion in the next few years. I understand the different drivers like couple yield down the seen in compound semi but it almost seems like for the last few decades. This market of under $0.5 billion are pretty high the ASP is a pretty low some kind of curious what gets you to a tripling in market to $1.5 billion, is it just these 4 drivers, you spoke about, or is there anything else going on the ASC increases or throughput reduction happening. Thank you.

David Wang -- Chief Executive Officer

Yeah. Okay, great. I think the need to drive the post is still, I should probably PSV and also the 3D packaging right. Obviously balancing process. Yeah. It has been like very stable obviously more volume, more wafer if you people talk about that will continue to. Great. I know you increase. And then more of their driving we see here is that, like all their 3D packaging now there talk of our pillar if you claw can pick could you 2 got mega dealer. I would just kind of a higher pillar, you need a more of a positive time into plating such a figure pillar right So also they're talking about 3.5 G and 3D. So there is a much more 3D application come out and for the packaging. Obviously, not only for advanced, I call application even people today consider even 28-nano or 40-nano there, try to combine with the advanced packaging technology there is further enhance our performance. So with that in mind, we think just grow. I and the people who this year property is when we reach is 700 million as a total tenancy and the packaging altogether. So we're very the see that a growing opportunity again because our pretty driving by their how the mortgage law right, people focused on their on a lot of the bank packaging approach.

Krish Sankar -- Cowen and Company

Very helpful, thanks a lot, David. Thank you very much.

David Wang -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Charlie Chan from Morgan Stanley, your line is open. Please go ahead.

Charlie Chan -- Morgan Stanley

Thanks for taking my question and great results. David, good evening and Mark, good morning. My first question is about the lean time between your shipment to the revenue. So maybe Mark, can you please remind us what is the lean time?

David Wang -- Chief Executive Officer

In this moment I should they are average the pie along those 6 months already.

Charlie Chan -- Morgan Stanley

Okay

David Wang -- Chief Executive Officer

...And average some bigger product so there something maybe longer as about the 2 months longer than our previous 4 months time. So that's the, now I hopefully as time going on we going to shorten in other product cycle and at the moment, I should say supply that in leading leading item and take much longer time to get in the hand of the major reasons.

Charlie Chan -- Morgan Stanley

Okay, thanks. Yeah. So because you took about your annual annualized production. Right. So if I look at second quarter you're is up over $80 million US and the full year. Production is exactly as range of $50 million US I'm thinking that when you try to just meant your annualized production hundred million US dollars. My question is that when well, companies revenue scale will hit 500 million US?

David Wang -- Chief Executive Officer

Well, that's tough question. Again, I mean, assuming the number we normally to now there are real I quarter final release in almost end of the year. Right. So I can tell this year. Our shipment is much higher than last year and I actually number. I'd just say it might be waiting for Q4 or early release but then, so I mentioned a $5.0 million revenue shipment as the capital. So, if it's a shipment no probably easier to reach, right hopefully within next year. But the revenue wise, it was still based on that, what do you say, a lot of a new product and new customer our rare recognition big time. Right. So again I to see that a lot of going on by the revenue wise, we'll give you a property by early next year then we see more visibility. What is our sales all the next year.

Operator

We have our next question comes from the line of Donnie Teng from Nomura Securities. Your line is open. Please go ahead.

Donnie Teng -- Nomura Instinet

Thank you, David. And Mark, for taking my question. My question is related to customers. On your prepared remarks, you mentioned about that you recently received new orders from for several tools for the second half of the year. So I'm just wondering is if there any approval granted by SMIC's US suppliers, so that they can start to procure more equipment from our Research as well or is there any other reason behind and for another customer like one TC right So I think one TC is running out of it is a Phase 1 capacity expansion maybe by the end of this year or maybe by sometime next year. So just wondering if you could kindly give us some update on maybe when will one TC start the potential Phase 2 capacity expansion? So this is my first question.

David Wang -- Chief Executive Officer

Okay. Well, again, right, regarding thing is a lot of different the inflammation following in a market, right. And we do see some anyway our and same player in the industry. It is that they got the license and with for the entire tool, of a big tool. And also, we heard is some even some component supplier. They also get the license to right, I'll come up maybe a full year one time license. So again, we see that there I call about the pension that release, but again I don't know. All of this, the total product and as I know, going to buy, how much percentage again how much not again so that information. I really cannot comment that's I heard so far. But however we do have indication and they're trying to expansion their demand their customer. It really demand capacity. Right. So next year it do have expanding plan on the nickel into next year. So, our same property as and timing reach this year and also maybe Q3, we can see more clear a picture on that. Regarding one QC, as we know there faced factory almost a 4-occupied. Right. And by that by capacity and private end of this year. The first phase land plant is going. It then if we look at the building, I can only say what Asia right as I'd be careful what is very coverage also if look at outside ability. We, the next line that in deposits. So by their ability to any now we're probably going to say about end of this year. They can finish their construction and then again as a major supplier with uptick finished construction this year they expanding their second fab any I heard that they will make us successful 128 of their manufacturing. Right. So with that their technology be developed. It's very natural thinking they continue expanding, they are 128 layer in our mass production. And obviously this is a recent game. We're also expecting that go into even 198 or even more of layer R&D for the coming year. So One QC is a very good customer for us, and we have available to and also we are expanding our product portfolio, right, not just only product and we're spending also other a couple trading and also other photos product eventually getting the. You see also all the new advanced requirement. I especially for the 1-25 and Bob. But we very good I call the plenty to improving our product we have today to make sure we can meet their requirement. Right. 2 years, 3 years from now, probably not client of for the new layer even more. So we're working very close and to give us joined develop our new products to meet their future requirements.

Donnie Teng -- Nomura Instinet

Thirdly, I have a follow-up on SMIC so when you that you received new orders from SMIC is that for like there Shanghai fab but most Vention I fab or is for like Beijing more mature nodes like above 28 nanometers.

David Wang -- Chief Executive Officer

Yeah. We got actually from Beijing mature notes and also, I'd say that expansion plan. As I mentioned the can part also there Beijing with most of that happened, maybe a Shenzhen, right. That's why I heard so far.

Donnie Teng -- Nomura Instinet

Okay. And my second question is probably for maybe longer term business expansion. So I think based on your sales scale, right. If we consider you have maybe like 80% of sales roughly from wafer cleaning tools then I guess you probably will translate into at least more than 10% of the market share in China already in terms of wafer cleaning tool. So I think probably you are the biggest --already the biggest one, then continue expanding market share in China. Domestically, but I think that kind of market share has been pretty high. Right. So, inevitably, you need to spend to more new product for portfolio as you just mentioned like ECP advanced packaging etc. But on the other hand, previously that you are also trying to penetrating into overseas, leading semiconductor customers. So I'm just wondering, which targets are the priority right now and could you kindly give us some update on your expansion in the overseas market. Thank you.

David Wang -- Chief Executive Officer

Great, thanks. Okay. I should say both important right both the market in China is important and also outside China important and actually our long-term goal. Let me give you the long-term goal. We are trying to make our revenue 50% come from China market and 50% from outside China market and that's why we are actively agile higher building our strong team in the US to approaching leading customer US also enhance our team in Taiwan too right and reason. Also we have further enhance our sales team in Europe, we believe our core our proprietary technology like SAPS and TEBO for PDD cleaning with our energy and also a powerful product in our, with our I call so Vegas process and there also. And we, I should say that we also add additional new function, new requirement, and for the further strengthening our community product right among those 2. That was all innovation in hand, we are trying to first the demonstrate probably China and Korea market and we believe our product eventually or think in Apache. There are major companies in the world. We only key customer they neither technology, right. As I've said, again our proprietary technology and there is a real unique approach we're providing and with all the benefit we think are essential product we're getting into the market outside China and we're very confident and we see that a big movement and also duty as ordered in the US. So it. David, you want to participate better in a growth market in the US and also obviously you can see very growing market in Taiwan. And also, you know, and the potential from New York right if you can talk about the too. So as ACM today are really again equal important even revenue major compound in China right now. However, we do see our future growth. And also we're coming from outside China.

Donnie Teng -- Nomura Instinet

I have a follow-up for that, So, previously impression is like you put more focus on expanding overseas customers but in past few quarters is like, it looks like our new products or our new equipment expansion to be faster than expected, so we put more emphasize there, I'm just wondering if this kind of situation crack way to say or does the mean that we --our schedule with the offers these customers continuing to be postponed?

David Wang -- Chief Executive Officer

Well, again as say we are working closely right again as now there I sir. The final mature, not a final maturity yet, but again I don't think I think when we can progress. Right. And when the timing and the reaching was announced that at this moment is that we are very, very working closely with the customer.

Mark McKechnie -- Chief Financial Officer

Great. We should probably move on to the next question please.

Operator

[Operator Instructions]. We will now limit the question to one per participant to allow for other questions to be addressed. Our next question comes from the line of Charlie Chen from Credit Suisse. Your line is open. Please go ahead.

Charlie Chen -- Credit Suisse

Okay. Thank you, Lisa Dalian, so David, you give some color on SMIC and one piece. And can you talk a little bit about the XMT please. Because, I'm just curious as it has been doing pretty well with all the other major guys in China, but it seems that the business is a little bit lower with the XMT thank you.

David Wang -- Chief Executive Officer

Yeah, actually we do see that business pick up. Right. And probably the to location lines of aging the right and again we're working close with them. I will see that there some some I call order we already and from Beijing, the new factory to. I know they have a bigger 40K expansion right and other that will keep going and the partial release that order we're say property of most of our happen next year, but there continue improving technology and implement capacity. So, let's see. And we have been working very close with them to our Cleaning product and also a Brady [Phonetic] and also further to try to walk with them together expanding in our spot right get into their their production 9-2 for their evaluation. So, for the customer and we hopefully eventually they become a copper customer for us and the inorganic coming year soon right So that's our effort to the put here to win the customer as the XMT.

Charlie Chen -- Credit Suisse

Thank you, David.

Operator

Our next question comes from the line of Suji Desilva from ROTH Capital, your line is open. Please go ahead.

Suji Desilva -- ROTH Capital Partners

Hi David. Hi, Mark. Congrats on the progress here. On the global customer. You said you're going to ship in calendar year '21 and since you have 6 months leaves. I guess you the visibility there starting to understand this is a production volume or pilot volume is it SAPS, TEBO or back-end advanced drilling those kind of that kind of color would help. Thanks.

David Wang -- Chief Executive Officer

Well, and I really couldn't really any product right obviously control, even though it's not a lot talk about of which thereby anyway. We're now going to see that how the Cleaning tool and that you will be the evaluation tool and hopefully what we end, repeat order, appeal and that digital process first along the evaluation, we would like in the product, they gather all the production verification bank we're hopefully going to be in. All right. So anything while repeat what that we've had mix right, that's going to be, then we are expecting. Again, it's a good opportunity. That's why we're the very good effort and make our team really cells and also some easy and all other related logistics supported by for those haven't

Suji Desilva -- ROTH Capital Partners

Alright David, appreciate that color. Thank you so much. Bye

Operator

Our next question comes from the line of Chi Tsai from Jefferies. Your line is open. Please go ahead.

Chi Tsai -- Jefferies.

Hi, David; Hi, Mark, Thank you for taking our question. Could you give us some color on your Asia as you said it's going to take another one to two months. So can you share what were kind of profit with the CSRC what's going to take where that yield to go through?

David Wang -- Chief Executive Officer

Okay, good. So Chi, actually, as I mentioned in June actually the Shanghai Stock Exchange. Based on these application right to the CSRC. So we are going through question-answer as you so far the question given to us were all answered already. All right. And then now I been probably in their internal procedure process and to get a final and also just two days ago, we also submitted the Q2 financial review. Right. And to this day has CSRC also. So let's say it maybe they come into some question coming back to our Q2 data and anyway, we're prepared for that. Again ACM probably, is the first US company has headquarter to US. They also have no IPO with their subsidiary in Shanghai and for STAR Market IPO. Right. I'm pretty sure, this is a real unique and first case. So it's vulnerable, and they take it more time, consider and take them over a cautious effort. I especially have this this I quarter social report to come out. Right. All I think put together. Anyway, we have confidence as I said that we're a good housing company and could technology and with our strategy and I think we should be overcome and this I call there. Thank you can IPO in STAR Market believe definitely both benefit our real run our expansion plan in China and that's there we're believing would be there knowing win-win right and for the customer in China and our financial investor in the US and also ACM global growth. So it's a good thing to try to to to work and make it happen.

Chi Tsai -- Jefferies.

Yeah. Thank you very much. My second question is regarding your R&D expense. I think you have a very big job on your first half R&D expense. I think that's very positive given you are extending your product there. Can you give us some color on the long term R&D expense. Although well it says the same like meetings going into next 2, 3 years?

David Wang -- Chief Executive Officer

Yeah, good question. Actually, let me put this way as a major couple of earning call on previous time. we want to balance and profitability and also a growth opportunity. Right? So, probably last 2 year, you can save about 100% R&D, and this quarter we get into the 14%.. So, probably seeking to the good range and for us to stay aligned. We've had and this gross margin 40%, 45%. This is all operating coming together you have together a 10% plus and that's kind of profit or read there. So we've got a bad is in the hand and that's why we give you 50% is our property, a number of, we try to be keeping our next two,-three year, but let me add another difference we are for other big guy we spend on the money, very efficient.

Look in the last two-three year with developing operating and with you other furnace, we spend also semi critical in process also by and this year we're pushing additional new Cleaning function other even drive like already come out and is are Cleaning product. We are spending very efficient month was up every pinion dollar and to maximize their our R&D effort. So I think 50% is a good number and we can --we've got a spending. We have a confidence in our getting into our new product come out on a timeline. And also I think are key for our success, or R&D is we are always get inhalation product always the High Court Division. We don't want to get need to. But number one tier. We also have a very good team and working in the Shanghai and working with a Korean market, Korean onsite. So that's really give us a strong R&D effort and then really see there are part of the market and that's really, I mean historically in terms of that so continue innovation, we are very confident, we'll continue pushing R&D at the next level with the new innovation,product.

Chi Tsai -- Jefferies.

Thank you. That's very helpful. I'll come back on the good result thank you.

David Wang -- Chief Executive Officer

Thank you.

Operator

Next question comes....

Mark McKechnie -- Chief Financial Officer

Next question please.

Operator

Yes Sir, Your next question comes from the line of Christian Schwab from Craig-Hallum Capital. Your line is open. Please go ahead.

Christian Schwab -- Craig-Hallum Capital Group LLC

Okay, great quarter guys. I'll try to sneak in 2 quick questions. This some quick recent news about a leading customers default would that is potentially going to have any impact on your was question one. Question 2 is what happens if YMTC gets put on the entity list, is there any way to ship to them?

David Wang -- Chief Executive Officer

Mark, you want to answer that? or

Mark McKechnie -- Chief Financial Officer

Yeah, I can I can start and then have you finish, but yeah, the first one on the bond defaults. David has talked about that and prior calls we're pretty confident that the operations of that customer, are solid. And then our general thought is that the financing will be available hopefully from is so long as the operation continues to execute that they can them seek funding from other areas and it's more of about ownership issue rather than a funding operation issue.

In terms of the entity list it's --they are an important cost, YMTC's an important customer, David talked about we expect growth but likely a lower percentage we're monitoring closely, and hopefully they don't get put on the entity list, we feel pretty confident given our manufacturing operation in Shanghai and a lot of our technology came from there that we might have some more flexibility to shift to --should they can put on the list, but of course it is dependent upon their ability for the other suppliers to get licenses. So we'll monitor closely and will update if necessary.

Christian Schwab -- Craig-Hallum Capital Group LLC

Great, thank you for letting me sneak in two quick questions. Again congrats on a good quarter.

Mark McKechnie -- Chief Financial Officer

Great. Thanks, Christian.

Christian Schwab -- Craig-Hallum Capital Group LLC

Thank you.

Operator

That wraps up our Q&A session, I'll turn back the call over to Gary.

Unidentified Speaker

[Multiple Speaker] [Indecipherable].

Gary Dvorchak -- Managing Director of The Blueshirt Group

Alright, guys. I think that's it. Thanks, operator. And everyone for participating on the call.

I just want to mention some upcoming investor relations events:

On August 24, we're going to present at the Needham second Annual Virtual Semicap and EDA Conference.

On August 31, will present at the Jefferies Virtual Semiconductor IT Hardware and Communications Infrastructure Summit. In addition, will present at the Jefferies Asia Forum on September 9 and the 22nd.

Credit Suisse agitation Technology Conference on September 10.

Attendance at these conferences is by invitation-only for clients of each respective firm. So interested investors, please contact your respective sales representative to register for one on one meetings to secure time.

So this concludes the call. Thank you, everyone. You may now disconnect.

David Wang -- Chief Executive Officer

Thank you, bye.

Operator

[Operator Closing Remarks]. Have a great day!

Duration: 67 minutes

Call participants:

Gary Dvorchak -- Managing Director of The Blueshirt Group

David Wang -- Chief Executive Officer

Mark McKechnie -- Chief Financial Officer

Unidentified Speaker

Patrick Ho -- Stifel Financial Corp.

Quinn Bolton -- Needham and Company

Krish Sankar -- Cowen and Company

Charlie Chan -- Morgan Stanley

Donnie Teng -- Nomura Instinet

Charlie Chen -- Credit Suisse

Suji Desilva -- ROTH Capital Partners

Chi Tsai -- Jefferies.

Christian Schwab -- Craig-Hallum Capital Group LLC

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