Kulicke & Soffa Industries (KLIC) Q1 2022 Earnings Call Transcript

Kulicke & Soffa Industries (KLIC -2.58%)
Q1 2022 Earnings Call
Feb 03, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello and welcome to the Kulicke & Soffa 2022 first fiscal quarter results conference call. At this time, all participants really listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It's my pleasure to turn the call over to Joe Elgindy, senior director, investor relations. Please go ahead.

Joe Elgindy -- Senior Director, Investor Relations

Welcome everyone to Kulicke & Soffa's fiscal first quarter 2022 conference call. Joining us on today's call is Fusen Chen, president and chief executive officer; and Lester Wong, chief financial officer. For those of you who have not received a copy of today's results, the release, as well as our supplemental earnings presentation, are both available in the Investor Relations section of our website at investor.kns.com. In addition to historical statements, today's remarks will contain statements relating to future events and our future results.

These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a complete discussion of the risks associated with Kulicke & Soffa that could affect our future results and financial condition, please refer to our recent SEC filings, specifically the 10-K for the year ended October 2, 2021, and the 8-K filed this morning. With that said, I would now like to turn the call over to Fusen Chen for the business overview.

Please go ahead, Fusen.

Fusen Chen -- Chief Executive Officer

Thank you, Joe. This continue to be a very exciting and a transformative for the company. Our core business is being fundamentally enhanced as the importance of semiconductor assembly increased in both high volume and the leading-edge semiconductors. Additionally, we continue to make significant progress expanding our market reach as interest and adoption of advanced packaging, automotive and advanced display offering are accelerating.

All confidence in these high potential new initiatives is improving as our market engagement our tracking better than expected during our investor day in September. I will spend a few minutes to cover each. Within our dedicated advanced packaging business, we continue to get access into the logic networking and the mobility market. This portfolio, including our lithography, thermal completion, high-accuracy free chip and a system in package free chip solution are extremely competitive and address the broad and the growing semiconductor assembly market.

We continue to drive adoption across this growing portfolio. And APAMA, our semi-compression platform, is making significant progress. Heterogeneous integration or tubular integration is one of the long-term opportunities that we are pursuing aggressively although this is not the only market. In addition to heterogeneous integration, we are also extending access within mobility for both high-volume logic and the next-generation 3D sensing applications and also for co-package optics necessary for ultra high-speed network communications, such as high bandwidth transceivers.

The key benefit for the semi-compression, or TCB process, include an efficient solution for higher bandwidth interconnect assembly, down to 10-micron pieces, which is well beyond the current interconnect piece for most leading logic applications. Additionally, TCB enables taking for emerging 2.5 and 3D architectures. This shift to emerging multi-chip structures is increasing the value-add of packaging technology and is increasingly necessarily to support year at the leading edge. In addition to this fundamental benefit within leading-edge logic, TCB also enabled assembly for components, which are heat sensitive, including the [Inaudible] substrate and optical components used for communication and sensing.

We recently received acceptance and recognized revenue for a high potential silicon photonics application, supporting the optical transceiver market. With increasing cellular bandwidth need, network-to-network communication is expected to grow dramatically with high bandwidth optical transceiver expected to grow at a 50% CAGR through calendar 2025. We are very early in this transition and we're positioned to help enable this growth. The next update is related to our automotive opportunities.

The transition to electrification and autonomous are accelerating semiconductor growth in the automotive market at a rate of overprice, the industry average. Over the coming year, our high-performance, high-reliability system match well with this end market. In addition to our historic leadership position within the automotive semiconductor applications, we have also been developing new battery assembly systems. Over the past several years, we had one core battery solution that was adopted and globally deployed by one customer.

While this solution was very successful, the market was limited. Today, many more customers are entering this space and we are working to bring new innovative solution, and supporting both cylindrical and prismatic battery opportunities to market. Recently, our engagement and the market interest with our current and our new battery offering have expanded dramatically. At this pace, we are tracking better than the expectations set during the recent Investor Day.

We are currently engaged with over five high potential customers eager to ramp battery production for the commercial and the consumer vehicle market. We are also experiencing growing interest within emerging industrial applications, such as a battery backup and agriculture. Finally, the third key growth focus area is advanced display. We continue to deliver our market-leading PIXALUX system and are ramping production of several LUMINEX quantification tools.

Over the coming quarters that we anticipate winning several new LUMINEX qualifications and gaining more visibility on a broader industry ramp. Turning to our results this quarter, we achieved $460.9 million of revenue and a non-GAAP EPS of $2.19. We generated $408.6 million within capital equipment, and the demand remains strong across all end markets. General semiconductor remained very strong, softening by 16% sequentially as anticipated.

Within general semiconductor, the more capacity-driven, more bond in business declined by 8%. The larger sequential reduction stemmed from very strong September quarter's demand for our wafer label, logic, and the power assembly solution. [Inaudible] rate remained strong across this broad installed base. As a reminder, general semiconductor revenue in the recent December quarter is currently over 50% higher than the same period last year.

Within the LED market, we continue to support rapid growth-leading advanced display. Advanced display increased by 28% in the December quarter, representing 56% of our total LED revenue, up from 40% in the September quarter. We continue to aggressively work toward expanding our presence in this new exciting area and to anticipate advanced display will grow dramatically over the long term. Next, automotive and the industrial remains a long-term growth opportunity for us.

In September, automotive demand increased by 92% sequentially and was driven by improvement in our battery assembly, post distribution and sensing solutions. We are very eager to continue participating in the long-term transformation of the automotive space. Finally, demand for our memory solution increased by 17% sequentially from the very strong September quarter. Overall, current market conditions and our long-term outlook are tracking better than expected, and we remain very positive over the coming years.

[Inaudible], we are very focused to drive new customer engagements and win new qualifications across advanced packaging, automotive, and advanced display portfolio. Over the prior years, our focused development efforts have better aligned our business with long-term technology-driven market opportunities, which we are executing on. While broader industry supply chain and the global logistics challenges are part of the current operating environment, we believe they are very short term and anticipate greater improvement through fiscal 2022. Over the coming years, the future is very bright, and we look forward to sharing our progress over the coming quarters.

With that said, I will now turn the call to Lester, who will discuss our financial performance. Lester?

Lester Wong -- Chief Financial Officer

Thank you, Fusen. My remarks today will refer to GAAP results unless noted. During the December quarter, we continued to perform in a very dynamic supply chain environment and were able to recognize revenue of $460.9 million. Considering our above-average LED-related revenue during the September quarter, underlying demand in other end markets remained robust.

Gross margins came in strong at 48.4%, which stem from sequential improvements in both capital equipment and aftermarket product and services, and particularly related to a lower amount of expediting and logistic expenses in the December quarter. Non-GAAP operating expenses came in below our expectation at $65.4 million during the December quarter. This was primarily due to a delayed start in a few internal projects, which favorably benefited SG&A and R&D-related expenses. Tax expense for the quarter came in at $17.9 million, and we anticipate an effective tax rate of approximately 15% for the full fiscal year.

Non-GAAP net income came in at $138.8 million, generating $2.19 of non-GAAP EPS during the December quarter. Turning to the balance sheet. Working capital has remained efficient. Days of accounts receivable increased from 78 to 84 days.

Days of inventory increase from 59 to 75 days. And days of accounts payable increased from 55 to 56 days. During the December quarter, we generated free cash flow of $92.7 million. Our net cash balance total $464.7 million at the end of December.

From a capital allocation standpoint, we continue to deliver value in several areas. For the dividend, which was just increased by 21% for the January payout, we intend to continue increasing in a consistent and long-term manner while maintaining a competitive yield relative to our peer group. Separately, we have and are continuing to accelerate the cadence of our open-market transactions under the existing repurchase program. During the December quarter, we repurchased over four times as many shares relative to the September quarter.

Our total share repurchases in the December quarter were 50% higher than our entire fiscal 2021 repurchase activity. We continue to take a long-term view on the repurchase program and expect to gradually increase our repurchase cadence throughout the current fiscal year. As outlined last quarter, we continue to expect the industry will expand aggressively through fiscal 2022, although at a slightly lower rate than fiscal 2021. Aligned with Investor Day assumptions, we continue to anticipate above-average semiconductor growth will continue through fiscal 2023.

We have assumed global logistic challenges improve and industry supply chain constraints begin to ease as wafer production improves in the second calendar half. Under these general assumptions, we currently anticipate revenue to be approximately $1.58 billion in fiscal 2022. For the March quarter, we expect demand to remain strong and we anticipate approximately $380 million of revenue, plus or minus $20 million. We anticipate gross margins to be 48% in the March quarter, plus or minus 50 basis points; non-GAAP operating expense to be approximately $75 million, plus or minus 2%; and non-GAAP EPS to be $1.45, plus or minus 10%.

We are very focused on supporting the spirit of aggressive industry expansion and are also extremely focused on driving new engagements, qualifications, and ramping production within the advanced packaging, automotive, and advanced display portfolio. Our engagement and new qualification execution throughout fiscal 2022 can potentially drive meaningful upside to the fiscal 2024 targets we shared during our Analyst Day. This continues to be a very exciting period in the company history, and we see a direct path to dramatically and sustainably extending our business as we continue to execute on this multifaceted growth strategy. We look forward to sharing additional information regarding these new opportunities over the coming quarters.

This concludes our prepared comments. Operator, please open the call for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question today is coming from Charles Shi from Needham and Company. Your line is now live.

Charles Shi -- Needham and Company -- Analyst

Thank you for taking my question. I just want to go back to -- some of the comments on opex. This is a multi-part question. So first off, I want to ask you, given your guidance for fiscal '22, which seems to imply a flat to slightly up in terms of revenue growth, is the non-GAAP opex going to follow the same trend? And second is you commented something about the opex upside in the fiscal first quarter, some of that you attribute it to a delayed start of some of the R&D activities, some projects, if I listened to correctly.

Why was that and can you please provide some color on that? Thank you.

Lester Wong -- Chief Financial Officer

Sure, Charles. As far as opex for FY 2022, I think as we are guiding $75 million non-GAAP, I think that will continue through the rest of the fiscal year. as to why Q1 was a little bit lower, There was some push-out of some R&D projects, as well as some as SG&A spend. Part of it was because December is the holiday season for a lot of our R&D sites.

I think people actually took time off this year as well as certain recruitment that we budgeted for in terms of our projects that got delayed a little bit. It'll be kicking in this quarter as well as in the following quarters. So the reduction in opex had no basically effect on our schedule in terms of our R&D projects. It's still basically tracking where we want it to be.

Charles Shi -- Needham and Company -- Analyst

Thank you, Lester. The second question I want to ask you more on the details of your fiscal '22 guidance. I wanted to run some quick math here, if you can follow me. So say your fiscal '22, your revenue is $1.58 billion.

The fiscal first quarter revenue was $460 million, and that means you will need to deliver roughly about $1.1 billion over the next three quarters for the fiscal year. But I noticed your fiscal first quarter backlog was already close to $700 million, so basically you only need to book another $400 million orders and deliver them over the next three quarters to really just meet the $1.58 billion revenue target. It kind of feels a little bit light in terms of the assumption of your booking over the next three quarters because you've been running roughly like over $400 million a quarter in fiscal '21 on average. But that assumption is kind of like you are assuming a booking kind of less than $200 million per quarter.

It seems a little bit low to me. Are you kind of thinking about the $1.58 billion revenue guidance is just a worst case scenario rather than really a base case scenario here? What's your thoughts here? Is there more upside to $1.58 billion guidance? Thank you.

Lester Wong -- Chief Financial Officer

Well, I think $1.58 billion is what we consider as the base case, right? As you went through the math, right, we did about $840 million -- well, $460 million and then the guidance today is about $840 million for the first half. And to get the $1.58 billion, I think it's just -- again, revenue now is a little bit more linear than we originally anticipated. That has been because of supply chain issues in the first half as particularly wafer shortages. We think that revenue will be a little bit linear, as I said.

As far as, is there upside to the $1.58 billion? Well, I mean, I think right now that's our view. There's always possibility for upside, but there's also a lot of supply chain constraints out there right now. So I think we feel comfortable with the $1.58 billion.

Charles Shi -- Needham and Company -- Analyst

Got it. Got it. So maybe my last question, I know this may come in your SEC filings in accuse. Can you provide some color on the puts and takes of the China and the non-China part of the revenue for the fiscal first quarter, as China is like over 50% of your overall revenue in the past few quarters? Thank you.

Lester Wong -- Chief Financial Officer

Yeah, China -- China actually is much, much higher than 50%, I think this quarter is about -- let me take a look as well, 70% of revenue. And I think it will continue to be a strong contributor. Taiwan and China, always our two strongest market. Taiwan went down a little bit in Q1, but we expect the rebound in the second half.

So I think again China and Taiwan will always be our two biggest market and has been for a while.

Charles Shi -- Needham and Company -- Analyst

Thank you. That's all for me. Thank you.

Lester Wong -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question today is coming from Krish Sankar from Cowen and Company. Your line is now live.

Krish Sankar -- Cowen and Company -- Analyst

Hi, thanks for taking my question. I had three of them. The first one, Fusen or Lester, last quarter you kind of specifically called out supply constraints, especially the eastern substrate shortages at your OSAT customers. This time you did not.

Is this present deal at the margin, its constraints are easing relative to three months ago or how to think about it?

Fusen Chen -- Chief Executive Officer

Well, so, Krish, let me answer this way, you're talking about OSAT customer, right? So actually, we have a very diversified customer in both OSAT and IDM. And each customer, they can have a very different and unique investment schedule. For OSAT, yes, we did -- saw OSAT very strong, much stronger in '21. But at this moment, I think we are seeing strength more in IDM in the first half of '22, have by at this moment, additional revenue from dedicated AP, advantage display, and auto.

But we mentioned last time about the shortage of the wafer, not enough coming off from OSAT. We also expect stronger OSAT investments will help by improvement of the wafer shortage in the second half '22. I don't know if this will help or not.

Krish Sankar -- Cowen and Company -- Analyst

Got it. Got it. All right. And then I just had a couple of quick follow-ups.

One is on the thermal compression bond, how should we think about the revenue opportunity? Is it roughly $40 million this year or $80 million next year the way to think about it? Any color that would be helpful.

Fusen Chen -- Chief Executive Officer

OK. So, Krish, I think our view on TCB, we are quite positive and we feel like a TCB is in a stage to grow rapidly and we see the driver from a few area. One is networking. I mentioned about of our silicon photonics, optical transceiver.

Optical transceiver is a high end of -- high bandwidth transceiver. And so one driver is the networking, second one is sensing, CMOS imaging sensor, and the heterogeneous integration or tubular integration. Everybody talking about it. We also see mobility logic will use TCB more and more.

And we are very bullish on our approach we call fluxless. The pitch down to 30 micron, any flux will cause a contamination or cause a short. We have a very proprietary process, and we believe we will make a big impact in this TCB market. So if you remember, in our investor call four months ago, we mentioned -- we indicate, FY '24 revenue compared to '21, there will be some upside in this area, right? One is a dedicated AP.

One is battery EV, one is a display? So you ask about dedicated AP. We -- actually, given our guidance, we may have put additional $80 million. So we indicate maybe '24, we will reach $100 million, majority will be TCB. But at this moment, I think we want to check much better than that.

We probably give you some color in the next one or two quarters.

Krish Sankar -- Cowen and Company -- Analyst

Got it. Got it. Super helpful, Fusen. Maybe I just wanted to follow up on that.

One of the things that seems like -- if you look at hybrid bonding with some of your peers in Europe are doing, one of the current issues seems to be lack of a good methodology, like the scanning acoustic microscopy. Do you think that is what is the limiting hybrid bonding upside in the near term and that's kind of helping TCB? Or do you think they're like two separate mutually exclusive issues? And just out of curiosity, if you think you can hit TCB revenues of $100 million in FY '24, what do you think [Inaudible] market be there?

Fusen Chen -- Chief Executive Officer

OK. So hybrid bonding, people are talking about it maybe for a pitch below 10 micron. But at this moment, I think 10 micron actually is a really big stretch. Maybe people have a problem -- have a contamination issue for the TCB, so we believe our approach is right.

The hybrid bonding, in our opinion, is very niche, right. It's really a niche market. And I do believe the future for TCB for the next couple of years will be much bigger than what people predict for hybrid bonding. And hybrid bonding, there are fewer approach.

I think that at this moment is a very big, complicated process. So we have actually both program, one is fluxless, one is a hybrid bonding. But we put much -- much more effort in the flux than TCB bonding.

Krish Sankar -- Cowen and Company -- Analyst

Just to clarify, Fusen, do you think the metrology issue is what is making hybrid bonding a niche market?

Fusen Chen -- Chief Executive Officer

Yeah, this -- metrology is one but the hybrid bonding, you really got to -- have a very complicated process. There are two approaches, one is really a sequential one. And if you look at it, this is a really front-end process, right. This is a little bit more complicated.

So I agree there's metrology and also it's inherent. It is not a very easy process.

Krish Sankar -- Cowen and Company -- Analyst

Got it. Thank a lot, Fusen. Really appreciate it. Thank you.

Fusen Chen -- Chief Executive Officer

Yeah, thank you.

Operator

Thank you. [Operator instructions] Our next question is coming from David Duley from Steelhead Securities. Your line is now live.

David Duley -- Steelhead Securities -- Analyst

Yes, thanks so much for taking my question. As far as your annual revenue target, you bumped it up like $80 million from $1.5 billion to $1.58 billion. Could you help me understand where that upside is coming? Is it coming from the core wire bonded business not going down as much as you thought or is it coming from a lot of these new opportunities growing faster than you initially anticipated?

Fusen Chen -- Chief Executive Officer

So could you quickly repeat again? I'm sorry, I just missed a couple of seconds.

David Duley -- Steelhead Securities -- Analyst

I was just curious. Is -- you've bumped your annual revenue target up from $1.5 billion to $1.58 billion, $80 million increase there. Is that from a wire bond business going down less or the new stuff growing faster?

Fusen Chen -- Chief Executive Officer

So actually, Dave, when we have a new forecast, it's based on the new information come out. We always make sure we can deliver it, right? So let me give you overall of the full year outlook. So I think if you look at the in the past two quarters, really in order to deliver customer's capacity shortage, right, there's a very desperate need for a lot of [Inaudible]. And we really purposely stretch our capacity and our target, maximum capacity was a 450 but we purposely actually stretch our capacity.

Delivery at one quarter is for $490 million, one quarter is at $460 million. So -- and together with Q2, Chinese New Year typically is a soft year, right? So as a result, I think we guide the midpoint for Q3 to $380 million. And let's face it, $380 million is still very, very strong compared to our historical results, right? So what I sort of say, I think the past two quarters really is a purposely we try to reduce our backlog and reduce our shortage for the whole industry. And we mainly, I think two quarters, if you look at it, the end demand for the market is still very, very strong.

And we fear maybe we will have additional upside if the wafer stock get more capacity come online. We might have a little bit more upside, I think, in the second quarter. So that's all we see right now but when we have a more clearer picture of our wafer shortage improving, I think we will discuss maybe in the next quarter.

David Duley -- Steelhead Securities -- Analyst

OK. Could you just talk about you've had really strong gross margins, I think they're 48% recently. Through the balance of this calendar year, how should gross margins trend, up or down?

Lester Wong -- Chief Financial Officer

Well, Dave, I think gross margin is -- for now, is trending between, , 47% to 48%, right? I think that is a realistic target. I mean, obviously margin moves from quarter to quarter depending on product mix as well as customer mix. I think one thing that has an effect on the margin last year as well as this year is the fact that there's still real supply chain constraints and that we do actually spend additional dollars in terms of expediting component as well as the -- as you well know, the shipping and freight is very, very tight right now. So that cost is also a little bit higher.

But I think 47% to 48%, a little -- maybe a little bit higher than that is probably a realistic target for the rest of the fiscal year.

David Duley -- Steelhead Securities -- Analyst

OK. And final question from me is, I guess it's a two parter. Could you just talk about what the utilization rates are of the wire binders are? I think you mentioned that they're still high, but I didn't hear a number. And then just highlight for us again what your targets are for revenue in the LED business in this fiscal year and next fiscal year or calendar year.

However you're characterizing it. Thank you.

Lester Wong -- Chief Financial Officer

So I'll answer the utilization rate. The utilization rate are in the high 80s. It came off a little bit, but it's still very, very robust from a historical basis. And so we think that will continue to drive demand throughout the fiscal '22.

And then again, as Fusen mentioned, as the wafer shortages hopefully eases, we believe the utilization rate will go up again. As far as LED targets, we actually didn't provide LED targets going forward into '23. I think, again, we don't specifically break out what we we have targets in terms of revenue for the different product lines per se, but LED we do believe it's going to recover a little bit in the second half. We're seeing a little bit of that.

And Fusen discussed in his remarks, we have still a very, very strong advanced display, which is a part of our LED revenue.

David Duley -- Steelhead Securities -- Analyst

Thank you.

Operator

Thank you. Our next question is coming from Tom Diffely from D.A. Davidson. Your line is now alive.

Tom Diffely -- D.A. Davidson -- Analyst

Yes, thank you for the questions. Lester, just to follow up on the utilization question. Is it normal seasonality in utilization rates? Do they tip off the holiday season post-China or pre-Chinese New Year?

Lester Wong -- Chief Financial Officer

Yeah, Tom, there is a little bit of that. I mean, usually the March quarter, which Chinese New Year is in, utilization does come down a little bit. I mean, China and also Taiwan, to some extent, shuts down for a period of time. So I think, yes, there is some seasonality into the utilization rate.

David Duley -- Steelhead Securities -- Analyst

OK. And, Fusen, when you look at the way for shortages that we've had across the industry now for the past year, how much do you think that's impacted your business or how much upside do you think was taken away by those wafer shortages that should recover or should come back over the next year or two as we ramp up?

Fusen Chen -- Chief Executive Officer

Well, this wafer shortage, actually, I think, first of all, I think people need to invest in the front end and roughly would take about a year to two years to come off. So what we are seeing right now is there are some legacy products. A lot of investment is about 18 months to a two years ago. Many, I think, in China areas.

So we expect this front end finish probably will start to go down again and then start to increase wafer capacity. So we feel like it should go up but there's a lot of industrial supply chain issue, right? So, but go up will be a gradual case. So we feel like maybe it's hard to put a number but maybe tens of million dollars. Well, it's calendar year, right? So if it's calendar year, it's only [Inaudible] to us.

Fiscal year for us, three months. So tens of million dollars, so maybe we'll expect that but we depend on many, many factors for the industry.

David Duley -- Steelhead Securities -- Analyst

OK. That's fair. And then finally, obviously, Lester, you talked about how 70% of the business or so is in China because that's just where the chips are packaged. Are you hearing more from your customers about plans to bring the back end of packaging to the U.S.

and Europe to diversify geographically a bit?

Lester Wong -- Chief Financial Officer

Well, I think diversification of the supply chain, I mean, is definitely a hot topic, right, both from a geopolitical basis as well as COVID has shown that you do need a more robust supply chain. So we are seeing some initial discussions about investments in Europe. Again, they've seen it in the U.S. The U.S.

hasn't really had investment on the back end for a while, but we're seeing some interest and then also in Southeast Asia as well as Taiwan.

David Duley -- Steelhead Securities -- Analyst

OK. Thank you for your time today.

Lester Wong -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question today is coming from Dylan Patel from SemiAnalysis. Your line is now live.

Dylan Patel -- SemiAnalysis -- Analyst

Thanks. Fusen, I wanted to ask about the timing of orders. Big, big automotive and trailing edge semiconductor firms like ST Micro and Texas Instruments are doubling their capex year over year. And TSMC and UMC, and SMIC, they're spending more on trailing edge than ever before.

Has this new front-end capacity translated to back end? Fabs take years to build, so what's the timing for these back-end assembly investments into wire blunders versus the front-end investment that's been flooding in this year?

Fusen Chen -- Chief Executive Officer

So, Dylan, I think your question is similar to Tom, just asked. So let me answer this way. Semi unit growth was around 20% in calendar year '21. So front-end investment continued to a flow to back end.

Yeah, that's true. But normally, I think it should take a year, sometimes two years, depending on what kind of technology and investment scale to reach. For example, investment from two years ago in China are expected to support wafer capacity growth in the second half of calendar year. So I don't know if I answered your question.

So normally I think it should take probably -- this can take up to two years.

Dylan Patel -- SemiAnalysis -- Analyst

OK. Thank you. And then for a follow up, I wanted to ask a bit more about the battery business. At the Investor Day, you talked about a laser-based cylindrical bonder system, but we didn't really get much information about that.

There's a lot of competition in the heavy wire bonder space for automotive, but what is this laser system? What is the advantage here? What's that do for competition?

Fusen Chen -- Chief Executive Officer

OK. So, historically as we did in the heavy white witch space within automotive, right. But right now, actually we have a free battery solution, two for cylindrical and one four prismatic. So let me get into right point why people think about laser compared to wage.

I think laser has a much faster process. The super is a high, the cost of ownership is low, but it's haven't demonstrated high-volume production capability yet. One of the biggest issue, I think the process window tend to be narrow. And if the process window shift a little bit, this can lead to some reliability concept, right? But some some people actually, I don't even know the term pack assembly.

So normally, I think these days, people use for a -- tend to -- try to use in the assembly. And it doesn't provide an alternative process for some customers. But I think that at this moment, if you look at the best and reliable products still come out from the wire bonder. But actually, we have a bold solution.

We have a slightly better solution, two for cylindrical and one for prismatic.

Dylan Patel -- SemiAnalysis -- Analyst

Thank you.

Operator

Thank you. Our next question is coming from Craig Ellis from B. Riley Securities. Your line is now live.

Craig Ellis -- B. Riley Financial -- Analyst

Yeah, thanks for taking the question and congratulations on the strong performance, guys. I wanted to start with a follow up on some of the comments around the potential for second -- fiscal second half wafer improvement or hopes for that to occur. Can you just talk about what you're hearing from your customers on what they see as their potential wafer output improvement that then would flow through to your volumes? Was it single digits, half on half; double digits, half on half; high double digits? What is it that you're hearing that lends confidence that we've got wafer improvement and volume improvement coming in the second half of the year?

Fusen Chen -- Chief Executive Officer

So I think the reason we put it at $1.58 billion was the reason. I think the signal is still a little bit mixed. Some people feel like this -- OK, so supply chain shortage. To us, I think our supply chain shortage is a less problem for us.

I think the industrywide problem is a really chip shortage, and this is a wafer shortage. And if you ask different people, I think different people have a different degree of -- scale of suffering on this. So this is our best judgment. We feel like $1.58 billion is right for us.

But as the time go on, I think we will get more information. If you remember, last year at the beginning of the year '21, we gradually guided up because, one, we have more confidence. I think we are able to change our view. But at this moment, I think the supply chain shortage, a lot of people feel like it's getting worse.

And -- but some people feel like it's getting easy. So we are talking about the whole integration of our industrial shortage. That's why I think we still need a little bit time. But our best judgment, really, at this moment is the $1.58 billion.

So we [Inaudible] a little bit more color maybe next time.

Craig Ellis -- B. Riley Financial -- Analyst

That's helpful, Fusen. And maybe to follow up on that, so the $1.58 billion, assuming we have something that's relatively seasonal in the fiscal third quarter, which would be up quarter on quarter, would imply something that would be seasonal by the time we look out to the fiscal first quarter of '23. And so with the order dynamics that you're seeing, the backlog dynamics that you're seeing, is the business strong but increasingly taking on a seasonal tone or does it seem to be so strong that it could overpower late calendar year seasonality, as it seemed to do in fiscal 2020 and a little bit in fiscal -- early fiscal 2022?

Fusen Chen -- Chief Executive Officer

So if a wafer shortage get better, we feel like at the beginning, we -- the first sign, we only have three months to catch it, right? Everybody believe that this moment will be a calendar year second half and our fiscal year end in September. So I think what we probably need to have one quarter to feel it. And that if we really come in, I don't think it will be -- like Tom asked, it probably means tens of a million dollar for us. And we got to see the magnitude, then we can make a better judgment.

Craig Ellis -- B. Riley Financial -- Analyst

Sure, that's helpful, Fusen. And then to follow up on the comments on the automotive business and and the engagement expansion, I think it was to five OEMs. The question is when will those engagements start to become more material to revenues and visible to investors? Is that sometime in fiscal '22 or is the work with that wider array of OEMs really something that becomes more material to the business that investors would see in fiscal '23 or sometime thereafter?

Lester Wong -- Chief Financial Officer

So, Craig, I think it's a nuanced answer, right? I think some of the five engagement will bear fruit in fiscal 2022. Some are further along and some are -- their specifications are more similar to what we've already done, some we would have to do more work with them and there be a longer period, so they will come in into fiscal '23. So I would say, it would start in fiscal '22 and maybe gain more traction in '23. But again, as we get more visibility, we will update the investors on our automotive.

But we are tracking above, as Fusen said, what we indicated during the Investor Day four months ago.

Craig Ellis -- B. Riley Financial -- Analyst

That's real helpful. Thanks, Lester. And just to follow up with a question for you but in a different part of the income statement on operating expense, very strong performance in the just reported quarter and you were clear that some of that may have been hiring that wasn't able to be realized and maybe it happens in fiscal to curate beyond. Could you just give us some color for how you're thinking about opex as we go through fiscal '22?

Lester Wong -- Chief Financial Officer

Well, I think opex through fiscal '22 is, I mean, again, based on the guide for Q2, I think it's going to be non-GAAP about $75 million to about $77 million. I think that's a number that will probably be consistent through Q3, Q4 for the remainder of fiscal '22.

Craig Ellis -- B. Riley Financial -- Analyst

Got it. And then lastly, for me, before I hop back in the queue. Extremely robust cash generation in the quarter, so congratulations to the team on converting those strong revenues to cash flow. The question is following the very nice dividend increase that we saw, how is the company prioritizing dividends versus buybacks versus potential inorganic growth as we look through fiscal '22 and into '23?

Lester Wong -- Chief Financial Officer

I think for fiscal '22, I mean, as I said in my remarks, I think for the dividend we will -- our position is that -- our philosophy is that we want to be consistent. We want the dividend to continue to grow and be competitive among our peers. I think for the share repurchase program, we have increased the cadence. We have purchased more shares and spent more money in first quarter than we did for all FY '21.

I think the cadence will continue as as we go forward, so I think we will be deploying more capital on the share repurchase program. As far as inorganic opportunities, I think we've said a few times, we will always open to it, but it needs to be accretive. It needs to be -- provide us with even new technologies or new products. And in an adjacency, I think that may probably more of a FY '23 initiative.

But again, there may be some of that in FY '22, but there will be more in terms of -- similar to what we did with Uniqarta, which is very successful. It helped us accelerate our LUMINEX tool, so I think we will look for some somewhat similar things perhaps in FY '22.

Craig Ellis -- B. Riley Financial -- Analyst

Makes sense. Fusen and Lester, thanks very much for the help.

Lester Wong -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question today is a follow up from Krish Sankar from Cowen and Company. Your line is now live.

Krish Sankar -- Cowen and Company -- Analyst

Yeah. Thanks for taking my follow-up. Fusen, I just wanted to pick your brain on something. When you look at the last six months, your backlog has been coming down.

Lead times are beginning to moderate. I'm just kind of curious and investors are worried about double ordering. So how do you handicap that given -- I understand, full year, $1.58 billion for FY '22, makes sense. But how do you look at beyond that and say as the supply constraints ease at some point, where do you think the steady state, the lead time for the white bonding business and what gives you comfort that there's not a lot of double ordering or last minute cancellation or push-outs that could happen six months down the road or nine months or 12 months down the road when these things ease?

Fusen Chen -- Chief Executive Officer

So, Krish, actually, we probably don't feel like a double booking is a big issue for us. I mentioned, I think '21 OSAT actually is quite strong, right? And actually, at this moment, I think what's really strong is really IDM. So, a lot of capacity, actually OSAT investment is for the whole industry, right? So I think we believe the OSAT probably will come back a little bit stronger in our second half. So at this moment, I -- we really don't fear big double booking.

We tend to talk to customer a lot. Of course, double booking happens anywhere, any period of time, right? But at this moment, we really don't think it's the biggest issue for the industry.

Krish Sankar -- Cowen and Company -- Analyst

Got it. Got it. Fair enough. And then just curious on China, you said 70% of total revenue is China.

I understand a lot of LED is also China, like commodity LED. But curious on the general selling side, what is the China split between OSAT and non-OSAT?

Lester Wong -- Chief Financial Officer

I think for the China side, I think it's both non-OSAT and OSAT, but there's quite a lot of OSAT business for us in China. China OSATs.

Krish Sankar -- Cowen and Company -- Analyst

Got it. Got it. Thanks, Lester. Thanks, Fusen.

Fusen Chen -- Chief Executive Officer

OK. Thank you.

Operator

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further and closing comments.

Joe Elgindy -- Senior Director, Investor Relations

Thank you, Kevin, and thank you all for joining today's call. As always, please feel free to follow up directly with any additional questions. Have a great day, everyone.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Joe Elgindy -- Senior Director, Investor Relations

Fusen Chen -- Chief Executive Officer

Lester Wong -- Chief Financial Officer

Charles Shi -- Needham and Company -- Analyst

Krish Sankar -- Cowen and Company -- Analyst

David Duley -- Steelhead Securities -- Analyst

Tom Diffely -- D.A. Davidson -- Analyst

Dylan Patel -- SemiAnalysis -- Analyst

Craig Ellis -- B. Riley Financial -- Analyst

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