AT&S Stock

Ladies and gentlemen, welcome, and thank you for joining the Austria Technologie & Systemtechnik AG conference call on results for the first quarter 2026/27. [Operator Instructions].

I would now like to turn the conference over to Mr. Philipp Gebhardt.

Thank you, Viara. Good morning or afternoon, ladies and gentlemen. Welcome to the AT&S Q1 '26/'27 conference call. Today, with us is Michael Mertin, CEO; and Gerrit Steen, CFO. Mr. Mertin will give an overview of the key developments and Mr. Steen will comment on the financial figures and our guidance. As Viara mentioned, the presentation will be followed by a Q&A session. Now I would like to hand over to Mr. Mertin. The floor is yours.

Yes. Thank you very much. And ladies and gentlemen, a very warm welcome from my side. My name is Michael Mertin, I'm CEO of AT&S AG now since a little bit more than 1 year, and it's an honor now to present you for the second time Q1 numbers and now Q1 numbers for our new fiscal year '26/'27.

It's an extreme pleasure to do that with my dear and still relatively new colleague, our CFO, Gerrit Steen. And very early this morning, I read one of the first articles about the positive reaction on our quarterly numbers. And the headline was successful restructuring and turnaround. And ladies and gentlemen, I think this is correct and incorrect both ways.

So we have a very positive first quarter. But it's just the delivery to promise. It's exactly what I promised to hopefully all of you a year ago. It's a very consequent way of developing a company from a pure supplier into a tech and innovation partner to its customers. Of course, doing the homework on the cost side, on the supply chain side within all of our operations, et cetera.

But it's a transformation of the company and all of its business models as well. And this is the core reason why our profitability is going up and why our sales are going up and why customers are so keen to work together with us. And this is, of course, strongly supported by the entire Executive Board, and therefore, also a very special thank you again to Gerrit Steen, who is supporting me now since a couple of months. And so we are both driving this kind of a success. So, sorry for these initial remarks. I think this was important, especially for me, because I was the person giving you the promise a year ago.

So now coming to the first slide. We had a very strong start into our new fiscal year with a revenue of approximately EUR 550 million. This is a growth of 40% constant currency year-on-year. We had a very clear turnaround of our earnings per share. You already saw this indication in the last quarter of the last fiscal year, but now it's a very clear turnaround from a negative earnings per share, from minus EUR 1.55 to close to a euro, EUR 0.93 earnings per share at the beginning of a typically relatively weak first quarter.

But you see this is not a weak quarter, it's a strong one and also in profitability. Our EBITDA went up by 134% versus previous year, and we ended up with EUR 165 million EBITDA, with an EBITDA margin of a little bit more than 30%. I always told you that EBITDA is just one financial KPI and maybe not the most important for us. We want to deliver net profitability at the end, earnings per share. This is what counts. We want to provide positive cash flows on the operational side for you. And therefore, the EBIT number, what is our internal core KPI for profitability, because it's the KPI what is easiest to access, we show you an EBIT of EUR 73 million, what is more than we reached in the entire last year. This is more than plus 500% versus prior year, and it's an EBIT margin of more than 13%.

I'm quite proud to tell you that all of the communicated projects are on track. More than this, there are more projects, which we have not communicated so far and which I can't talk about so far until the ink is, as we call it, dry. So we have still a very strong market momentum, and customer diversification is still going on. We have a couple of more projects in our pipeline in the 3-digit million euro range. Interestingly, with the diversification I promised to you in both, in customers and in sites, so in customers/technologies and in sites. So more or less all of our sites worldwide will profit from these ongoing projects and both of our business units will profit from these increases as well.

Maybe you remember that we announced a very defined China-for-China business. This has been successfully implemented. Management is in place. And we had a very, very positive head start, better than expected. And we see that this business will also be a strong pillar for the future. For certain political reasons, of course, we divided it internally from the remaining part of the business. So it's a pure China-for-China business driven by our Chinese employees.

To secure our financial freedom and, of course, also to secure our shareholder equity, we successfully placed a EUR 400 million convertible hybrid bond, interesting construction, but very successful. Many of you and other investors have been keen to sign on for it. So you will see later on from Gerrit that also our financial situation significantly improved and gives us all the tailwind we need for further growth. So next slide, please.

So as I said, as a technology partner for our customers, not just supplying standard products, it is important not just to be in one of the market segments. We are all talking a lot about the substrate area, of course, what is a very strongly growing area coming from artificial intelligence, supercomputing, and advanced computing. But nevertheless, there is a lot of things around it where we are profiting from testing infrastructure, very high complex systems, very high complex PCBs, printed circuit boards, which are necessary to produce test equipment for all these IC chips we have in the world.

We have advanced PCBs for many of communication applications, for space applications, but also for applications with very high power demand. We have high-power electrical embedded components in PCBs for power distribution within computers, within artificial intelligence systems, to bring down the necessary currents to handle and lower values, what is highly important. And here, we are actually ramping up capacity, not just here in Austria, but also in other countries.

We already talked about optics. Optics definitely is key. It is already becoming key. You remember that I talked about optics from my first day on, because the 21st century is the century of the photon, and photon's optical transmission is significantly more effective in the energy consumption on the one hand, and it's significantly faster by a couple of orders of magnitude. So we are more and more stepping in the production of optical transceivers, and we are going into the embedding of optical structures in the future as well, co-packaged optics. I will come back to this later on.

And of course, we have IC substrates, which are not any longer just these small 50 x 50 millimeter substrates, which we know from the past. We are talking about more and more complex systems, where entire chiplet systems on top of these substrates have to be interconnected, where we have to embed tens of components for the internal communication for pre-computation of data within a substrate. So this is going on as planned with a couple of customers already. So we are not depending on 1 or 2 customers anymore. And this bunch of opportunities is driving the entire business all over the globe for us. Next one, please.

Let me come back once to optics. I know that a lot of you are keen on getting a deeper insight into technology. And we promise from time to time that our CTO also will give a talk to you, diving a little bit deeper in technology. But just to understand what we're actually doing when we are investing into optics, pluggable optics is what you have in your network. If you have a computer network at home, if you have Internet at home, sometimes you already get an optical plug into your house connected to your router. And from there, you have the classical electronic distribution by cable. This is pluggable optics.

Then you have optics on board. You saw this device on the last slide already. So we have optical interconnectors, which can be placed directly on a board to connect 2 different boards to each other for high-speed communication. This is state-of-the-art technology and we are in it. The next step, what is actually ramping like hell, is so-called co-packaged optics. So the next step is not to have these optical plugs to be plugged into a board, but now we embed optical transceivers into circuit boards. So we put them directly into the board with micro plug-ins from fibers. This is what is actually the latest generation of technology, what we are also producing, and we are also further investing in.

But there will be a next step. And this next step will change the world even more. And this is optical integrated on a board for chip-to-chip communication, for chip-to-memory communication, for the communication within an interposer. And also on this kind of technology, we are actually working. We are talking about these technologies with our customers. And exactly this kind of road mapping and also evaluating the future of technology possibilities is what creates the strong binding and the strong relation now between our core customers and ourselves. So I'm pretty sure that all these optical fabrics will be the future of computation for energy saving. This is one issue. The other one is for enhanced communication, what actually is the bottleneck for advanced computation. Okay. Next one.

Yes, we are expanding and investing in almost all of our sites actually. And so what is one of the most prominent ones, because we made an announcement about it, is the Kulim expansion. So our expansion in Malaysia, in the north of Malaysia. And it's the Kulim Campus, as we call it, 2.0. You see on the picture, we see later on a little bit a bigger one. On the right-hand side of the left picture, there is the plant what is already in use for AMD. In the front, you see R&D, technology, and some infrastructure. And the big plant on the left-hand side, this is the new plant that the shell is already existing, where we are actually building out for a second big customer and a couple of smaller customers. This is already financed. This is already announced.

In Chongqing, in China, we also have expansions. We are maxing out the resources we have over there. So under proportionately to existing investments or to new investments, just by adding some equipment, we can significantly increase our capacity for existing customers with existing products. That means on a relatively low risk level, with a relatively low investment level and, of course, a high profitability, especially a larger gap between EBITDA and EBIT -- smaller gap, sorry, between EBITDA and EBIT.

We have an enhanced technology mix here. So we produce substrates for artificial intelligence. We produce substrates for servers and for high-performance computer and for network applications as well. And we are actually looking for more capacity for embedded optics. But also in Europe, we are expanding. You already heard about this HTB 3, Hinterberg 3 plant for substrates and also our R&D line, what is actually ramping. And also here, we are filling some bottlenecks to enhance capacity to the max.

But more interesting maybe is that we are also investing in the classical technologies for high-performance electrical or high-power electrical components, which working like small transformers. I tried to explain it already, transformers helping us for better energy supply to high power consuming artificial intelligence processors. And these small devices are produced on the basis of printed circuit boards with embedded components, and this is actually done here in Hinterberg. We are ramping a huge production here, and we will see the effects from Q2 and Q3 on as a contribution for our business unit, ES. Next one.

Maybe for those of you which have not seen this picture so far, this is a real picture from our campus in Malaysia to get a better impression. I already tried to explain Kulim 1. This is dedicated to AMD, where we are actually ramping to the max. Kulim 2, what is dedicated mostly for one other big customer, but also for additional ones, where we made the announcement for the financing, where we are already leveraging on the profitability.

And we announced, on the left-hand side, you can see the core building where the piling is already done and some basement is already done. Actually, we are using it as a car park. But on this plot, we will build the so-called core building. Core building means, a core is the inner part of a substrate with different functionalities, a lot of drillings, embeddings internally. So this will be the most modern core building for us, what is necessary for the next and over next generation of substrates being produced here in Kulim.

Then we have, where you see these blue containers, available space. So if necessary, we can build a third plant here, so Kulim 3, for additional customers in the upcoming future. As I said, we are actually negotiating some more contracts. And because we are running out of space, we already bought a plot on the right-hand side, where you see this available space on the outer right edge, there we start to move the entire car park and have an additional space for the future. You see we are quite well prepared now for the ramp, what we are actually doing and where our prognosis is based on for this year and the outlook a little bit for the next fiscal year. But there is more to come, and we are already prepared for that.

So to now have the overlay to the financials, I will hand over to Gerrit Steen, who will show you a little bit, or rationalize to you a little bit the financial outlook by time and by the capacity build within our expansions. Gerrit?

Yes. Thank you, Michael. And as well from my side, a warm good morning and good afternoon to everybody on the call. Yes, before turning to the quarterly results in detail, exactly as Michael just laid out, let's briefly look at the economics of our expansion project. I think the bottom line of that slide is that this expansion follows a clearly defined financial profile. Capacity additions are supported, as you know, by long-term customer commitments, providing to AT&S visibility and allowing us to invest in a disciplined manner, combining the significant CapEx and growth with cash flow generation.

So looking at the slide in detail, customer payments support funding during the construction phase, while already contributing to earnings. So therefore, you see earnings impact already in this fiscal year. As production ramps, product revenues become the primary earnings driver and free cash flow generating accordingly. So timing across our 3 announced bigger expansion projects is as well nicely staggered. So Chongqing with a quicker ramp through targeted debottlenecking, followed by the Kulim 1 expansion, where we add an additional line in existing structures. And then finally, Kulim 2 with the core building, which includes a complete build-out of the existing shell and the new core building.

So therefore, that overall gives us visibility both on earnings over the next years and as well on the free cash flow impact, which will nicely give us a clear path to higher cash generation. So overall, CapEx, as we announced in Chongqing, in the high double-digit million range until summer '27, and Kulim EUR 1.5 billion to EUR 2.0 billion till beginning of fiscal '28/'29. Overall, what we see in the industry and which broadly applies to us as well is that CapEx to revenue is roughly 1:1 per annum. So that growth model, I think that's important, nicely combines visibility and capital discipline with strong earnings impact and a nice improving free cash flow profile.

Let's now move on to the next slide and go a little bit deeper into our first quarter results and our outlook for the remainder of the fiscal year. Overall, the quarter demonstrates continued execution against our growth strategy, as Michael already laid out. We delivered another quarter of strong operational execution. And that execution, I think, is very important, reflected both in our financial performance and as well the increasing strength of our balance sheet, as you will see later. Revenue, plus 40% in constant currency, EBITDA above 30%.

D&A came in at slightly above EUR 90 million, small acceleration to Q4, in line with our expectations. Interest result at EUR 32 million, slightly elevated in the quarter due to some FX revaluation of foreign currency intercompany loans. Net income, therefore, at EUR 40.8 million, a significant acceleration as well quarter-over-quarter and translating into EUR 0.93 EPS.

More important, though, I think, is the overall operational driver and how they developed overall in the quarter. Higher utilization remained the largest contributor, supported by pricing improvement and a favorable product mix. Overall, I think that's very important as well at this point, demand remains very strong, customer schedules remain unchanged, and our confidence continues to be supported by long-term customer commitments. Taken together, the quarter confirms that both growth and profitability continue to develop according to plan. And we actually expect Q2 to further accelerate with both growth and margin nicely being within our full year guidance range.

Both business units contributed, although the dynamics differed. So let's have a look at them now. Electronics Solutions showed a quarter-over-quarter improvement with good volume and mix growth. We saw as well higher loading in our China sites, especially, which bodes well for revenue in Q2. But as you will see later, as well an effect on our inventory levels. Our cost measures continue to show results, which is very nice, slightly offset in the quarter by some FX effects due to the strengthening of the Chinese yuan.

But as expected, still an overall slower start to the year, not yet 100% in line with our full year expectations. But as I pointed out in our last quarter call, there's a time delay in passing on cost increases to our customers. So the quarter reflects these temporary pricing effects as expected. In addition, we continued investing in the readiness, especially of our Austrian operations ahead of future growth. Michael gave you some more details on that. So nothing to worry about. Both factors are expected to unwind progressively, supporting stronger revenue growth and profitability over the coming quarters.

Moving on to ME. Microelectronics continues to scale exactly as planned. Revenue increased by a very strong 93% and EBITDA margin improved to more than 42%. I think the performance reflects successful ramps, both in Kulim and Leoben, and increased utilization across our sites with a particular strong performance in Chongqing. Strong customer demand, improving pricing, especially as of June, and a favorable product mix. Recently signed customer agreements also started providing first tailwind in the quarter with accelerating earnings contribution expected over the coming months. And as in every quarter, the results include contributions from existing contractual agreements and other recurring items that are part of our normal business model.

With a significant growth in the industry, supply chain conditions remain dynamic and require continued close attention. While this created some constraints during the quarter, we successfully managed the situation and expect doing so going forward. Our focus is not only on securing sufficient volumes, but also on managing lead times and ensuring reliable deliveries. Our teams really remain closely engaged with our suppliers to secure the availability of key materials as well as the equipment required for our continued production ramps and expansion programs. Combined with the strong demand visibility we continue to see from our customers, this gives us confidence for the remainder of the year.

Moving on to our balance sheet. During the quarter, we successfully completed our EUR 400 million convertible hybrid bond. The transaction was met with strong investor demand, resulting in attractive terms and underscoring our strong access to the capital markets. Together with our existing liquidity, this further strengthened our financial position. Cash now exceeded EUR 1.2 billion and net debt declined to EUR 954 million.

We are very pleased with the pace of deleveraging, as you see. Q1 leverage improved to below 2x, demonstrating the strong operational performance and the disciplined financial management, including certainly the new financing. So this balance sheet increasingly provides the financial flexibility required for the next phase of expansion while maintaining disciplined capital allocation.

Flipping over to cash and cash generation. Positive operating cash flow certainly is for us a very key indicator. Our overall operating cash flow mainly reflected higher working capital as revenue increased in the quarter and inventories were deliberately built to support the production ramps and higher loading and increased supply chain resilience. The rather lower CapEx number in the quarter reflects the phasing of our investment programs. Therefore, we expect both CapEx as well as operating cash flow to increase over the coming quarters with operating free cash flow remaining clearly positive. Our equity ratio increased to 29%, reflecting both our improved financial position and the current capital structure, both hybrid instruments including.

Which brings me to our guidance. Based on our first quarter performance and current customer visibility, there is no change in our assessment of the business. We fully confirm our recently upgraded guidance for revenue growth of 45% to 55%, profitability of 32% to 37% EBITDA margin, CapEx of EUR 1 billion to EUR 1.2 billion and leverage clearly below 3. Q1 leverage, as you saw, gives us confidence that it should continue to improve in the coming quarters. And as mentioned, Q2 growth and margin are already to be expected fully in line with the guidance ranges.

So let me conclude with 3 key messages. Firstly, the first quarter demonstrates continued execution across all dimensions of our strategy. Second, our confidence remains firmly supported by long-term customer commitments, providing a good degree of visibility as we continue our expansion. Third, we continue to execute this growth with disciplined capital allocation, a strengthening balance sheet, and a clear path towards stronger cash generation. Taken together, there is no change to our assessment of the business. Demand remains strong. Customer commitments remain unchanged. Execution continues according to plan.

So thank you very much for your attention. Michael and I are now happy to take your questions.

Thank you, Mr. Mertin. Thank you, Mr. Steen. We will now start the Q&A. [Operator Instructions]. I would like to hand over to Viara to handle the questions.

[Operator Instructions] Our first question is from Mr. George Brown from DB.

I'm sorry, let's start with the first one. It is actually Mr. Martin Marandon from ODDO BHF.

My first one is on the sales guidance. Looking at the growth guidance today, how should we think about what is included and what is not? I'm trying to understand how conservative the guidance is, notably in terms of pricing and potential new customer agreements. And I have a follow-up.

Guidance includes everything what we actually know on what will have an impact on this fiscal year. If there would be some contracts on short notice which have an impact on this fiscal year, maybe that could be an add-on. But in principle, we added the contracts which will have a contribution for this fiscal year. The positive thing is, if we are talking about additional contracts, it will have a positive additional contribution for the upcoming time, for the next and the over next fiscal year. So it will be the grant for the continuous growth as we see it today. So our growth will not end by the end of this fiscal year. This is the core of the message.

Okay. And on pricing, how much of pricing is in the guidance today? And do you think there will be an evolution through the year?

Yes. This is Gerrit. So first of all, I think if you look back at our original guidance for this fiscal year, I think we indicated at that time that mainly 1/3 of that, and that would be basically around 10% or so, would be more pricing related and the rest is volume. And now the upgraded guidance certainly mostly related to the new customer agreements and additional volumes. So therefore, that is something where we are looking at long-term partnerships with our customers. And we are very much looking at our cost base and what we need to pass on to our customers based on the cost inflation we are seeing. And that's what we have worked through and what we are still working on, on a couple of instances. And therefore, that's what we are having included at this point in our guidance.

If there will be some further inflationary pressures on top of what we are seeing right now during this fiscal year, we need to certainly assess this and then determine how much we need to pass it on to our customers, but that's certainly not included at this point.

Okay. Very clear. And my second question is on the customer payments. I mean, could you give a bit more color on how discussion and the structure of the deals related to adding more capacity have changed with customers? And if you could give a bit more color also on how much of prepayments are nonrefundable capacity reservation fees?

So the important thing is, when I started my job as a new CEO, I visited almost all important customers. And I told them, we are a tech company. I invite you to visit us to create joint road maps, have a look into our R&D, and let's co-operate on technology. On the other hand, I asked all the customers, look, we have a relatively low ratio of shareholder equity. If you want to do things together, I do not accept negative cash flows in our business cases, not now and not tomorrow. And this is the basis of these financing models. It is a mixture of kind of prepayment and addition to the investment. And this mixture can deviate a little bit from left to right. But the positive thing is, and you've seen it from the first slide of Gerrit, that our business cases are constructed in a way that we are not diluting profitability after we get these payments.

We get payments over time. This is one point. The other point is, we also have pricing agreements. And in this combination, we get a very stable business case with increasing cash flow over time. So the margins later on are not significantly diluted -- not diluted at all by this construction of financing or grants we get. This is the important part. I can't get into all the details, of course, which are confidential between our customers and us. But the important point for you is you will not see dilutions of profitability over time coming out of these deals.

And the next question is from Mr. George Brown from DB.

I just have 2. So just firstly, on the guide, similar to the first question, the guide for this year. I mean, I'm assuming the customer or client payment for this year is roughly EUR 300 million, give or take. If I assume the PCB, the EBITDA level there is roughly stable year-over-year, then even at the top end of your guide for both sales and the EBITDA margin, that implies the underlying EBITDA margin in Microelectronics is roughly 36%, give or take. So I'm just wondering how conservative you're being for fiscal '27 now that the margin in the Microelectronics business in Q4 last year, but now in Q1 is sort of around 40%, even excluding the client payments? And then I have a follow-up as well.

George, thanks for your question. This is Gerrit. So first of all, I think we had, as we indicated as well, some first clients payment included already in Q1. So that certainly was helping the margin in Q1 on Microelectronics already. And certainly, if you then look at the dynamics and the outlook over the quarters, I think that certainly will be dynamic as well based on the agreements and when they realize their milestones, et cetera, related to some of these agreements and so on.

So therefore, again, we have included and baked that into our guidance as we see it at this point in time and therefore feel comfortable with what we have guided for this fiscal year, including these effects.

And you should also take into account that our EBITDA margin for ES will be improved over time. As I tried to explain, we are actually running a huge project on more than one site for ES. And therefore, we are occupying a lot of capacities for rebuilding, for new installations, et cetera, highly interesting with the contribution from the second half of this fiscal year on with strong contribution in the next and over the next years. So there is a growth path also for ES and ES will be a strong contributor for the EBITDA margin as well.

Brilliant. Okay. That's very helpful. Just secondly, I know you can't disclose everything here, but it would be really helpful for modeling purposes, on the client payment side, trying to sort of quantify that to some extent. I know I said roughly EUR 300 million. Is that the sort of ballpark figure for this year in terms of the contribution?

And then sort of a quick follow-up to that is that what's interesting in your earnings presentation is that you expect, again, strong customer payments in fiscal '28, which was, I guess, contrary to some people's expectations. So are the clients payments at a similar level in fiscal '28 to fiscal '27? Or are they coming down? Or are they going up? Any sort of comment on that would be helpful.

Yes. George, this is Gerrit again. So again, I think when it comes to these customer agreements, certainly, they have different elements. So they are differentiated into different parts of a long-term strategic agreement with these customers, which as well going beyond some specific topics. And therefore, they are as well running across, certainly partly, the length of the overall contractual relationship. They are partly tied to the CapEx and the CapEx spending. So they are partly tied to capacity reservation. So there are very different elements with very different timing tied to them. So therefore, that's a very diverse picture and as well differentiate a little bit customer by customer. So we have certainly different kind of agreements with the different customers where we, again, can't go into all kind of details due to confidentiality.

So therefore, you will see these impacts on these customer agreements as well into the following fiscal year, exactly. So it's not something which is just limited to this year and even goes beyond the following fiscal year into fiscal '28, '29. So therefore, that is the financial impact.

And then you will see when you look at the slide we've shown certainly then now over time and especially now starting next year then as well the operational business out of these customer agreements and the additional volumes we are manufacturing for them kicking in more and more, starting in Chongqing and then moving over to Kulim 1 and then '28, '29 to Kulim 2. So it's different pieces and moving into different directions, but all contributing.

Yes, it includes milestone bonus payments. So it's a spread over time, and it's an hand-in-hand overlap with the operational performance. So therefore, we will show this financial stability of our business case over the foreseeable time for many years from now on. This is the key behind it.

And the next question is from Mr. George Chang from Aletheia Capital.

So since you already name your client AMD, so I'll just say that. So AMD says that they're expecting the server CPU market to grow at 50% CAGR from something like $25 billion to $220 billion. So Agentic AI is a key driver for server CPU. And 6 months ago, that probably was an unthinkable number. And certainly, AMD didn't foresee that when you built Kulim 1 for AMD. So I'm just wondering from a value or volume perspective, how do you see your business evolving around server CPU? And how do you prepare capacity for that beyond Kulim? Obviously, you sort of mentioned sort of Kulim 3, but I'm just wondering sort of the timing for these new projects.

Yes, that's a good and important point. Most of the customers have not foreseen the demand of their, let me say, infrastructure computation to the AI centers. And this contains a lot of server computing, client computing as well, and now asking for additional capacity. Fortunately, our lines, especially for AMD, are flexible enough to have a kind of a load mixing. So depending on the demand of the customer, we can produce a little bit more here and there from server, advanced server or AI products. And historically, this was unfavorable, because the prices for client and servers have been significantly lower than for AI devices. So this changed to a certain extent. So that also for us, it's not that a problem to shift capacities around a little bit.

It also helps us with the material diversification. So we still, the entire market still has some constraints on the supply chain side. And for the server applications and the AI applications, you have different kind of glass material. So this is helping also to have the entire production filled to the maximum actually.

Additionally, and this comes back to your original point, we said that we fill up our Chongqing facilities now to the max. And this, of course, has to do a lot with, let me say, kind of legacy products or existing products for both for AI, but also for advanced server. So by filling up our capacities here, by now filling the last places for machines, we can fulfill some of this demand, what is actually coming up, not just from AMD, but also from other customers in that range.

This is why we are maxing out everything what we actually can. And this is a relatively low-risk revenue because it's more or less existing high-end products, but it's existing, it's foreseeable yield, it's foreseeable supply chains, foreseeable quality towards the customers and the customers are happy. And for us, it gives the grant to relatively high margins because this 1:1 ratio of revenue to invest is a little bit more on the revenue side if you max out an existing plant. So profitability looks a little bit better.

So one of our advantages is our flexibility and technology, as I initially said. So we have the flexibility for almost all technologies which are actually demanded from the market. We are not limited to one or the other customers. We are relatively flexible here, and we support all of the necessary technologies for today and for the upcoming future. We are not limited here. This is one of our big advantages.

Just a follow-up on that. So my understanding is that Kulim 1 will be pretty full by the end of next year in terms of capacity. And my impression is that Kulim 2 is not really so much for AMD. So I would assume that -- you just mentioned Kulim 3, that probably needs to be built as a greenfield project pretty soon. Is that thinking too far?

It's not decided now, but it can happen, of course. So therefore, we presented or we showed this entire picture here in our presentation. Let's have a look how our ongoing negotiations with some of the other customers are going on, if we get the financing as we get it so far, if we can continue our more or less 0 net exposure strategy, so having all the financing together with our customers with positive cash flows from the early beginning on.

But if this is the case, of course, there could be a position and the probability that we have to build an additional plant. This is the reason why we are preparing for it. But it's not decided. The basic demand is there, the possibilities are there, but we have to finally negotiate and we have to execute what we already started. So delivery to promise, my initial words, also mean that we have to execute what we already started and make it successful. It doesn't help anyone if you will struggle in the middle and if you do too much. But we will do everything what we can to fulfill our guidance and beyond.

Great. If I may have an additional question, it's that I'm just wondering how do you assess the risk of your, say, the EMIB-T investment in Kulim 2. And what I mean is that obviously, we have one visible product adopting EMIB-T from 2028. But I think as you sort of -- I think in the previous calls you have mentioned before that there are competing technologies such as CoWoS, for example. So from my perspective that the longevity of EMIB-T is a bit unknown, or am I being just a bit too cautious in terms of looking at that technology?

EMIB-T is a fantastic technology, but you know that EMIB-T is, at the end, kind of a brand from Intel, and we never talked about Intel as a customer. My point is, we own all technologies which are necessary today, but also would include EMIB-T if necessary. I can't tell you more.

The next question is from Mr. Gustav Froberg from Berenberg.

I'll stick with 2. First one is a mixed question in Microelectronics, please. Could you help me understand a little bit better the mix of products within that particular business segment today? Let's say, how much is for sort of non-AI server? How much would you say you are selling to AI applications today? How much is for PC and other, just as an example? That's first question, and then I'll take the other one after.

One of the problems answering your question is intrinsically lying in one of my last answers. So to a certain extent, we are a little bit flexible if it comes to actual technology and not to the next and all the next generations of technology that we are able to switch a little bit between substrate and advanced server and substrate, but mostly between advanced server and substrate. So that's not a hard boundary. And we do it on customer demand and on material availability, actually. So it's very hard to have a diversification here because really, it's changing month by month. Most will be substrate definitely.

Yes, exactly. And I think substrate and there as well mostly related to server and advanced server product, as GPU is, in Kulim, rather a newer product which we are manufacturing there. But still, especially if you think about what we are doing as well in our Chongqing site, that's certainly all related to advanced server.

Okay. Great. And then a question on trade receivables. They went up quite a lot in the quarter. And at the same time, it seems like you're no longer making use of trade receivables factoring. May I just ask why have you decided to taper your factoring arrangements? And is this something that you are thinking about kick starting again later in the year?

No, we did not stop the factoring. So we continued. We just had -- when you compare to first quarter of last year, there we restarted again, therefore, we had a very strong positive impact of factoring in Q1 of last year. This year it was just a continuation. Therefore, basically, the change from factoring in the cash flow statement was much smaller. On the other side, certainly with the growth of our business, we certainly have seen an increase overall in our receivables and as well in our working capital, not only from receivables, but as well from our inventory build related to further loading in our sites. Further, basically, reaching max capacity in our sites, which is a good site, therefore, more loading, which is well, more work in progress a bit. And as well, certainly then, as well raw materials for increased supply chain resilience.

Yes. The disadvantage in our business is the throughput time of our products. So if we expect what we do, an even significantly stronger second quarter, we see the first working capital effects already now. This is not 1:1 in time. So some products need 6 and more weeks to be produced. Material has to be purchased earlier. Due to all these material shortages, we have to be very careful. So we need to have some material on stock. So we see the additional growth, the further ramp of Q2 already in our working capital.

And the next question is from Daniel Lion from Erste Group.

As you mentioned, the potential build-out of Kulim 3. To what extent is the utilization risk reflected in the customer agreements? Or what do you think of utilization, obviously, maybe not in the coming 2, 3 years, but at some point, we'll have cyclicality back in the business. So how do you -- can you make sure that utilization is good and you are compensated to some extent by your customers?

This utilization guarantees are part of our contracts. So we don't worry about it for the foreseeable time, and margins are high enough to pay off for the equipment quite quickly. So this is part of our risk mitigation within our contracts. It's not just payments, but it's also guarantees on utilization and take-or-pay clauses. So therefore, we are fully booked for 1 and 2, and now we have to look for further capacities for additional contracts.

Okay. Okay. And then one on the optical solutions. Can you give us some maybe more flavor or insight of how this business is developing as a share or in terms of revenues? And what would you expect as a content gain from supplying optical solutions embedded in substrates or the PCBs going forward? So how much of a percentage maybe or how much does this increase the value of your products?

Generally speaking, especially when it comes to co-packaged optics, these are all high-margin products now, giving you between 5% and 10% additional margin. We are actually limited in capacity. We are filling up the last, let me say, white spaces, bottlenecks we have to max out that capacity. But in principle, if we would have an additional plant now, we could more or less fill it up with co-packaged optics if it would be standing somewhere fully equipped and checked. So the demand is huge. The global demand for co-packaged optics is significantly bigger than it can be globally delivered. And co-packaged optics will play a major role over the upcoming time.

It's necessary though. Electricity comes to certain limitations. You can't have higher frequencies. You are limited by all these, at the end, waveguides. It's not any longer classical electrical conductivities. More or less all these connections for the high-frequency communication is, at the end, communication through waveguides. It's not it comes to an end, it is at an end since longer time. So if you want to enhance communication speed, and the processors are already able to digest this significantly faster than the communication speed is today, so if you can enhance communication speed between memory, CPU, GPU, XPU, whatever PU it is, you will significantly enhance the system performance with relatively low effort. And this is what everybody is looking for.

This is on the road map of almost all of our partners, and this is one of the things we are talking from morning to evening to our partners how we can establish this technology, how we can produce more, and what are the next steps. And the next steps, I just gave an indication, is not just to have co-packaged optics, but to have really optics on the circuit boards, integrated optics, chip-to-chip communication. This is a must for the future, definitely.

And so the intermediate way over the next years will be co-packaged optics and we could produce significantly more than we actually can. We are just capacity limited like the world is. The world is capacity limited here. And it's not that easy. It's not a technology everybody can do. It's just very few competitors and us, and we are expanding this technology, but it will have not an impact for this fiscal year. But it's a part of our growth strategy, of course, for next and over next year.

A very short one, last one. By when would you expect the contracts with your clients regarding prepayments be signed? And do you see any risk that your CapEx targets could need to be postponed to some extent because the agreements are not in place?

Within this fiscal year, so early enough to give you a very clear guidance based on securities and contracts for the next fiscal year.

Yes. So I'm sorry, but we're unfortunately running out of time. We received some questions via the chat as well. We will come back to you. And we will now conclude today's conference call. Thank you for your participation and questions. If you have any further questions besides the ones from the chat, please feel free to contact our IR team, Johannes Mattner and me any time. Thanks again, and goodbye.

Ladies and gentlemen, last word from my side. I absolutely enjoyed this conversation. It was one of the best Q&As I had since a long time for quarterly numbers. And I'm also disappointed that we do not have more time to answer more questions. But this brings us to having a more intense communication to you and maybe set up an additional communication round or discussion round. Thank you very much for listening to us. Thank you very much for your trust and confidence in AT&S.

Thank you.

Ladies and gentlemen, thank you for standing by. I'm [indiscernible], your operator today. Welcome, and thank you for joining the AT&S conference call on the results for the first 3 quarters of 2025-'26. [Operator Instructions]

I would now like to turn the conference over to Mr. Philipp Gebhardt.

Thank you, Mandy. Good morning or afternoon, ladies and gentlemen. Welcome to the AT&S 9 Months '25-'26 Conference Call. I'm delighted to welcome our new CFO, Gerrit Steen, to his quarterly -- first quarterly call for AT&S. As he has just officially joined us yesterday, our VP of Finance, Silvo Leitner, as in the previous call, will present the figures and answer any financial questions.

However, in the recent months, we have received an increasing number of questions about current technical developments. We see that as a positive sign that the focus is shifting from our balance sheet back to our core business. Therefore, we would like to use this call to answer these technical questions in a more qualified manner than if they were addressed to me. I'm, therefore, particularly pleased to welcome our CTO, Peter Griehsnig, today. He will address the 2 current trends directly in the presentation and will also be available to answer your questions afterwards.

So after this introduction, please allow me to begin on Page 2. As planned, Kulim and Hinterberg are now contributing to revenue. This marks an important milestone in our capacity expansion and supports our top line growth, bringing us up to EUR 1.3 billion in revenue. We also see positive momentum on profitability, product mix improvements and a more favorable pricing environment in Q3 have supported the margin recovery.

In addition, our efficiency programs continue to contribute to earnings and make a significant impact on our EBIT of EUR 35 million. On the downside, currency fluctuations, in particular, the weak U.S. dollar, created notable FX headwinds, partially offsetting both top line and operational improvements.

Nevertheless, supported by the restart of our factoring program, we achieved a positive operating free cash flow of EUR 223 million, demonstrating the strong cash discipline. And while global dynamics remain uncertain, we are seeing sentiment in our core markets becoming more positive. So based on the current performance and the outlook ahead, we have confirmed our full year guidance as well as the guidance '26-'27.

Moving on to Slide #3. The PCB market grew by 15% year-over-year or 11% in euro terms from '24 to '25. This growth is driven primarily by increased demand in high-end computing, networking and advanced packaging applications. The IC substrate market also expanded last year, growing 18% or 14% in Euro. This continues to be supported by strong AI-related investments and ongoing data center build-out, which remain the growth engines.

I'm continuing on Page #4. After adjusting the number of our Supervisory Board members last year, we now have, as of February 1, also reorganized the Management Board. Instead of 5 members, the company will be led now by 3: our CEO, Michael Mertin; our CTO, Peter Griehsnig; and our CFO, Gerrit Steen, to whom I would like now to give the floor.

Thank you, Philipp, and good morning, good afternoon, good evening, wherever you are, everybody. My name is Gerrit Steen, and I'm very happy and proud to have joined AT&S as CFO actually yesterday. So my immediate focus now is on gaining a detailed understanding of the business, the markets and the financial position of the company. But I can tell you already now that I have had very positive first impressions of the commitment and dedication I have seen across the organization.

But for today, as Philipp already alluded to, I will primarily listen and leave the explanations about our last quarter in the very capable hands of my new colleagues. Certainly happy to support the discussion later where relevant.

So thank you, and over to you, Silvo, to guide us through the numbers.

Okay. Also welcome from my side. I will lead you through the figures, starting with the consolidated group. You can see very nice on a year-to-date basis, we increased in our revenues from EUR 1.1 billion to EUR 1.3 billion, so roughly plus 10% and also a very nice development from quarter-to-quarter, roughly plus 18 percentage, and we are landing now in the third quarter with a revenue of EUR 468 million coming from positive product mix volume and pricing effects, but also from the ramping.

On the next slide, we go to the BU Electronics Solutions. There, you can see if we take Ansan out and compare apple-to-apple, I will say, we can see year-to-date revenue somewhere flat with EUR 670 million, so 0 increase. And over quarter-to-quarter, you see a declining of 4%, but you have to take in account that here, we have the seasonality of the mobile devices business. And even in the last -- Q2 quarter, we have really a nice revenue of EUR 256 million, so a little bit also on timing differences.

Maybe next slide. Here, we can see the business unit microelectronics. It's a very, very nice development year-to-date, we see we are growing from EUR 463 million to EUR 621 million, sure coming from the ramping in Kulim and Leoben, supporting also with volume mix and price increases and developments. Also quarter-over-quarter, you can see a 65 percentage increase from EUR 154 million to EUR 254 million. And even quarter-to-quarter, Q2 to Q3, nice increase and also an increase in the margin. And I think that is for microelectronics.

Coming to the maturity profile and our financial position. Also here, you see a very nice solid financial structure. We have EUR 886 million cash and cash equivalents, most of it, EUR 843 million in the cash and cash equivalent and some unused credit lines with EUR 43 million. If you look in our profile on the left side, you can see for this year, we have roughly EUR 140 million to repay next year, EUR 488 million. That is easily handled with our EUR 886 million on our pocket, I will say. Also, the financing costs are very nice with 3 percentage, everything from that point very well.

On the next slide, you see our working capital that we always show. I think we have a healthy level now with 14.6% or 13.6 percentage in our Q3. If you know before this 19%, 18 percentage, what you see in the quarters before is coming from our factoring that we leveled out over the time.

On the next slide, the cash flow. Cash flow from operating activities also very strong, coming from EBITDA and also a little bit helping from the factoring, EUR 332 million. Also the cash flow from investing activities, very nice, driven by the cash deposits that we have in the last year, but also lower CapEx, minus EUR 26, financing EUR 83 million, also okay. So we come to an operating free cash flow of EUR 223 million in this year. Last year, we had a minus EUR 357 million. So -- and the net CapEx is minus EUR 108 million. So everything I think also is very well.

Balance sheet, total assets flat, EUR 4.6 billion. Equity, we lose a little bit out of the headwind of FX, mainly in the U.S. dollar. Equity ratio is with 20.8 percentage. And also in the net debt, we can reduce it from EUR 1.4 billion to EUR 1.3 billion and the net debt EBITDA ratio with 2 is also very nice, I would say.

On the next slide, the cost saving program that we always show. Our target, as you know, is EUR 130 million. We achieved this in the third quarter, and our expectation is that we land at the year-end at EUR 160 million plus.

Next slide, I can confirm, as you have heard also in the beginning, the guidance for '25, '26, we will stay with the EUR 1.7 billion. The margin, as [indiscernible] mentioned also in the last quarter, 23%. And the net CapEx we've reduced from EUR 250 million to EUR 200 million. And we will stay with a positive EBIT and operating free cash flow.

And also the guidance for the year '26, '27 will stay as also mentioned in the last quarter between EUR 2.1 billion and EUR 2.4 billion. As I mentioned last time, have in mind that we have headwind from the FX and also a little bit maybe on glass shortage, itself shortage. So we see us at the lower level and other things are unchanged. I think that's it from my side.

Over to you, Peter.

All right. Good afternoon, good evening to everyone. This is Peter Griehsnig, CTO of AT&S. Allow me to take a few minutes to shine a little light on technology trends in the area of substrates, in particular, substrates for artificial intelligence because that's where the action currently is. AI has definitely changed the speed of progress. And with the traditional transistor scaling not being able to deliver what is needed as fast as it is needed, the industry turned to the package to support and with the package also the substrate.

So what are actually the challenges of the industry where substrates can support, where substrates need to innovate to deliver their input. It's basically what's mostly 3 topics. One is the size of packages. The other one is the data rates and the third one is the power delivery for those processes.

Now why are these challenges? And what can we do as substrate manufacturers? In order to understand that better, we need to look at the architecture of such a processor package. And you see that in 3 different variants. Take the middle one first, CoWoS. CoWoS is the workhorse of the industry. This is what TSMC does. This is how almost all the current AI processors are built up.

It consists first on top of the active dies, the memory stack and the GPU, which is connected first by a silicon interposer. Then all the signals that go in and out of the package are routed and fan out by the substrate. The substrate also routes the power to every place in the package where it's needed. And these 3 top layers is what generally is called the package and the package is then connected to a much larger PCB.

That architecture works quite well. so far, but it comes with its own challenges. When you want to increase the processing power, what you can do and what you must do is put more GPUs and more HBM, the high-bandwidth memories into that package, and that increases the size of the package significantly.

Over the last couple of years, package sizes have quadrupled. And going forward, they will quadruple again. Very soon, you will see substrates the size of a tablet. That means, of course, massive more manufacturing demand. Not only the unit numbers increase, also the unit size increase -- will increase dramatically.

Of course, also technology-wise, this is extremely challenging to deliver the very, very tight specifications that are necessary for a substrate on such large package form factors. What we can do, what we need to do is use alternative new, more exotic materials. They will be, of course, more expensive. They will be thicker in order to keep warpage under control. And ultimately, this may or may not lead to the introduction of glass-based substrates.

What also is a challenge coming from the package size is how to scale up the silicon interposer on top of our substrate. That's a large piece of rectangular silicon cut out from a circular wafer. That's not good when you want to scale it up. There are natural limits to do so, and it is becoming hugely expensive. So what to do going forward?

Multiple options are there. First of all, it would be an option if instead of cutting it from a round wafer, if we would cut the interposer out of a panel similar to what we do, a rectangular format, the size of maybe 0.5 meter x 0.5 meter, you could fill in many more, you would have much less waste, but it probably won't be silicon anymore. It should preferably be something organic, which then comes close to what we in substrates do.

Of course, the challenge will be to achieve those fine feature sizes that the semiconductor industry can do with silicon. 1 micrometer or below 1 micrometer line space is something that is very, very difficult to achieve with organic material as of now. But if we look further into the future on the longer horizon, it is an option, what could be done. There is already today something that is a smart solution to scale up the size of packages. And that is when you look to the left side, it's called EMIB, basically Intel solution.

And the thought is simple. You don't need an interposer full size. All you need is a connection from one edge of one die to the other edge of the other die. And so you can break down the interposer in multiple small pieces, which are called bridge dies. And when you scale up the size of the package, you need more of them, but not a bigger one. That makes scaling way more economic. And the larger the package size will be in the future, the more benefit this kind of architecture seem to have.

So going forward, if Intel can get some design wins in the market with that kind of technology, their share in the market could probably increase based on the smartness of that package architecture. And currently and probably also going forward, there's less than a handful of suppliers that can manage and manufacture the extreme tight tolerances that are necessary to embed those silicon bridges slightly under the surface of the package substrate.

So that solution has taken the advantage of merging interposer with a substrate, effectively eliminating the interposer at least for some applications. There's also another opportunity that you see on the right-hand side where the substrate is merged with the printed circuit board. effectively eliminating the substrate. That's what's called CoWoP. It is a new technology promoted by TSMC and tried -- NVIDIA is trying to build such kind of packages in the near future.

However, the challenges are substantial. The challenges are -- the PCB already is not so easy to make. It's a high layer count board and a large board. Now you need to merge it with the additive processing technologies of a substrate, and you need to fulfill all the tight specifications that usually only were applicable to smaller -- much smaller substrates. Can that be done?

Technically, probably, economically question mark. The future will show us how well that kind of architecture can work. Why would any customer want to have? What's the benefit out of it? There are lots of benefits. Probably the one that is reported quite often, the cost saving. I have some serious doubts that this will be much cheaper. But what definitely can be a benefit is addressing the second difficulty, which is data rates.

Signals. In order to keep this GPU running, you need to bring into the package and out of the package massive amount of data. A GPU makes easily 100 trillion operations per second, and accordingly, you need to bring in data constantly. It's not a secret that GPUs are idle significant time because not enough data available. So solving that issue would be very, very beneficial.

And signals, first of all, don't like to travel long distances. And secondly, they don't like to go through different metal while they travel along a conductor. So when I take out the substrate, I cut out 18 layers of substrates. Signals definitely like that. And also one of the layers of microballs, which is a complex sequence of copper, nickel, palladium, gold and tin.

And signals also would like it if you take them out. Data rates could be increased by such a solution. Whether it's feasible to do so, we will see definitely. As a substrate manufacturer, you want to be prepared should this kind of architecture pick up in the future.

Then the third topic, if -- before we talk about power, let's have a look how this -- such a package looks like in reality. You see the MD MIA350 accelerator bottom left. In the middle of that picture, the colorful thing are the GPUs surrounded by these squares, which are the memory stacks. They all sit on this darker gray, which is the silicon interpose and then you see slightly greenish with a lot of yellow dots, that's our substrate.

And that's basically the package with a metal frame around it, and that sits on what's called the accelerator card, a large PCB that has, amongst other things, most of the power, the last stage power conversion on it. And that power conversion are all these black cubes that you see at the edge of the PCB.

And that's the important topic that we need to talk about. Because power delivery has come from being a side show to the main stage of designing powerful processors. Such a processor today needs easily 1 kilowatt, and that's current generation, and you can expect to double that in a few years and to quadruple even further down the road. That's a massive amount of electrical energy that you need to feed into these processes through our substrate.

And the art is to deliver that electrical power without losing half of it on the way to the processor. One noteworthy thing is that these processors run unfortunately for us at very, very low voltage levels, like 0.7 volt or 1 volt. That means we need to route about 1,000 amperes through the PCB first and then through the delicate structures of our substrate. And that's not that easy. 1,000 amperes is twice the amount of current that a Tesla supercharger would use to charge the battery of your e-vehicle.

A lot of losses are happening at such gigantic currents. We can help. We cannot reduce the power that the processor needs, but we can help to reduce the losses significantly. Now these power modules here indicated as PMIC power management IC, also called voltage regulators. They reduce the voltage level from the incoming, let's say, 12 volts to the 0.7 or 0.8 or whatever voltage the processor needs. While it converts the voltage, it loses power. And the amount of power that gets lost is directly linked to the distance of the components inside this module.

So the closer you can bring components, the less losses you will see. And it's perfect, a perfect application for our embedding technology. With embedding, we can bring components from millimeter distance to micrometer distance, and effectively cut down the losses that happen in all these black cubes that are there for power conversion.

And in the next step, power loss also depends on the distance between this PMIC and the active dies. The longer the route is, the more power gets lost. So why not bring this power conversion stage closer to the active dies. We can do that by, again, embedding it, for example, in the PCB bringing it down from 5 centimeter to 1 centimeter distance or we can even go one step further and bring the power conversion into the substrate, effectively reducing the distance to the die to millimeter.

And again, embedding technology is the crucial part, the crucial enabler of reducing the losses significantly. We have shown for these PMICs that power loss can be cut down in half. A first generation of such product is already out in the market, very successful. We're working on next generations and the demand is picking up significantly in the future.

And with that, I hope I have given a little light on what's going on, what are the challenges and what are the trends on the physical layer of artificial intelligence.

And with that, I believe we are open for questions.

Okay. Yes. Thank you, gentlemen. We will now start the Q&A. [Operator Instructions] Now I would like to hand over to Mandy to handle the session.

[Operator Instructions] And I can see the first question from George Brown from DB.

I have 2, if I may. I can take them one at a time. Just firstly, we've had a stronger Q3 report this morning, but you've not changed the full year sales outlook. So I'm just looking at EUR 1.7 billion, then that implies basically quite a big sequential step down in Q4. However, we see news around pricing in ABF substrates improving from the beginning of this year and stronger demand for server applications from Intel, AMD, et cetera. Apple, of course, just had a great quarter and is sort of now in supply chase mode as they sort of stated on their earnings call. So I'm just wondering how we should interpret this implied Q4 guide, it feels quite conservative. And then I have a follow-up.

I will answer this question. Yes, I would say I agree with you. It's a conservative guidance for this year with this EUR 1.7 billion. We are very confident that we will achieve, and it will be surely EUR 1.7 billion plus.

Okay. brilliant. And secondly, just on the FY '27 guide, actually, whilst I have you. So again, that's been reiterated. I remember you stated in your report, I think, in Q1 or Q2 that you have shifted your expectations from the high end to the lower end of the guide due to FX headwinds. But I think more recently, again, like I said, we've seen positive pricing developments in the last few weeks or months in ABF substrates. People are talking about ABF substrate pricing being up potentially 15%, 20% in 2026. And you also added in your report interestingly that customer forecasts are being revised upwards for the second half of 2027. So could that -- could the high end of the '27 guide be within reach? Or are you still sticking to the low end basically?

I take also this one. I told it, I think in the last call, our guidance was calculated with U.S. dollar from 10.7, and we are now at 11.7, 11.8, even we have last week 12.0. So there's a lot of headwind in the FX. And the second point that we see is also glass shortage. Even if there are demand, we have to see if we can then fulfill everything so that we stay with the lower end.

And the next question is from Daniel Lion from Erste Group.

I would like to follow up on next year's guidance. Can you give us maybe a little bridge in terms of where you stand now in terms of capacity utilization and capacity itself? And to what extent you will need further capacity ramping up in order to meet the guidance? Just to give you some insight where I come from, the delta is EUR 350 million at least, it should be EUR 350 million to EUR 400 million if you exceed the EUR 1.7 billion for the full year. So where should it come from? And how you think about additional capacities here?

Yes. Sorry, Daniel, as Silvo already answered, I will take this one. You will get the IR answer. Well, that's an additional capacity coming out of Kulim. So we are in the middle of the ramp. And in not technical terms, having the CTO next to me, I have to be careful, but just add another line, and that brings you the revenue into the EUR 2.1 billion up to EUR 2.4 billion. Don't forget also Hinterberg contributing to this, but really the big change in the setup is more capacity out of Kulim.

Okay. And maybe a second one also somehow related to this. When you look at peers announcing already additional capacities, substrates in order to live up to increased market expectations or market demand. How would you think now of going forward in terms of CapEx? You level down to EUR 200 million for this year, obviously, cash flow due to free cash flow reasons. But how should we think of next 1 or 2 years? Would this be a level that is reasonable? Or would we have to add maybe the lower CapEx this year to CapEx in the coming 2 years maybe?

Yes. I think the lower CapEx that you see in the Q4 is -- or will see in the Q4 compared to what we planned for full year is, of course, again, at every year a bit of a timing difference. So we are shifting it a bit into the next year, whatever is possible, so you can add it to whatever you expected for the maintenance next year and the additional line might be a bit higher than what we said a year ago. When it really comes to the big expansions that we heard from competitors in the recent hours, I think that is something that we have to look in very carefully. And we will announce whenever there is something happening there.

Next question comes from George Chang from Aletheia Capital.

Just a couple of questions. First of all, what are the considerations for the ASIC clients when they choose between CoWoS and EMIB-T?

Well, it's technology-wise, difficult to say what really drives one in this direction, what drives one in the other direction because both of these architectures have their own benefits. It is also traditionally when you have bought from TSMC, you only get CoWoS. If you have bought from Intel, which very few had in the past, then you get EMIB. Only recently, Intel opened up for EMIB.

When they decide now, what you probably will assess is the overall the total cost for your package. There could be going forward, in particular, when the size becomes bigger, there could be a significant difference. Other than that, that's a question that's better answered by the package designers than by the substrate manufacturers.

Okay. Great. The thing I just want to just verify that my understanding is that the capital intensity for EMIB-T is probably double of that regular substrate. And it sounds like it's a lot more than traditional EMIB. So I'm wondering, can you explain sort of why EMIB-T investment is so expensive?

Yes. It is -- well, is it expensive or not that is in the -- everyone might have a different judgment on that one. But it is more expensive capital-wise, definitely to build an EMIB compared to a standard substrate because one of the reasons is the precision that you need to exhibit when you assemble the die into the cavity of the substrate. That precision is semiconductor level precision talking about micron 1, micron, 2, 3 microns.

And when you go from EMIB where you have a single-site connection to EMIB-T, where you also connect from the bottom side, all of that becomes even more tight. The tolerances are going down and the process steps are going up because connecting from the bottom side in an architecture where you have the die not in the center, in the core of a substrate, that is a complete unique process that requires a lot of additional process steps that make the whole process more expensive, the investment bigger. But whether it's twice as much as a normal substrate, that remains to be seen. I would challenge that.

The next question comes from Lucas [indiscernible] Bank.

I had the same question as my colleague, so...

Then we have the next question from Gustav Froberg from Berenberg.

I just have 3, please. Just looking at the slide on the contribution from new customers. I'm just wondering from which facility or where are you intending to serve them from? And do you have sufficient space in your factories considering current customers as well to serve new customers at volume? Question one.

Question two, a technical one, just on CoWoP, does this not disrupt the business that you have in Kulim and Chongqing, thinking that there's no package substrate involved at all? I'd be very curious to hear your view there.

And then lastly, on EMIB-T as well, are you EMIB-T ready in Kulim? I know there's a lot of talk about the future there. So just wondering if you're fully ready to start manufacturing EMIB-T packages or if you need to invest anything further to get ready for that type of technology?

I'll take the first one regarding the new customers. Everything is linked to Kulim. And the second one was white space. There is white space and we can put additional things in, it's possible.

Then the question regarding CoWoP and will it be a challenge for our business? Well, we cannot ignore it. That's for sure. However, will it come? Will it come in the way it is intended now? Will it be for a niche of products and which customers are going even for that kind of architecture. That all remains to be seen. That won't happen from today to tomorrow.

There are not even capacities in the world that can manufacture that kind of PCB or SLB or however you want to call that thing. That will take time, a lot of time, a lot of massive investments going forward if that should really spread out across the whole industry. So let's see where it goes. And we will observe it very carefully. We will make our preparations to be ready when it's needed.

And the third question was about EMIB-T in Kulim, whether this is requiring additional investment. Well, yes, generally, Kulim so far doesn't have EMIB-T capabilities installed. So if we want capacity there for EMIB-T, it definitely will need a certain amount of investment.

And we have the next question from George Brown from DB.

So 2 more questions from me. I can take them one at a time again. Just thinking about Kulim and the second plant you have, which is effectively a shell today. In the context of capacity utilization and your peers already sort of nearing 100% and a lot of capacity being increasingly absorbed by the likes of NVIDIA. Is it likely that Intel or other customers are looking at K2 with more interest today, especially if you consider Intel, the road map for EMIB as more external demand, but these substrates are becoming much larger, higher layer counts, which obviously absorb much more capacity today relative to 5 years ago. So should we expect any developments in this regard for K2 over the next sort of 12 months or so?

Yes, very good question, but reminded of Daniel's question. If we would consider there's something or the Management Board would decide something in that direction, of course, we will let you know. I'll talk right away, let me phrase it that way.

Okay. Perfect. And then just maybe a technical question. On the vertical power opportunity, thanks for highlighting. It seems very interesting. I assume you're working with big players here, whether that's Infineon. Infineon, they've outlined quite a big TAM, I think, for vertical power by 2030 within the sort of EUR 8 billion, EUR 12 billion mark.

Do you have a sort of figure in mind as to how big this opportunity could be for you guys in the '28, '30 time frame? As I assume as you shift from lateral to vertical power, you're shifting towards embedding more components within the substrate. So the complexity is going up. I assume the substrate share of value is also going up as well. So any sort of data points to share that would be helpful.

I think your considerations are all correct. The value add for the substrate must increase if we embed active or passive components. But giving a concrete figure at this point in time, I'm not in a position to do so.

[Operator Instructions] And we have one more question from Daniel Lion from Erste Group.

Can you maybe provide us also an update on glass substrates? Has anything changed in your perception? The market is still some time away from implementing such a technology?

Yes, right. Glass substrates have gone through the whole hype cycle. Intel starting 2.5 years to trigger the hype. Everyone was talking about it. And then Intel was also the first one to become quiet about it. And in the meantime, I think a sort of realism has come into that, that glass is not a simple thing to introduce, in particular, the fracture mechanics of glass is not enough study to ensure enough reliability.

And so while a lot of companies are working on it, a real introduction in high-performance computing seems still to be out some years. And Intel said in the second half of this decade, yes, let's see if we can really make it in that decade. That is the perception I have from the market at this moment in time.

Perfect. And then one question again. How do you expect the cost-cutting program impact your profitability going forward? How much of this EUR 160 million that you earmarked this year savings target? Would you expect to see converting your cost savings next year?

Let's say, the program is a sustainable program. So our expectation is that most of it will go also in the next years. But I cannot tell you now a number, but the most portion should be sustainable is my view on it.

And we have one more question Frederik Dreyer from Fountain Square Asset Management, GmbH.

I just wanted to ask if you can elaborate a bit around your plans with your hybrid capital, please.

It's difficult because I can tell you that we evaluate on a hybrid. And as you should know, I have to go then I talk if it will come to it. And we have a little bit time because it's until January but we will inform then the market.

And we have one more question from George Chang from Aletheia Capital.

Just one more question on CoWoP. You've talked about, let's say, the new challenges for CoWoP. Can you just give us more details on, let's say, the technical challenges for CoWoP because my understanding is that the line space for IC package is already about 5 micrometer, whereas NSAP is still probably about 20-20 or 15-15. So how do you close that gap between the two?

That's a good question, something we also scratch our head, how that package designer will overcome that. Either you need to introduce an SAP-like processing and get down with your line space to 8 micrometer, which is the typical space that -- the line space that you need currently for most of the substrates or else, you probably get stuck with around 15-micrometer line space and ends up, which would be easier to handle for the manufacturer of this CoWoP thing. But then you need to transfer some of the complexity upwards to the still remaining silicon interposer or whatever the interposer will be made of in the foreseeable future. So one of these 2 directions needs to happen. I don't think the judgment is out which way it goes. That's as much as we can say at this moment in time.

Great. So in terms of, let's say, the time frame development, it would be probably, let's say, EMIB-T first and then maybe CoWoP sometimes down the road, like 2033 time frame?

I can't give you any concrete number, even I believe in all honesty, and the customers themselves would not know when and with which product they are going to intercept that kind of technology as the fundamental technology bricks to solve all the issues that come with warpage and coplanarity and God knows what. They are still not completely available, tested and the whole system proven that it can work that way. So you need to give it a little bit more time to go through all the necessary testing until anyone will dare to give you a concrete date for the implementation of such a technology.

Okay. So as there are no further questions, we will conclude today's conference call. Thank you for your participation and questions. If you have any further questions, please feel free to contact the IR team, Johannes Mattner and me any time. Thanks again, and goodbye.