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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. I am Marek Rusinek, your operator today. Welcome, and thank you for joining the AT&S Conference Call on the results for the first quarter of the fiscal year 2023/'24. [Operator Instructions] I would now like to turn the conference over to Mr. Philipp Gebhardt.
Thank you, Marek. Good afternoon or morning, ladies and gentlemen. Welcome to the AT&S Q1 2023/'24 Conference Call. With us today are Andreas Gerstenmayer, CEO; and Petra Preining, CFO. Mr. Gerstenmayer will start with a brief overview of the Q1 key developments as well as the market update. Afterwards Ms. Preining will comment on the financial figures and our guidance. As Marek mentioned, the presentation will be followed by a Q&A session. Now I would like to hand over to Mr. Gerstenmayer, the floor is yours.
Thank you, Mr. Gebhardt, and a warm welcome to everyone wherever you listen us. Good afternoon, good morning. Let me briefly run through our first slide, which shows the key developments in our first quarter. First of all, I think we can state we have gone through some downturns in the previous quarters, and we could do the -- we could return back to more favorable numbers now in the first quarter. If we compare against, especially quarter 4 of the last fiscal year, the numbers look significantly better now in the first. For sure, in the given environment and in the light of the global very dense situation of electronic markets, Q1 to Q1 comparison is still a weak picture. But as I said, we are trying to turn back and improve further. From the number Ms. Preining will show you later, you can also see that our cost optimization programs we have been communicating about have already shown significant impact. We could accelerate the implementation of the activities and all the program started to show the effect and improvements on the numbers. In the light of the latest development, we confirm our outlook for the fiscal year '23/'24. But I have to bring in one comment here. We have still a very high volatility in the market and low visibility. You will see it from some market numbers I will show you later that we have a very dynamic market environment, and we try to deal with it as good as we can. And we have a continued price pressure due to still high level of stocks in the supply chain and also reduced demand side. Besides the annual outlook, we also confirm still our medium-term guidance for '26/'27. You can also see from the numbers I report in a minute that we see all the trends intact, and we also assume significant recovery starting with 2024. Moving on to the PCB market now. An overview here, you can see the previous years we had, especially in the Communication, Consumer, Computing market, quite a decline in the demand. Again, a significant decline expected in 2023. Nevertheless, all our market intelligence shows us that beginning with 2024, the CAGR for the next coming years is on a level of around about 5%. On the Automotive, Industrial, Medical, and Aerospace part, it's slightly different. The main driver there is the Automotive industry and the entire market will slightly grow by 1% this year and is expected to grow by 6% in the coming years, again, mainly driven by the strong trends of e-mobility and battery-driven cars. If you just compare the development in the last 6 months, the forecast we have received end of the calendar year '22 compared to the forecast we recently received from our research. You see in the Consumer, Computing, and Communications market, another decline of 4% forecast versus forecast. So here you can already see what dynamics we are facing and similar picture we have in the Automotive, Industrial, and Medical business, but the decline is not that great as in the other market segment. Coming to the Substrate market, there we have 2 major events. The one event is Notebook development over the last 2 years. Here you can see the party of COVID is over. Still the demand level is similar to the 2019 numbers. But in between there was significant increase, and now we declined back to the previous demand levels we have seen a couple of years ago. Still the recovery is to be expected, starting with '24 ongoing with 5%. A bit more of a surprise was for us in the entire market, the server business. At the beginning of the year, we expected more or less a flat development, whereas now the latest numbers show us that we will -- we need to expect a 5% decline compared to last year's versus significant growth in 2022. So still not back to the previous levels, still above them, but a setback, I would call it, and there is still a quite volume of stock levels in the supply chain. So also here, we expect that the recovery will start somewhere in 2024. Also here to see what has happened over the last couple of months. Right-hand side, the already low forecast for the Notebook shipment declined further by 12% forecast to forecast. And in the server business, it's an 8% decline versus the December numbers what we have seen recently now. Yes. Then coming to the cost optimization programs, as I said at the beginning already, we could prepone some of the implementation of our efficiency and cost reduction measures. So we pulled in the effects that helped us a lot in the profitability levels in the first quarter. On the other hand side, it will also flatten the ramp over the full fiscal year. So it's more -- we have assumed a kind of ramp curve created by the impact of measures over the quarters by preponing the implementation, it will flatten out the effects. And therefore we have seen earlier improvements, but the increase of improvements later on will be a little bit less, but I think this is even a better situation because we can benefit from the impact much earlier than originally anticipated. So this is more or less the part of the market and the improvement activities, brief overview about our big investment projects. The Leoben project, some milestones here. Everything -- summarizing, everything is on track. We have achieved really a great success in building and installing the infrastructure for this kind of factory within 14 months. So this is really record time, record lead time, can be compared to best we can do in China. So typically, nobody expects that from Europe, but the team did a great job and could show the results very much on time. We have already around about 60% of the production floor, which is all clean room, handed over from the EPCM. We have already moved in 30% of the production tools, started process qualification, and also moved in first R&D equipment, which was planned to come in later due to the complexity of the technologies we have installed there. Just giving a brief glimpse about what has happened over the last months. January, on the left-hand side, you see it's really heavily construction ongoing. In April, it was more or less the outside finished, including the bridge link to the old factory. And on the right-hand side, you see almost everything from the outside is ready. And we are focusing on the inside work and ramping up the processes and qualifying the equipment. We see a similar situation in Kulim. For sure, the plant is significantly larger. It's we call it K1 plant, the first production building, including the annex buildings and the office building. Everything, again, is on track. We have all the planned tools from the first batch for the first line already under installation. So move-in has happened. Installation is in power on in the plant, which is important for a new greenfield site that we have our own energy supply. By the way, it's the largest substation in the entire Kulim Hi-Tech Park, which covers 65 megawatt max installed load, which is impressive, I think, and everything runs according to our expectations, plans, and budgets. So also here are some ideas about what has happened over the last months. You see this large, huge building. In January there was even not a roof on top. April, roof was closed and July, everything from the outside shell is finished and we are focusing on ramping up everything what is necessary to qualify our processes in production equipment. So this was a brief overview from the markets, from our efficiency projects and from our investment projects. And I now hand over to Ms. Preining to run you through the nice numbers.
Thank you very much, Mr. Gerstenmayer, and a warm welcome also from my side. I have the pleasure to walk you through Q1 figures. And again, I have to say it's a tale of 2 stories. We are usually reporting Q1 in comparison to Q1 of the previous year. And if you compare Q1 to Q1, we are clearly below the previous Q1, which came out with EUR 503 million. However, given the current trend, Mr. Gerstenmayer has just described, I think it's important at this particular time to also focus on Q4 to Q1. And here, we see a very nice turnaround and recovery turning into 20% from EUR 302 million to EUR 362 million. Additionally, and this is, I want to say, overly impressive because the turnaround in the EBITDA happened in the light of market headwinds, price pressure due to overcapacity inflation, interest, geopolitical situation, as you do know. And here, we see an impressive plus EUR 75 million compared to the previous quarter. This means our programs do pay off. The measures we have implied with our efficiency program in late Q2 last year and then with the cost optimization program in Q4 last year definitely pay off and we see the result. This is even, I would think, more impressive as the EBITDA increases by EUR 75 million, while the revenue increases by EUR 60 million. So here we see the turnaround in the margin, in the EBITDA. and in the revenue. However, we also -- and this is important, the high volatility per this difficult macroeconomic trends and certain concerns also on banking sector starting Q2 -- calendar Q2 this year. Hence liquidity management and the focus on the cost optimization will stay high and liquidity management remains -- liquidity as such remains king. In detail, comparing now Q1 to Q1, the revenue has decreased to 28%, a little higher share in the decrease in microelectronics compared to electronic solution. You do know that it's the first time that we do report our new structure, hence we have to use electronic solution and microelectronics. I do have to remind you though that Q1 in microelectronics like-for-like was a very, very impressive good quarter. In turning to the EBITDA. The EBITDA decreased by 46%, 75% without currency effects and a margin of 20.7 percentage points adjusted, that would turn into 25.5%. The net profit turned negative due to our investment program and the lower EBITDA I have just explained. Turning the page. As said, Business Unit: Electronics Solutions. Also here I took the liberty to compare not only Q1 to Q1, but also Q4 to Q1. Q1 to Q1, we see a decrease of 26%, which is due to the lack of the mobile device we used to have in Q1 2022, 2023. Clear margin headwinds by lower revenue, but also price pressure as mentioned. Q1 versus Q4, however, this shows a stable development with the cost optimization program already showing the turnaround in the EBITDA from 10% to 19%. The business unit microelectronics, similar picture, different trend though because here we see from Q4 to Q1, plus 54%. This is, of course, due to the trends Mr. Gerstenmayer has already explained, and the margin is highly impacted by our cost optimization program. What I earlier said at the intro, Q1 versus Q1, however, shows a negative impact of 31%, which is due to this very, very strong Q1 in 2022/2023. The financial position shows a very stable and balancing situation. You do know that at the end of the last fiscal year, we closed the books with roughly EUR 1.5 billion in cash, cash equivalents, and unused credit lines. This number has now gone down to EUR 1.36 billion, so minus EUR 160 million, while the unused credit lines more or less remained unchanged and the delta you can see in cash and cash equivalents. What we have already shared with you that we deliberately have decided to continue our strategic growth programs. Hence the CapEx program, which we have already announced, which will be at EUR 1.1 billion for this year, is the driver of the decrease in cash and we are quite happy actually with the stable environment due to our efficiency programs. I will come later to explain more. On the debt financing, with the EUR 1.36 billion, we are very comfortable to serve the outstanding debt instrument for this fiscal year and hereafter, we currently have a ratio of roughly 40% fixed interest rates and the current financing cost of 3.6% as of Q1 2023/2024. We further do expect, as already stated several times, that customer prepayments will be received also in this fiscal year. One additional information, which I happily share with you, we have successfully placed the promissory note, which closed late July 2023, obviously, with a volume of EUR 220 million. This slide, I am actually really pleased with and very happy. It shows the net working capital to the last 12 months revenue in the top line, you can see the decrease quarter after quarter, now ending at 10.5%. This is supported definitely by the current market trends. That's something we are very well aware of. However, it's also a very strong translation of the current management focus we put on to that subject. As I said, liquidity is king, and we very carefully use the funds available. Turning the page. The balance sheet is mainly impacted by the decrease in equity, which is due to our foreign exchange translation adjustments of the OCI, Other Comprehensive Income, where we saw a decrease of roughly EUR 130 million. Hence the equity ratio became more pressured due to the short term of the balance sheet. As anticipated and as we have already mentioned several times, this ratio can lie below 30% in the current situation. The net debt has increased to 2.6x. Over the page, the cash flow, cash flow from operating activities, very nice due to our lower working capital and all the initiatives that are lying and supporting that number. The cash flow from investing activities give and take on par with Q1 2022/2023 given that the CapEx program is also roughly at the same level. The repayment of 1 loan is causing the difference in the financing activities. And overall, we have closed the quarter with minus EUR 43 million in operating free cash flow. With this, I have just 2 more information, what Mr. Gerstenmayer has already said at the start, we herewith confirm our current year's guidance as well as our midterm guidance as stated earlier.
Thank you, Mr. Gerstenmayer. Thank you, Ms. Preining. We will now start the Q&A. In order to give everyone the opportunity to raise questions, we would like to ask you to limit yourselves to 2 questions. Once we are through, if there are any still questions and still time, we will start another round. Now I would like to hand over to Marek to handle the session.
[Operator Instructions] So the first question comes from Gustav Froberg, Berenberg.
I have one, please. Just on guidance. So Q1 is down on the revenue side by about 30%. And throughout the presentation, you were sort of alluding to the market environment turning more negative in the second half. Yet you still kept your guidance for the full year, which basically implies a flat development versus a record year last year. Could you give us some of the building blocks, please, for your guidance this year and why you feel confident achieving that, given how the year has started and how the outlook has deteriorated?
Thank you for your question. I was probably -- this is a slight misunderstanding. I was not saying that the second half is worse than the first half. This is the outlook of the entire year. Our fiscal year starts in April. So when we receive the June forecast, it's more or less at least 9 months covering. Still what we expect is, especially when you will have a closer look to the mobile device, there is the peak season of the business in front of us. Typically Q1 in mobile device is the low season. Q2 starts with the peak, Q3 peak, and Q4 is, again, low season. So we have at least 2 quarters where we can benefit from the higher demand in the market, even if it's lower than in the past. But there should be some recovery, we have the typical profile in the demand curve. In the IC substrate business, as you can see, there was very strong business, especially in the server last year, we see some decline, but it's still above the previous years. As I have shown in my slides, there was a strong growth last year. We have a certain setback, as I said, but it's not falling below the numbers. So it's still on a significant level. And therefore, this was the main underlying assumptions when we did our forecast calculations.
Okay. Just a quick follow-up on that. So is it safe to assume from what you're saying, given just the absolute numbers in Q1, they're obviously lower than last year given the record quarter last year. Is it safe to assume that you think we see a sequential improvement across both business lines for the next couple of quarters? Or do you expect it to stay at the current level?
So you're talking top line, right?
Yes, exactly.
As I said, there is some upside for the subsequent quarters due to the reasons I just tried to explain. And for Q4 we try to assume or we did assume some recovery already because this is already reaching into 2024.
The next question is from Patrick Steiner, Kepler Cheuvreux.
Patrick Steiner. I would have 2 questions at first. And first of all, you mentioned in the presentation that cost optimization measures supported Q1 results, also Electronic Solutions. What kind of cost optimization measures did you execute in Electronic Solutions? And why? I mean, what's the view on demand going forward?
Thanks for your question. Let me answer that very general on what we have decided for the entire AT&S and therefore also Electronic Solutions as we have put ourselves, given the current headwinds we saw and will still see, a cost optimization program. So this is not only microelectronics, it's also Electronic Solutions. Hence the programs we have launched, separated between efficiency gains and cost optimization. I think it will be -- we don't want to disclose any numbers. But what is fair to say that roughly 1/3 of the current state is sustainable cost optimization and 2/3 is unsustainable, which might turn around in 2 years. So whenever we see the necessity isn't.
Okay. Is it fair to assume to say that cost optimization happened in Electronic Solutions due to the strong downturn in microelectronics also because you see lower demand going forward in Electronic Solutions as well?
In general, what we do see is macroeconomic trends, that's inflation, that's interested it has no tech mark on either BU. So we focus on the entire AT&S. And a lot of the programs we have launched, especially when it comes also to efficiency gains, definitely for both BUs.
Okay. Perfect. Just a quick second one. We've seen the COVID boom in laptop shipments, laptop notebooks and so on, which likely led to increased ABF substrate capacities across the industry. Now once channel inventories are decreasing, and demand is likely to stay on a lower level than during the COVID years. Do you see now excess capacities in this kind of client base related to Notebooks, laptops and PCs and how do you think about pricing utilization in that regard?
Yes. So I think we need to differentiate. In total, you're true also for the upcoming years, if we just focus on the Notebook part, there is additional or enough capacity in the market. On the other hand side, what is foreseeable especially in the server part. There are new architectures on the way. There is significant larger footprint of subsets, higher layouts capacity consumption will be significantly higher. But also that will migrate into the Notebook area. So also there, it's foreseeable that the architectures of the products will increase or will change, and the capacity demand will increase. So even if you don't see significant unit number growth, there will be growth in increase in value and also increase in capacity consumption.
Okay. So you're not really scared of unused capacities or strong pricing pressure over the next 2 to 3 years in that space?
In the midterm, yes. As we stated in the presentation for this and most likely also for next year, at least, we will see more than enough capacities and price pressure staying with us. But for the years after, we expect improvement and recovery.
The next question comes from Alexander Thiel, Jefferies.
I will start with the first 2, and I hope we are doing another round. So my first question is on your working capital benefit shown in the operating cash flow of EUR 134 million on Slide 18. Could you elaborate on this one? How sustainable is it? And is it fair to assume that this benefit was the phasing that we have seen last year will be basically over in the third quarter? And the second one is, could you talk about your utilization rate for IC substrate in Q1 and the development we expect in the following quarters given the high fixed cost associated?
Thank you very much. I'll take that question number one. I'll leave the second question to Mr. Gerstenmayer. So going back to Slide 18 and the working capital management. I mean to be very frank, the 10.5% in relation to revenue is not the new normal. This is not the target we anticipate on a normal situation forward-looking. However, given the current situation and the market trends, you do know that once the market is weakening, you of course also do have the tailwind on working capital. We have further to the tailwinds set numerous management focus topics to optimize working capital management and have, therefore, reached the 10.5% in relation to the last 12 months revenue. The -- once the market is picking up again, I would expect that this percentage also increases again. But rest assured that this has highest management attention. And therefore, we will keep that topic very close to our heart because the current volatility, yes, set basically the pace that I said is liquidity is king, and we need to focus on cash management, very, very stringent.
Okay. Let me take over for the capacity utilization topic. So I need to, yes, circle around a little bit because typically we don't disclose utilization numbers. Trying to explain it via Slide 15. Last year, in Q1 and Q2, we were almost fully loaded in our installed capacities. For sure, there has been some capacity over the year added. But you can somehow derive from there what is the current utilization of the existing capacities. Let's keep it like that.
Okay. The next question comes from Jurgen Wagner, Stifel.
Question on your market share in IC substrates. How has that changed versus last year? And then at semicon in the U.S., there was a bit of message that IC substrates on glass will be used more intensely in the future for tablet? What does that change for you?
Okay. So I assume I take these questions. It's not the CFO question. Market share, we always told, we are currently on #5 position. So there was no significant change due to the market environment. The real next jump would happen once our Kulim factory come on stream. So far, we are somewhere #5. Talking about technology. For sure, there is different new technologies on the way as always. So glass is also a technology used in substrates or at least in prototypes and R&D projects since quite a while. What I can say for sure, we are somehow -- we are busy in some projects with applying new technologies, new materials. And for sure, glass is one potential solution for the future. Again, what does it mean for AT&S? It depends what you're looking at. I mean, there are different kinds of buildups where glass can be used. So I think it's a bit too far now that we elaborate on each and every detail. But summarizing, we are on glass. We are on projects with glass and depends heavily how the buildup is designed, how the architecture of the substrate is designed, how glass will be used.
Next question is from Daniel Lion, Erste Group.
I would actually like to focus on your potentials also going forward. Start with a very prominent topic these days, artificial intelligence. Could you maybe lay out as we get really a lot of questions in this direction and, I guess, we're not the only ones. Could you lay out somehow the potentials with respect to solutions for AI for AT&S and also going forward and to what extent do you think that it could become significant for your business model and when? This will be my first one.
Okay. Yes, to understand that we need to reflect a little bit on the situation the market is in today in most all of the artificial intelligence applications, typically GPU, graphic processing units, are used. You have seen some of the players on the OEM side that have reported significant upturns in their business. But technology-wise, we need to be aware that the starting point where we are today, this is more, I would say, commodity GPO, what is used there. So it's not very advanced technologies. What we see -- what is significantly increasing is our activities, how the performance of the future packages can be improved. We see from almost all of our customers' heavy activities in R&D and technology development to bring in more powerful components. As I said before, the impact on our business will be the footprint of these packages will be significantly larger. The complexity will be higher due to the various reasons, not only the simple die topic. So we see the heterogenous integration with the chiplets entering into the business, more integration of functionalities in the packages and [indiscernible]. So basically, this is underpinning what I have said before. We see a value growth in our components for the coming years, higher capacity consumption and yes, it's a big driver besides the server and cloud computing area for our strategy as it is built on the higher tech components in AT&S.
Okay. Understand. And then looking at your PCP lineup. Now there have been coming new platforms on the market, of course, not in high volume yet and reflecting of course on AR/VR devices, but also foldables are growing in dynamics. And maybe have also reflected on your drone business. Of course, here, pointing to the war between Russia and Ukraine. But how do you actually see basically from new platforms, basically, your PCP business to benefit, be it from content gains from supplying maybe additional modules or higher-value valued PCB products or completely new platforms as AR/VR and especially the foldables?
Thank you for this question. It's quite a wide range covering. Let's try me to answer as follows. Basically, AR/VR is a very young market and unit numbers is still significantly low. From the rigid board, we see there, there is no big change in terms of the structures used there. We see some high-end HDI usage, some mSAP usage there. But also we see usage of flex PCBs, which is not a center of our strategy. Then with the foldables, I think it's mainly the same business like we have in our other phone business because the main boards are still rigid PCBs linked with some connector boards from the flex part and flex technology. So no big change there. You're mentioning new platforms. I assume you're referring again to the artificial to the VR/AR topic. We need to observe. This market is around quite a while now, and there was a lot of announcements there. Still what we see is the foreseeable time, it's a niche market, also from the latest announced technologies. There is not really visibility that this will turn into a very high-volume business so we observe it very closely. We have the technologies on hand. We are, I think, in good interaction with the relevant players in the market. Will that replace volume-wise the smartphones? Most likely not at least for the foreseeable time.
I was also reflecting on Apple and Google's announcements towards foldables and expectations that they could come out within the next, let's say, 2 years at least with own products.
As I said, there is no big change. So potentially a little bit smaller structures. But typically, the main boards in foldables is also a rigid board, which we are producing already today. And if you would open up one of the phones, you will already -- would already see that the main board is quite small. It has to make up space for the battery inside. So it's just a matter of how the shape of the PCB is created and the footprint of the PCB is made, you can use it that way or that way.
Next question comes from Teresa Schinwald, Raiffeisen Bank International.
Yes, can you hear me?
Yes, we can hear you.
My 2 questions. First one is on the R&D expenses. You mentioned they came down this quarter by EUR 11 million. Was this part of the efficiency program? Or was there any other reason? Also, could you remind us on the target R&D rate versus revenues for the current year would be my first one.
I think it's a misunderstanding. We have not disclosed R&D ratios neither for the quarter, nor for the full fiscal year. What we have said early in March this year is that we will -- we're aiming for EUR 440 million cost decrease over this and the next fiscal year compared to last fiscal year. This is what we have said. Maybe the -- what you're referring to is the EBITDA adjusted, which is accounts for our start-up costs, so the delta between the EBITDA and the EBITDA adjusted refers to -- similarly to what we have already announced in the past, the start-up costs due to our large CapEx program in the various sites.
Sorry, I was referring to the quarterly reports. So you mentioned the 9.3% share of revenues. So it wasn't related to the efficiency program, which seems to have come in front-end loaded this quarter?
No. I think this is a misunderstanding, but you can happily reach out to also investor relation at any later stage.
Yes. And a follow-up also on the efficiency program. You said you won't give any numbers and some of the effects in the first quarter might reverse over the course of the rest of the year. But would it be fair to assume that the efficiency measures were like 50-50 between the new segments? Or how should we understand the effects at least in relationship to the second?
I have to put -- we don't disclose this kind of numbers. We -- as I tried to explain, both BUs have been in focus due to the current market headwinds, the current development of the efficiency gains on various sites or in various -- in each of the views. We do not disclose. We have a different rent phase. You do know once you launch mitigation actions, they have a lead time until they develop their full capacity and therefore, the swing and the curve might be different. But nevertheless, both BUs participated and already show the positive effect, as you can see in these parts already.
Next question comes from Alexander Thiel, Jefferies.
My first one is a clarification question. You always started -- you always say you can't strip out IC substrates because of single customer nature. Does it mean you have now more than one customer in the reported numbers? And the second one is on your FX effect that we have seen there's no FX effect on sales for the EUR 15 million on EBITDA. Could you explain the difference?
How to put it. You do know that we don't talk about customers, but and brief answer to your question, yes. The second question on the FX effect. As we have stated on Page 13. Q1 versus Q1, the effect -- let's start on a different angle. In the revenue, you mainly see the dollar effect as we are all along. We are dealing in a business which usually have dollar sales. So hence the development in Q1 versus Q1, the FX development was on par, if you like. So the with and without currency effects, that's basically -- that's basically the same. However, on EBITDA, what we do see currently is a weakening of the renminbi. And therefore, we have a better effect on the EBITDA compared to the previous quarter of 2022/2023.
So the next question comes from Patrick Steiner, Kepler Cheuvreux.
2 last questions from my side. First question, I mean, you received some EUR 48 million in customer prepayments in Q1, if I see this correctly. How much more do you expect to receive and what kind of time period?
A very elegant question, I have to say, because there is the very same question every time. And do you know that we don't disclose the timing of the prepayments or the planning of the prepayment. To your first question, yes, this is correct. So the number you have stated is correct. We have already said the total we expect to receive in -- over the time when we stated the EUR 850 million for Kulim. And I would say there is a low 3-digit million number still to be expected in this fiscal year.
Okay. Perfect. Last question. I mean do you have any worries on capacity loading and negative pricing development at the U.K. 1 plant at Kulim? And anything changed on your plans with the other one, which is currently on hold?
I could make it easy, again, talking about plants and associated business. So it's very much linked to customers. Make it straightforward. Basically worries for K1 are not that large. Yes, keep it like that. And the J1, we are still in discussion and also investigating the further development of the market. I would not expect that there will be a very short-term decision made. As I said, we need to wait until when the real recovery of the demand side will kick in. And it's not first time that we had to pause production shell. It's in the industry quite normal that you prepare it and you -- once the market kicks in again or increases, then you start equipping it.
Next question, Alexander Thiel from Jefferies.
I just want to follow up on the Kulim question. I mean, you elegantly answered it that the one customer is basically on hold, but how fast can you scale it up when the market increases? So how should we basically look at that?
There are more than one impacting factors. The one is how is the or how do we proceed with the equipment and how is the lead time for certain equipment at that point in time. There is a big variance because some of the equipment varies between 12 to 24 months in purchasing and shipment time. Typically you need at least another 12 months for qualification. So between, I would say, 2 years until the ramp can take place or a little bit more if the market gets more dense again.
So it's not really a fast scale up that you can show in how close of the contract are you with this customer? I mean, is this the negotiation that's happening on a monthly level? Or is this, I don't know, a quarterly issue that you're discussing? Or how is it working on that side?
I need to answer on your first comment first. It depends what you are calling fast. If a competitor needs to build the entire plant to ramp its 2 years construction of the building and then you can start installing equipment and ramp the factory. We have the factory available there. And any time we can start equipping it and scaling the manufacturing. So this is then the advantage, you have at least 2 years advantage. The second one, I think it's a nice try, again, for customer -- detailed customer information, simply we don't disclose this information.
So I'm sorry, but I think we are unfortunately running out of time, and we'll conclude today's conference call. Thank you for your participation and questions. If you have any further questions, please feel free to contact our IR team, Johannes Mattner, and myself. Thank you again, and goodbye.