Q1 2022 ASE Technology Holding Co Ltd Earnings Presentation
Past via participation in this event.
Participants do not consent. Please disconnect at this time I would like to remind everyone that the presentation that follows may contain forward looking statements. These forward looking statements are subject to a high degree of risk and our actual results may differ materially.
For the purposes of this presentation. Our dollar figures are generally stated in new Taiwan dollars, unless otherwise indicated as a Taiwan based company. Our financials are presented in accordance with Taiwan IR for US results presented using Taiwan <unk> may differ materially from results using other accounting.
Standards, including those presented by our subsidiary using Chinese gap.
Intercompany transactions between our ATM and EMS businesses have been eliminated during consolidation.
For today's call I'm joined by Joseph Tung, our CFO during the call I will be going over our financial results and outlook Joseph will be available to answer questions. During the Q&A session that follows.
As a reminder, we disposed of ASE, Inc. China sites at the end of 2021 for our financial results presented here. In addition to our legal entity results. We will also be including additional slides on a pro forma basis or as if the disposition of ASE Inc.
China sites had already occurred.
We believe the pro forma results give additional more meaningful information, which would assist in providing comparability of our financial results.
During the first quarter, our ATM business continued to be heavily loaded revenues came in slightly ahead of our expectations. During the quarter. There were some customers who were reducing their forecasts, but those customers were outpaced by other customers increasing their forecasts from a sector perspective.
<unk> certain sectors do appear to be fairing, better such as high performance computing networking and automotive and despite the slight volatility net net there was no significant variation from our previous outlook.
Our EMS business also had revenues that came in ahead of our expectations during the quarter stronger than anticipated demand was driven by our IP and traditional EMS services logistical issues from component and chip shortages appeared to ease prior to getting orders from.
<unk> Covid mitigation practices all in all our EMS business fared well, despite the manufacturing environment, becoming more challenging.
On pages, three and four you will find our first quarter consolidated results with historical results on a legal entity and pro forma basis. The first quarter financial results are the same on a legal entity and pro forma basis.
On page three is the consolidated legal entity P&L for the fourth quarter 2021, the disposed sites represented $6 $8 billion of revenue $1 4 billion.
Gross profit and zero point $9 billion of operating profit as a percentage the disposed sites represented 4% of each fourth quarter 2021 revenues gross profit and operating profit for the same period last year. The site's disposed represented five.
$6 billion of revenue $1 billion of gross profit and zero point $5 billion of operating profit as a percentage the dispose entities were 5% of each revenues gross profit and operating profit.
On page four as our first quarter results compared with the pro forma basis historical results.
For the first quarter, we recorded fully diluted EPS of $2 92.
And basic EPS of $3 one set.
Consolidated net revenue decreased 13% sequentially, while increasing 27% year over year.
We had a gross profit of $28 5 billion.
With a gross margin of 19, 7% our gross margin increased by 0.8 percentage points sequentially and by one four percentage points year over year. The sequential margin improvement is principally the result of lower EMS business mix.
Annual increase is primarily the result of higher profitability of our ATM business.
Our operating expenses decreased sequentially by zero point $3 billion during the first quarter to $12 4 billion, primarily as a result of lower bonus and profit sharing expenses issued during the quarter on a year over year basis, our operating expenses increased by $1 nine.
Mainly from the increase in scale of both our ATM and EMS businesses, our operating expense percentage increased a percentage points sequentially to eight 6% from seven 6% on an annual basis, our operating expense percentage declined zero.
<unk> six percentage points from nine 2%.
Operating profit was $16 1 billion down $2 7 billion sequentially, while up $5 7 billion year over year.
Operating margin was 11, 2% declining 0.1 percentage points sequentially. This relatively moderate decline was principally the result of lower EMS product mix operating margin increased two one percentage points on an annual basis as a result of higher loading.
And profitability from our ATM business.
During the quarter, we had a net non operating gain of <unk> 6 billion.
The non operating gain was primarily from our net foreign exchange hedging activities offset in part by net interest expense of zero point $4 billion.
Tax expense for the quarter was $3 3 billion.
<unk> tax rate for the first quarter was 19, 7%, we expect our full year effective tax rate of 20%.
Net income for the quarter was $12 9 billion.
Representing a decline of $1 6 billion sequentially and an improvement of $4 9 billion year over year.
The NT dollar U S. Dollar exchange rate was fairly stable from the fourth quarter 2021 to the first quarter.
2022, and as a result did not sequentially impact holding company level margins meaningfully however from a year over year perspective, we estimate that the strengthening NT dollar had a one percentage point negative impact to gross margin.
As a general rule of thumb for every percent the NT dollar appreciates, we see a corresponding 0.3 percentage point impact to our holding company gross margin.
On the bottom of the page, we provide key P&L line items without the inclusion of PPA related expenses consolidated gross profit, excluding PPA expenses would be $29 4 billion with.
With a 24% gross margin.
Operating profit would be $17 $3 billion with an operating margin of 12%.
Net profit would be $14 1 billion with a net margin of nine 7% basic EPS, excluding PPA expenses would be $3 28.
On pages, five and six our ATM P&L with historical results on a legal entity and pro forma basis. It is worth noting here that the ATM revenue reported here contains revenue eliminated at the holding company level related to intercompany transactions.
Between our ATM and EMS businesses during.
During the first quarter, our ATM business continued to run at a highly loaded rate our advanced packaging business remains strong. However, as expected we did experience some mild first quarter seasonality from our wire bond business.
On page five is the legal entity ATM P&L.
From a legal entity perspective, our ATM business declined 9%, primarily as a result of the disposition of ASE, Inc. China sites.
For the fourth quarter 2021, the disposed sites were $6 $8 billion and 7% of revenue.
One 4 billion and 6% of gross profits and 0.9 billion and 5% of operating profit for the same period last year. The disposed sites were five 6 billion and 8% of revenue $1 billion.
And 6% of gross profits and zero point $5 billion or 5% of operating profit.
On page six is our pro forma basis ATM P&L for the first quarter 2022.
Revenues for our ATM business were $84 billion down $1 2 billion from the previous quarter and up $15 9 billion from the same period last year. This represents a 1% decrease sequentially and a 23% increase year over year or <unk>.
<unk> revenues came in ahead of our expectations due to higher than expected loading and production efficiency.
Gross profit for our ATM business was $23 1 billion down $1 2 billion sequentially and up $6 1 billion year over year.
Gross profit margin for our ATM business was 27, 5% down one percentage point sequentially and up two six percentage points year over year.
As discussed in the previous quarter, our fourth quarter 2021, ATM gross margin contained to a reclassification for bonus without the inclusion of the reclassification fourth quarter gross margin would be 28, 1%.
And as such first quarter gross margin would only be down 0.6 percentage points.
The year over year gross profit margin improvement was primarily attributable to higher loading improved efficiency and a friendlier ASP environment offset in part by NT dollar appreciation.
During the first quarter operating expenses were $9 $1 billion flat sequentially and up $1 5 billion or 20% year over year to 20% annual increase was lower than our 23% net revenue growth during the same period.
As such the year over year increase was primarily driven by a larger scale of business. Our operating expense percentage was 10, 8% up <unk>, one percentage points sequentially and down <unk> three percentage points year over year.
During the first quarter operating profit was $14 billion, representing a decline of one 2 billion quarter over quarter, and an improvement of $4 $6 billion year over year operating margin was 16, 7% declining one two percentage points sequentially and improving.
Two nine percentage points year over year. The NT dollar exchange rate did not have a significant impact on our ATM sequential margins. However on a year over year basis, we estimate that the strengthening NT dollar had a 0.75 percentage point negative impact.
Without the impact of PPA related depreciation and amortization ATM gross profit margin would be 28, 5% and operating profit margin would be 18% on.
On page seven you'll find a graphical representation of our pro forma ATM P&L.
On page eight is our pro forma ATM revenue by market segment.
We would like to mention here that we expect the automotive segment to grow significantly during the year and for many years to come we believe that this increase is not being primarily driven by shortage catch ups.
Instead, we believe that overall semiconductor content increases have accelerated recently.
Further the content increase is being amplified by a new wave of outsourcing from idms, which have traditionally kept most production in house.
Given the necessity of quality and scalability for our automotive products. We further believe that the market expansions will only be made available to tier one suppliers and within those primarily ASC.
On page nine you will find our pro forma ATM revenue by service type during the quarter, we saw strength in our advanced packaging services, which increased three percentage points wire bonding exhibited some seasonality dropping two percentage points from a forward looking perspective.
We expect our test an advanced packaging businesses, including bumping flip chip and fan out to continue to ramp faster than the corporate average during the coming year.
On page 10, you can see the first quarter results of our EMS business.
The information we provide here in regards to U S. I may differ materially from the information directly provided by our Asia listed subsidiary as they report independently using Chinese gap.
During the quarter demand was stronger than anticipated driven by stronger than expected demand for both our traditional EMS and IP services.
Component and chip shortages continued to persist throughout the first quarter overall operating conditions became more challenging as China's COVID-19 mitigation strategy ramped we do have countermeasures in place to continue our EMS production within China.
We remain confident of the policies and procedures, we have put in place to protect our employees and the overall manufacturing environment, but the overall macro situation remains dynamic.
For our EMS business during the first quarter revenues decreased 25% sequentially and increased 28% year over year.
Revenues were somewhat ahead of where we expected primarily as a result of higher than expected S. IP and traditional EMS business. Our EMS gross profit was $5 4 billion declining $1 7 billion sequentially and increasing $1 4 billion year over year the sequential.
Gross profit decline is largely seasonal the year over year improvement is largely related to more EMS business.
Gross profit margin for our EMS business unit was eight 8%, which is an improvement of 0.1 percentage point sequentially and 0.4 percentage points year over year. The margin improvements are primarily the result of product mix changes and improved operating.
<unk> seen our EMS business unit's first quarter operating expenses were $3 2 billion decreasing 0.3 billion sequentially and increasing 0.4 billion year over year operating expenses declined primarily as a result of lower employee profit sharing expenses.
Operating expenses increased annually as a result of higher scale of operations.
Our EMS units.
Operating expense percentage was five 2% up 0.9 percentage points sequentially and down <unk> seven percentage points year over year. The operating expense percentage increase is primarily due to seasonally lower revenue on an annual basis.
The operating expense percentage decline is due to increased scale of business with a lower increase in operating expenses or more operating leverage.
Our Ams operating profit declined one $4 billion sequentially, while growing $1 billion year over year.
The sequential decline is due to seasonality of the business. The annual increase is the result of a higher scale of operations. Our EMS operating margin was three 6%, which is down 0.8 percentage points sequentially and up one one percentage points year over year.
On the bottom half of the page you will find a graphical representation of our EMS revenue by application.
Outside of automotive applications. Most other applications had a seasonal decline in revenue during the first quarter, our consumer segments drop was stronger as it was tied to the seasonality of underlying high volume.
Products.
On page 11, you will find key line items from our balance sheet at the end of the quarter, we had cash cash equivalents and current financial assets of $89 1 billion.
Our total interest bearing debt was $225 1 billion total unused credit lines amounted to $285 9 billion, our EBITDA for the quarter was $30 7 billion.
Net debt to equity was 52%.
On page 12, you will find our equipment capital expenditures machine and equipment capital expenditures for the first quarter in U S dollars totaled $443 million of.
Of which 311 million were used in packaging operations $96 million and test operations $26 million in EMS operations and $10 million in interconnect material operations and others.
We continue to provide our EBITDA in U S dollars here as a reference we believe that the company's bit Dada relative to our equipment Capex serves as a key financial performance metrics for the company.
Looking out into the second quarter, we continued to believe the business environment remains relatively healthy we still believe we have a strong growth year ahead of us our view of double the logic semiconductor industry growth remains unchanged.
Though we understand there are certain macro elements that may cause future retuning of the logic semiconductor growth outlook, we believe that amongst backend service providers, we are our customers' first choice.
From a macro concerns perspective worldwide inflation, and the Russia, Ukraine worse impact on overall electronics demand remains relatively unknown.
Our outlooks and corporate plans are tied to the outlooks and expectations of our customers.
And as mentioned earlier some customers in certain sectors have reduced their overall outlooks. However, these reductions have been fully offset by increases from other customers in other sectors. If we look at our top five customers during the past quarter, we had a net positive for.
Cast adjustment and even if there is adjustment to demand, we believe our customers will lead to security, which benefits us the most.
Further we do see China's COVID-19 mitigation strategy as a concern.
Currently have adequate immediate workarounds within our China operations to continue running but secondary and tertiary impacts to factory supplies and raw materials can reach far beyond the PRC.
Obviously mitigation duration and severity will directly correlated to how severe the repercussions are along the entire supply chain.
We currently believe our factories have effective workarounds and alternate vendors during the second quarter to avoid manufacturing disruptions.
Finally, Taiwan centric issues such as the recent Covid surge are also creating factory level operational complexities.
Our Taiwan factories are taking appropriate measures to prevent the spread of the disease within our factories Taiwan's pragmatic approach should create manageable disruptions in Taiwan due to Covid mitigation. However, such policies may make running are varied.
Taiwan factories less efficient.
Due to these factors, we do see a near term increase in running costs related to the sub optimal macro environment. At this time, we expect the higher cost environment to last between one to two quarters, even with extra costs, we continue to expect.
Improving full year gross margins.
For our EMS business, a large portion of our manufacturing is in China.
The overall operating conditions, there have become more challenging with China's COVID-19 mitigation strategy, especially staffing and logistics.
We do have countermeasures in place to continue our EMS production within China.
For our business. The second quarter is generally part of the seasonal trough and as such keeping up with slow season demand should not pose a significant challenge.
For the near term, we remain confident that the policies and procedures. We have put in place will protect our employees and our manufacturing environment. At this time, we do not see major disruptions to our production, but like our ATM business, we do see some incremental costs.
With that said our guidance for the second quarter is as follows for our ATM business on a pro forma basis in U S. Dollar terms, our ATM second quarter 2022 business level should be slightly above fourth quarter 2021 levels.
On a pro forma basis, our ATM second quarter 2022, gross margin should be slightly above our first quarter 2022 gross margin.
For our EMS business in U S. Dollar terms, our EMS second quarter 2022 business level should be similar with first quarter 2022 levels.
Our EMS second quarter 2022, operating margin should be slightly lower than <unk>.
First quarter 2022 levels.
With that we can start the Q&A section at this time.
Now we would like to open the floor for questions.
Have any question. Please raise your hand now.
When you ask questions. Please hold two questions at a time thank you.
Our first question is from Mr. Randy <unk>.
Credit Suisse.
Okay, yes. Thank.
Thank you.
So an outlook considering all the.
Covid disruptions.
First question it sounds like the EMS business tracking better.
Better than you were expecting a few months ago, just given macro has changed a bit.
I believe the U S. I also on their call talked about a bit better outlook.
Could you give the view for growth this year for that business.
<unk>.
Maybe discuss a bit more on.
Where youre seeing the strengths of upside in E&S.
Yes.
Okay.
The overall E&S business.
So.
Continues to be strong, although there will be a placebo to.
Structures, particularly coming into second quarter.
May less too.
In the second quarter or even into.
Some degree third quarter, but all in all I think the overall momentum remains strong.
We continue to make inroads in terms of expanding or Sip projects with new customers.
Traditionally you missed this.
This business will continue to see strong momentum, particularly in the automotive.
Victor.
Oh I see.
The overall.
This is suburban.
This will linzess continues to be strong for the year.
Similar to our ATM business.
And the same automotive how much of a driver I know, Tim I think last quarter, 40% growth this year.
Is it starting to move the needle for EMS search so still fairly so yes I think.
The growth for this year in terms of automotive will be even stronger than last year.
I think the USA has already put out a target.
We issued about $1 billion revenue 2024.
Sure.
Actually.
A year earlier.
Previous targets.
I think you'll see very strong momentum in that area, particularly with the addition of a steel slash who has built.
Fairly large.
We.
Exposures in the automotive sector.
Yeah.
<unk>.
Putting the two together.
Momentum was strong rebound.
And I wanted to ask to offset some of the margin one is the cost.
Is it really just think how much that cost as you mentioned one to two quarters.
Higher costs like how much impacted and is that a gross or.
At the operating margin level.
Plus side for the NT dollar.
When you mentioned the gross margin slightly above first quarter.
Is that factoring or certainly currency assumption.
Yes, I think we will put all the serious into it.
I think first of all we're coming off a very very strong first quarter and the margin.
Six.
Much higher than we will.
We originally expected.
So going into second quarter because of a lot of the disruption. So we will see.
We will rather be.
We're cautious or conservative in terms of protecting our margin situation.
The additional costs from this COVID-19 disruption.
Okay.
Many directions, including.
The additional costs that we need to spend on protecting our employees.
Some logistics costs will be increasing.
So material cost will be increasing.
Yeah.
So there's a lot of factors.
Uh huh.
Kind of push pushing a lot of pressure on the on the call.
So.
So I think it will be very very naive if we don't.
Photos consideration into our margin expectations for the quarter.
Okay.
I'm curious on the environment earlier this week.
Quite a big haircut $500 million from guidance, where it looks like slowing shipments due to all the factory disruption.
From your side are you seeing any pause where customers are reflecting the downstream disruption or.
A bit of a demand disruption. So is that have you seen much impact to our customers continuing to keep relatively steady flows through through some of the issues.
I think the overall older looks very healthy, but then the.
There is a lot of different situations.
Me.
We have some negative impact on the actual delivery.
Okay.
With two years ago was needed.
Ocean.
So I think so lets save customers may have different views on how things are going with them as a whole.
Particularly in the universe.
China area.
We ought to see some.
Logistics difficulties.
Terms of moving our products out in moving the materials.
So there are a lot of obst.
Obstacles that we need to go through so far we have been managing this.
No.
Therefore, it is.
We haven't seen that much of impact on the overall.
Whatever impact there is in terms of on the revenue side.
We do feel confident that we can recuperate.
David part of the year.
Okay, Great and my final question on Capex, the last few quarters running about $425 million to $40 million.
We are you know I think the original guidance was it will be up a bit like 2 billion plus.
I guess, if you have an update how your capex you and Theres been a lot of front end Randy Randy can you hear me yes.
Yes, Randy.
We are going to let the next.
Last question. Thank you.
Well, let me let me ask this question I think for the whole year on Capex, we may.
Yes.
Okay.
Before it's about $2 billion.
Bill.
Level.
Yes.
The composition of it will be.
Somewhat different from last year.
This year.
To increase the percentage of tests.
Investment.
I think these overall breakdown shift.
Shifting to <unk>.
51% for Assembly.
4% 411 for Oems and then another three four <unk>.
Material.
Alright. Our next question is from Mr. Goku audio hard on.
Okay.
Hi, good afternoon, Thanks for taking my question.
Could you talk a little bit more.
In detail amount.
As we turn to the kind of customers who've started to see some weakness.
Just some more detail on the dynamics you're seeing some.
Judy.
Steve.
Is it more happening in your bond listeners it's happening more in the.
Flip chip in.
Bumping.
Yes.
And could you also kind of.
<unk> EBIT amount.
I mean, you reiterated your double the logic to meet growth and things like post office.
No.
Do you feel that that is potentially risk coming in second half.
And if some of my end market weakness that you are seeing or do you think that that is enough.
<unk> order book that can go.
For any kind of weakness in the consumer.
Well I think everybody knows that.
See some softness.
Okay.
Android areas.
So cell phones or similar to consumer books.
It seems to be relatively.
Weaker than the other sectors.
I think so.
Standpoint, but I think the overall situation is still.
We have a very healthy.
In terms of.
High performance computing in terms of.
Networking and automotive.
You'll see very very strong momentum.
And I think overall, even that weaker sectors. So I think because of the increasing applications and also I see Comcast.
Hi.
Layer of support to the overall growth unit growth.
And.
Also I think one of the driver for us.
Increasing all sorts of things Greg.
The IBM.
Particularly in the automotive area.
So putting all things together.
<unk>.
We still see very healthy unit growth for the year was.
Also.
Okay.
As Ken mentioned earlier on in this uncertain period of time.
Think that most of the customers will see for security.
And a company like us.
More secure capacity at all.
So a much better sourcing power I think that we will become the customers' first choice if thats.
All things put together.
Give us very strong competencies in.
The growth for this year is also.
As we mentioned, although we are little bit conservative about second quarter margin.
All in all we will continue to see sequential growth of Nomura.
And.
The first first quarter, we already surpassed our historical peak of 47% gross margin.
And.
We will see that trend continue and we will have a new.
Peak for the in terms of gross margin for the year.
Understood. Thanks, very much for that.
So just a follow up on that in automotive could you talk a little bit about how much is automotive now as opposed to Nino <unk> I know that you kind.
Kind of combined consumer industrial automotive and a 30 plus percent.
Where does the automotive alone.
And how do you see that evolve in the next five years.
A lot of tailwind coming.
In terms of outsourcing and go with it is it something like 25% of revenues coming from automotive in the next four years.
Yes, I think the overall momentum.
Were very strong at this point.
Last year was about 6%.
And we're seeing that to grow to over 7% for this year in terms of our ideas.
<unk>.
No.
Automotive business.
And we will be reaching a billion dollar mark for this year.
At the same same kind of momentum.
Yes.
I think for MFS.
About 50% growth in the.
That growth rate.
Further extend this year.
And.
<unk> as a whole.
For <unk>. It will also reach above 7% of overall revenue.
In automotive.
Got it.
Longer term I think we will continue with the automation further observation of our factories.
I think there will be more and more automotive business coming in I think the name of the game in terms of automotive is not all the legacy or the existing products, but the new application new chips that are coming out.
First of all of this will be.
We will be.
The new business that we will get the second is that.
These are the business the idea will be all sourcing.
And when these automotive chip was higher.
Okay.
Reliability requirement I think the customers will be.
We'll go to the tier one.
Supplier like US who has the capacity of the technology and also the quality.
To secure that.
Part of the good product production further.
Yes.
We have a question from Mr. Ricci.
Our stylists acuity.
Yes, Hi, this is Stuart can you guys Jeremy.
Yes, okay.
Hi, good afternoon. So I guess the first question is do the housekeeping for Joseph.
Yeah.
The utilization rates across the packaging testing and bumping four.
For Q1, and also for the coming quarter.
I think our bumping is four and as a whole in terms of packaging.
It's 80% to 85% it will continue to be so in the second quarter.
Tests as say above 80% it will continue to be 80% of the books in second quarter as well.
Okay. Thank you and.
Another question is about your full year guidance for.
For the year 2022, remember one quarter ago.
You guys talk about the global Sami as memory growth was about 5% to 10% this year and USD.
Who is going to double that growth.
Is this escalation in steel.
Still held.
Absolutely I think the.
We're still seeing a.
Two times allows semi growth for the year.
So if we.
If we're looking at a 10% growth.
Since with 20% growth for us.
If not higher.
Okay.
I think in this.
Certainly the environment I think.
Market share expansion.
It would be more likely for us.
Okay great.
Helpful. Thank you thank.
Thank you.
We have a question from Mr. Bruce Lu of Goldman Sachs.
Okay.
Hello, Jeremy Yes.
Okay, great. Thank you for taking my question I mean, let me follow with Rick's question.
TSMC is revised up.
The five years.
Amey ex memory growth from 4% to high single digit for next five years.
So does that imply about AAC will also grow double than Sandy Expo, which is 8% for the next five years as well.
[laughter].
It's early.
Yes, I guess the short answer is right.
[laughter].
Okay.
The second question on all of the assets.
Josef just mentioned that.
Even with all of the uncertainty gross mud therefore.
Well still grow.
The core $2 point of view.
Yes.
Sure tore the currency for this year.
What's your like to like basis.
You'll have the other incremental costs that countermeasure for the corvette.
Material costs, while they feel assumption for that I mean.
And I am asking is what's the likelihood of light basis.
Margin expansion for 2019.
Well I think we will certainly be above 28%.
Gross profit margin.
Of course the <unk>.
Currency helps but to what degree.
Based on the movement of.
Currency so.
Right now, we're just using the existing.
Exchange rate so.
So basically the assumption.
Yeah.
It will be a favorable currency.
Of course the margins.
Should be higher than what I just mentioned, but.
As I said, there's just a lot more logistics related costs that we need to bear because of the COVID-19 situation also.
The geopolitical.
Kind of events that are happening today.
That really has a lot of impact on logistics solidly material supply.
Parts supply.
Health monitoring and health protection.
Type of investments that we need to make.
So.
So I think the overall it also.
In terms of energy cost.
We will also have an impact so we.
At this point being a bit conservative, although we're very confident there.
We'll continue to see margin expansion, but.
At this point, we're looking at.
Put simply our goal.
A lower than.
Lower than.
Lower level than we would like to have.
If we put all of these different.
Right.
Okay, Let me make it clear I mean.
Yeah.
You have all of the dynamic cost pressures.
So do you believe that your position is strong enough when you see that in <unk>.
Hey, there the cost either like in all of the countermeasure or raw material costs.
The pathway to your cost out which is the main reason why you maintain the profitability.
Profitability target or you've got that big enough buffer, which we call. This the potential cure hike okay.
Also swallowing, which one will be well I think both I think.
In terms of our scale in terms of our leadership in terms of.
Customers.
We prefer to go.
For secured capacity and technology.
Gives us very good protection over our margin and pricing.
But at the same time, there is a lot of macro events that will have an impact on the overall, how you run business is not necessarily on the E.
The pricing on materials for parts, but also a lot of the logistic and the auto around costs that we need to we need to bear.
That includes labor as well so.
There's a lot of uncertainties here so.
It's very difficult to quantify how much of impact of these macro events will have on our cost side.
But neil.
So as you from our own.
Sure.
Operation situations.
Situations, we are still confident that.
We will have margin expansion.
Yeah.
Maybe not necessarily to the level that we.
We would like to have with them.
We need to start somewhere right.
So we're seeing that.
Ah.
This quarter, we will be.
<unk>.
48.
And for the whole year, we say, we would be above that level.
Level.
Understand thank you just double check that the gross margin sensitivity for the ATM on loan to the currency what is that.
Im sorry.
The currency for the ATM market.
Because you'll have the negative.
1% is about 40 basis points.
1% Okay.
Moving on we will have a 40.
<unk> 40 basis point impact.
I see other thinner. Thank you I'll go back to you.
If you have any questions. Please raise your hand now.
We have.
Online question from Laura Chen.
I'm going to we have a question.
Can you elaborate more on your automotive business.
The revenue contribution and growth in 2021 and outlook for this year.
Do you see any potential weakness in auto business due to current China lifestyle and demand uncertainties in Europe .
Wholesale.
Advanced packaging.
Kind of application you are seeing strongest growth.
You.
In terms of averse.
Have you seen the thing we're both we're seeing foodservice was up.
<unk> is showing pretty strong momentum.
And I think in terms of overall packaging.
Advanced packaging, including flip chip.
And.
But definitely had the highest growth rate for the year.
In terms of automotive.
<unk>.
As I mentioned earlier, we target to reach about $1 billion revenue or 7% over 7% of our overall.
ATM business for the year.
That is posting a very strong growth for last year as well.
And we do expect this.
Sure.
Strong momentum to continue in the foreseeable future.
Given that as I mentioned.
I think the new name of Dave is not really on the legacy or the existing products.
In terms of getting that part of this is really the new application or new chips that are coming on stream.
<unk>.
This is creating a new.
This is.
For us.
And also these SKU basis.
Roughly are mostly.
Being also rose by the idea of we used to do it although automotive parts themselves.
So putting these two together.
It creates.
Very good this is potential for us.
Thus when.
As I said the <unk>.
In terms of automotive parts, the durability or the reliability is most important.
Consideration.
When we when customer go for a supplier.
With the with the quantity or the technology that we have will be the level of automation that we have.
I think we are the most preferred.
Playa for this type of new.
Chips that are coming on stream in terms of Automotives.
So we do expect a stronger very strong momentum going forward.
Next question is from Mr.
Okay.
Okay.
Yes, hi, thanks for taking my follow up.
One follow up.
This is.
I think previously.
You had said that you were expecting adm's sequential momentum to continue through the course of the.
Every quarter will be growing sequentially.
Is that still your expectation right now given some of these changes in the demand.
Yes.
Our focus on the forecast that we're getting cut.
Customer remains fairly stable and very strong.
So we do expect we continue to expect that we will have sequential growth.
And our business is also on the margin.
Understood. Thank you.
Just to elaborate on.
The question from Bruce.
In Q2 looks like you have some cost pressures coming through are you able to dynamically pass these on to your customers in Q2 itself.
There are some delays in terms of some of these cost plus holding over the last 18 to 24 months.
Cost pass throughs and price increases given the customer given the demand.
High demand.
But are we still seeing those happen.
I know.
Not that much anymore in terms of room to increase price well I think.
We continue to see very friendly.
Pricing environment.
And if compared to our peers I think we have the most secured position in that front.
In terms of protecting them.
Martinez was on pricing.
Terms of the.
Because of the macro has been.
They are happening.
You have some impact, although overall, causing cost structures.
Cost environments.
Some of it you can pass it on some of their economics.
It depends on the different nature of that cost.
Cost increases or whatever.
So, yes, I think in the longer term since.
We do have the best protection in our.
In our pricing.
Structure.
Well.
It's a very dynamic situation I think.
We will we will we will not hesitate to pass this.
Cosmetics too.
Customers. So if we can.
At the same time, we do have the customer relationship to consider.
These relationships are long term relationships.
You don't want to.
Be seen as a very very.
Opportunistic supplier.
Which should we have a longer term damage on your overall customer relationship.
There is a fine line that.
How we manage this cost situation and also how to manage our relationship with our customers.
Got it that's very clear. Thank you very much. Thank you.
Next question is from Mr. Frankly.
HSBC.
Frank.
Can you hear me, yes, Okay alright. Thank you guys I just wanted to ask I guess.
A question about the events packaging flip chip.
Major demand drivers are there any that you can highlight besides what we're seeing on the <unk> handset.
Is that still the major driver.
We are seeing.
So this one is automotive going into flip chip as well.
And networking HTC.
These are all major users of.
Of our flip chip.
Okay.
Okay, Great and then also the.
If I look at the breakdown for your EMS consumer.
It did drop a bit and you said that seasonality, but I guess, if we look at this.
First quarter of 2021, it seems to be a much higher consumer mixed in the first quarter. This year. So.
I was just trying to get a sense of how how much of a seasonality. There was in terms of the difference in terms of the weakness.
<unk>.
Sure.
The reason is.
The other areas, but all these other factors.
This year.
So stronger winter than last year.
So that kind of.
Dilute the communication part of it.
A little bit.
In fact in terms even in terms of consumer.
Im sorry, Youre talking about consumer.
Okay.
So the consumer part of it.
Did get a little bit diluted.
But the other sectors growth.
Okay. So you are seeing just better growth in other sectors.
Consumer this year.
It.
Is performing actually better than what.
What we were expecting because of the.
Some shifting.
Sure.
Okay, Great alright, thank you.
We have another question from Mr. Randy <unk>.
<unk> of credit Suisse again.
Andy.
Yes, Jason.
I'll ask on one other piece of market share after selling the China footprint.
Our exposure in factory is actually lower IC ATM is there.
Because of the disruption with competitors, having more capacity in China is that.
Two short and transitory.
Potential to pick up a bit of market share or take Thompson allocation.
If there is more disruption in some of the China footprint.
Yeah.
I'm, sorry, I didn't quite get your question could you repeat that again, yes, if youre seeing any benefit or transfer of orders I mean, you mentioned touchless in times of uncertainty Oh. So if you are gaining any market share either near term or what could be a midterm help with a bit less footprint now in China.
I think if they continue it gets hard.
Zero Copay policy.
I think from.
I don't think its published already but.
From a market intelligence, we do see weaker performances.
In terms of our peers.
In the quarter I think be the lockdown or the overall geopolitical situations.
Is somehow.
It seems that churn appears to you.
Oh.
It does have some impact on almost semi peers.
So in that sense, we are seeing.
Some of the business.
Moving.
Tore us out of.
China.
Okay.
When you mentioned geopolitical is that the international customers just trying to keep.
Overseas source for expert.
I think both I think the internationals are.
They would rather come to us.
<unk>.
In a big way to to China as far as end also.
Because of the overall situation with the lockdown situation in China. The Chinese customers are also going through some difficulties.
Given the out there of the orders.
Okay great.
And for the mature business most of the emphasis is on events for wire bonding is it the assumption you still stay at a store level or that scenario you get a bit of Underutilization and are you still at some point you still need to add.
A moderate amount of partners. This year right. So I think our wearable and these steel.
He maintained at a very high loading level.
But I think in.
China operation.
We still have our Suzhou factory.
Because of the.
<unk> situation.
Have some impact on the whereabouts utilization, but thats, a very small percentage of our overall.
Okay and the last question I had just on.
We're seeing that fabulous.
They are having a higher target inventory level and it's been building up a number of them do you see that I would say.
Overhang or is that your view, it's more wafer bank like not necessarily packaged <unk>.
Chip inventory or I guess.
Do you see any overhang from the <unk>.
Buildup of inventory, if that slows or reverses.
During this uncertain.
Kind of I think <unk>.
It's natural.
The inventory days inventory will increase.
Uh huh.
I think as abnormal.
Phenomenon.
We're seeing inventory levels being higher than before.
In terms of our own business, we are seeing.
Wafer banks.
Pulling up.
As the customers are.
They want to secure the capacity and Eagle.
In terms of.
Some of the advanced packaging because.
Sure.
The substrates.
Is the gating factor here is the bottleneck.
No.
We could we could only do so much.
To serve.
Tried to serve all the demand that we're getting now.
Okay.
It sounds like your views substrates still multiyear issue or any change in that.
On midterm to resolve that.
The surface situation I don't think its going to be solved.
Anytime soon I think this is going to take some.
Yes.
Quite a bit of we made two or three years before.
Crc's things easing up.
Okay, great. Thanks, so much thank you.
We have no more questions on the call.
Yeah.
If you have any questions. Please raise your hand now.
Yeah.
We have another question from Randy.
Sorry, I Didnt Im Okay, yes. Thank you. Thank you Bob.
Yeah.
Okay. Thank you very much.
So summarize we came up with a very strong first quarter things looking.
Continuous looks very healthy for us throughout the year, we will continue to have sequential growth in both revenue and margin.
We are facing some challenges in the short term, but we are managing well at this point. So thank you very much and I'll see you next quarter.
Okay.
Okay.