Q2 2022 ASE Technology Holding Co Ltd Earnings Call
Second quarter 2022 earnings release, Thank you for attending our conference call today.
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I would reckon.
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 Ifr 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 am joined by Dr. Tien <unk> our COO.
Joseph Tung our CFO during the call Doctor <unk> will first provide a mid year update and overall industry outlook I will quickly go over our financial results and Joseph will provide the third quarter outlook.
Tien and Joseph will both be available to answer questions. During the Q&A session that follows.
So 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 have included information 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 meaningful information, which would assist in providing comparability of our financial results.
For the purposes of this presentation, including that of Dr. Wu's, we will generally discuss our full company and ATM second quarter results sequentially.
Compared with first quarter legal entity results and year over year compared with pro forma second quarter 2021.
Dr. <unk> will now present, our mid year update Dr work.
Yes.
Good afternoon, I would like to.
Give you some highlight.
First I would like to talk about our first half 'twenty.
<unk> 22.
And.
Second quarter performance.
Our second quarter ASC Holdco revenue grew 27% year over year.
U S dollar term.
First half 'twenty, two revenues grew 28% year over year.
As Ken already pointed out on the pro forma basis.
Second quarter 'twenty to ASE ATM revenues grew 25% year over year.
While the first half 'twenty two revenue grew 25% year over year.
First half 'twenty two.
We saw advanced packaging revenue up 48% year over year.
First half 'twenty to AAC Holdco automotive revenue grew.
64% year over year.
While the ATM automotive revenue in the first half grew 54% year over year.
We do expect our momentum continuing into the second half as well as 'twenty three and 'twenty four.
First half 'twenty to Holdco operating margin improved two three percentage points.
Out of which.
5%.
From the favorable currency.
First half 'twenty, two ATM operating margin <unk>.
Creased, three four percentage points out of which.
Six percentage point from the currency.
Let me turn to the next page.
I would like to give you a highlight of the 2022 full year.
First of all.
Full year outlook is on track.
The overall market.
Is undergoing inventory correction.
With some sectors more aggressive than the others.
However.
We're still seeing some sectors remain constrained.
With our diversified customer portfolio.
And manufacturing flexibility.
We're seeing a solid second half 'twenty, two with quarter over quarter growth of our whole coal revenue.
2022 full year.
ATM revenue.
Year over year growth will be two acts of the logic semiconductor industry.
With MFS also seen solid topline growth.
We do expect further margin expansion for both ATM and.
EMS business comparing to 2021.
Okay.
The next page.
I would like to give you some highlight.
For the accomplishment for that for the past few years.
Namely I would like to give you.
A structural improvement of our efficiency or margin.
For the past two years, we have made great strides.
In the ASE spill synergy.
R&D.
Operation.
Capacity planning business consolidation.
And also the customer portfolio of calibration and procurement.
With that.
The synergy is offering us some percentage of margin improvement.
We also made a lot of effort.
In the automation.
The automation.
Has improved significantly.
Our ability to entertain.
High volume <unk>.
High reliability high reliability business.
As also improve our manufacturing efficiency.
Structure.
And flexibility.
We do see increasing demand.
Multi die.
Yeah.
Co packaging.
And that trend.
Is adding the complexity of ATM knowhow.
And therefore, we believe ASE value in a total supply chain and the system level.
With the above three.
The synergy automation and also the value.
We do believe that we have a structural improvement of our margin structure.
A mid single digit.
That is going forward.
We will see higher peaks.
A shallower troughs in future cycles, comparing to our past performance.
Now the last page I would like to give you some business outlook.
For next year I know many of you are concerned about the business state.
It is too early to comment on the macro environment.
And potential end market demand shifts.
However, the general perception.
Is seasonality will resume in Q1 2023.
We believe backend capacity is in a healthy position.
Because if you look at the overall investment.
For the past few years in back end.
The incremental backend capacity added.
It's relatively low when compared with the front end.
And especially <unk>.
Considering backend investments are needed.
For technology migration.
As well as volume expansion.
When I talk about <unk>.
Technology migration I was implying to density.
Packaging type.
As well as multi die that is.
For the semi equipment.
In the event technology, you might only be able to support fewer units due to the complexity and density.
We are also seeing increasing resource allocation or resource demand need.
Needed for MPI after more than two years of the Covid Lockdown.
The NPI trend is very healthy.
We're monitoring the NPI trend for all customers.
Because that is a key indicator.
Which can set our direction for future capacity investment planning equipment type upgrades.
<unk> and technology roadmap.
Lastly, we are optimistic that <unk> capacity utilization.
We will stay at a higher level, giving our customer engagement.
LTA.
Technology automation leadership.
Manufacturing scale and as I pointed out in the last few bullets.
Relevance to all Mpi's.
With that I'll pass to.
Okay.
Thank you Ken.
Let's quickly go over the second quarter financial results.
<unk> turn to page seven where you will find our second quarter consolidated results with legal entity and pro forma basis comparison.
For the second quarter.
Recorded fully diluted EPS of $3 61.
And basic EPS of $3 69.
Consolidated net revenue increased 11% sequentially and 33% year over year, we had a gross profit of $34 $4 billion with a gross margin of 21, 4% our gross margin increased by one point.
Seven percentage points sequentially, and two percentage points year over year.
The sequential margin increase is primarily attributable to favorable currency conditions within our ATM and EMS businesses.
From an annual perspective, the margin improvements are primarily the result of higher profitability scale efficiency.
And a favorable currency environment within our ATM business.
And scale efficiencies within our EMS business.
Our operating expenses increased sequentially by $1 4 billion during the second quarter to $13 8 billion, primarily as a result of higher bonus and profit sharing expenses during the quarter on a year over year basis, our operating expenses increase.
<unk> by $2 7 billion mainly.
Mainly from the increase of scale in both our ATM and EMS businesses.
Our operating expense percentage stayed flat sequentially at eight 6%.
On an annual basis, our operating expense percentage declined <unk> six percentage points from nine 2%.
Improvements in operating expense percentage were achieved as a result of operating leverage created.
Operating profit of $26 billion up $4 5 billion sequentially.
And $8 $2 billion year over year.
Operating margin was 12, 8%, increasing one six percentage points sequentially.
Operating margin increased two five percentage points on an annual basis as a result of higher loading and increased profitability.
During the quarter, we had a net nonoperating gain of <unk> 5 billion.
The non operating gain was primarily from our net foreign exchange hedging activities offset in part by net interest expense of <unk> 7 billion.
Tax expense for the quarter was $4 5 billion.
The effective tax rate for the second quarter was 21, 2%.
During the quarter, we saw slightly higher tax expenses, primarily related to undistributed earnings and Treasury activities, we expect a full year effective tax rate of between 20% to 21%.
Net income for the quarter was $16 billion, representing an improvement of $3 1 billion sequentially and $5 7 billion year over year.
The U S dollar strengthened against the NT dollar and the Chinese Yuan during the second quarter sequentially, we estimate that currency fluctuation had a one six percentage point beneficial impact to our holding company gross margin.
From a year over year perspective, we estimate that currency fluctuation had a one four percentage point positive impact to gross margin.
On the bottom of the page, we provide key P&L line items without the inclusion of PPA related expenses consolidate.
Consolidated gross profit, excluding PPA expenses would be $35 3 billion with a 22% gross margin operating profit would be 21 8 billion with an operating margin of 13, 6% net profit would be $17 to bill.
With a net margin of 10, 7% basic.
Basic EPS, excluding PPA expenses would be $3 97.
On page eight is a graphical presentation of our consolidated financial performance.
On page nine is 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 enter company transactions between our ATM.
<unk> and EMS businesses.
During the second quarter, our ATM business ramped up significantly ahead of where we thought it would the revenue level achieved in the second quarter is near our original estimation of our third quarter revenues.
It almost goes without saying that capacities were tight with overall demand for our services remained strong during the quarter.
The cost perspective.
And as we mentioned last quarter, we encountered some higher costs of operations during the quarter, namely logistics labor scarcity lower efficiencies from Covid and higher energy costs.
These incremental costs offset the scale efficiency seize that were created during the quarter going forward.
Cost related to Covid and labor shortage issues appear to be more under control energy costs appeared to be more ongoing.
For the second quarter revenues for our ATM business were a record 95 billion up $11 billion from the previous quarter and up $22 3 billion from the same period last year. This represents a 13% increase sequentially and a 31% <unk>.
Increase year over year, our ATM revenues came in ahead of our expectations due to broad based higher than expected loadings.
Gross profit for our ATM business was $27 8 billion up $4 $7 billion sequentially and up eight 9 billion year over year.
Gross profit margin for our ATM business was 29, 2% up one seven percentage points sequentially and up three three percentage points year over year.
The Concho gross margin improvement was primarily due to NT dollar depreciation.
The year over year gross profit margin improvement was primarily attributable to NT dollar depreciation and scale efficiencies during the second quarter operating expenses were $9 8 billion up 0.7 billion sequentially and $2 billion year over year.
Our operating expense percentage was 10, 3% down 0.5 percentage points sequentially and year over year.
During the second quarter operating profit was $18 billion, representing an increase of 4 billion quarter over quarter, and an improvement of $7 million year over year operating margin was 18, 9% improving two two percentage points sequentially and three seven percentage points year over year.
Year.
The NT dollar depreciating against the U S. Dollar had a positive two three percentage point impact on our ATM sequential margins on a year over year basis, we estimate that the strengthening U S. Dollar had a two percentage point positive impact to margins.
Without the impact of PPA related depreciation and amortization ATM gross profit margin would be 32% and operating profit margin would be 21%.
On page 10, you will find a graphical representation of our pro forma ATM P&L.
On page 11 is our pro forma ATM revenue by market segment. The market meant were unchanged as compared with the previous quarter and the auto motive segment is not separately displayed here. It continues to outpace the other market segments performances.
On page 12, you will find our pro forma ATM revenue by service type there.
There was a small move in which our wire bond products grew slightly faster than our other product lines. This was primarily the result of seasonality of underlying products.
On page 13, you can see the second quarter results of our EMS business.
During the quarter demand was stronger than anticipated driven by stronger than expected demand for both our traditional EMS and <unk> services.
Overall operating conditions started improving halfway through the quarter. However, China's COVID-19 mitigation strategy continues to have spotty impacts throughout our EMS business and the situation is still somewhat dynamic our EMS factories are poised and ready for the third quarter seasonal.
During the second quarter, Ams revenues increased $5 billion, or 8% sequentially and increased $17 billion or 35% 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.
Overall profitability for our EMS business improved with gross margin, increasing one two percentage points to 10% and reaching our 4% operating margin target.
On the bottom half of the page you will find a graphical representation of our EMS revenue by application the reduction in the communications related segment is primarily due to seasonality.
On page 14, 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 <unk> 79 billion.
Our total interest bearing debt was $218 3 billion.
Total unused credit lines amounted to $312 4 billion.
Our EBITDA for the quarter was $35 2 billion.
Net debt to equity was 50%.
On page 15, you will find our equipment capital expenditures.
Machinery and equipment capital expenditures for the second quarter in U S dollars totaled $515 million of which $290 million were used in packaging operations $161 million and test operations $53 million in EMS operations and.
$11 million in interconnect material operations and others.
We continued to provide our EBITDA in U S dollars here as a reference we believe that the company's EBITDA relative to our equipment Capex serves as a key financial performance metric for the company.
For the quarter EBITDA was $1 $2 billion.
Joseph Tung will now present, our outlook Joseph.
Thank you Ken before I gives us six.
Specifics.
We reiterate that.
The micro challenges, including the pandemic related Lockdowns, Ukraine reward supply chain disruptions.
Overall inflation escalating energy costs and inventory corrections.
We were still able to significantly outgrow our second quarter estimates are reached close to our anticipated peak revenue for the year.
As a result, we will see a more lenient arise.
Revenue outlook and continue to see a higher operating cost structure for the remainder of the year.
Having said that our guidance for the third quarter is as follows.
For our ATM business in U S dollar terms.
<unk> third quarter 2020 to business levels should be slightly above second quarter plenty plenty to levels.
On a pro forma basis, our ATM third quarter 2022, gross margin should be similar with our fourth quarter of 2021 gross margin and.
And as a reference our fourth quarter 2021 gross margin was 28, 5%.
Well for this business.
In U S. Dollar terms, our third quarter of 2022 business sequential growth should be similar with same period last year.
Again as a reference the third quarter last year's growth rate was up 25%.
Our third quarter 2022 operating margin should be similar to the second quarter of 2022 levels.
And our second quarter of 2024 operating margin was 4.0%.
What was that.
We will open the floor for questions.
If you have any questions. Please raise your hand when.
When you ask questions. Please hold two questions at a time.
Thank you.
Our first question is from Mr. Randy <unk>.
Randy.
Okay, Yes, thank you and a good result.
<unk>.
I wanted to ask the first question just a little more on the guidance.
Third quarter.
I see Tim Hi base second quarter did well.
But the factor for the small sequential growth is that.
How much is capacity limited you're tight on capacity and how much.
Is it you are seeing any moderation or slowdown in certain applications.
As utilization.
<unk> remains high.
And we do see.
This year the revenue.
Critical to Florida.
It seems to be more linear rise does the in the second quarter.
Half of it up.
Better than expected that revenue stream coming in.
Although there are some inventory corrections in different sectors.
But there are also heavy sectors.
Remained very very strong so overall I think it's not.
Our capacity.
We are constrained.
The situation.
Overall the market.
That it's causing the year to be more leaner us revenue stream.
Okay.
In the prepared remarks, you talked early about we'll get back to return to the first quarter.
Where we traditionally have that seasonality I think like high single it seems decline if you can.
Give initial do between that fourth quarter. Some years, so I think in middle of the year you.
Had enough confidence to say IC ATM would grow in the fourth quarter I guess for this type of year do you still see.
Linear like.
From the high base, a little bit of growth or would we start some inventory correction in the fourth quarter.
I think for the second half of the year.
Again, the revenue seems to be it won't be realized.
<unk>.
The fourth quarter.
We're expecting at this point are similar to quarter two.
Third quarter, although there is still a.
Some opportunities for further growth on a sequential basis.
Okay.
One further well two follow ups on growth for the application. So I mean, we've had a lot of commentary about almost two cycles, but the consumer cycle.
Smartphone TV PC.
Thats the softness I'm curious.
Were you talking about inventory correction is it those areas, but youre seeing it in EMEA. The other commentary on demand outlook. It looks like E&S after a strong second quarter.
Also quite strong is that a function of any shifts like earlier builds or.
Additional projects this year.
Other factors driving the data strength on the EMS.
Okay.
Yes.
Well, let me comment on the.
On the sector inventory controls.
And I think theres enough conversation out there to talk about the consumer sector.
Inventory control I will not for the library.
So we are seeing some sector.
<unk>.
Very constrained and then.
In the data center in the networking.
Performance computing and golf course Automotives.
So we'll continue to see this kind of all sector at all.
Fluctuation in rotation.
In terms of the EMS trends.
In addition to our normal <unk> projects I think this year, we do have a good amount of automotive and the other different types of Vms projects. So the answer is yes, we do have some new wins.
Our next question is from Mr. Goku Hardihood on.
Hi can you hear me.
Yes, yes.
Thank you so much.
Question.
We talked a little bit about.
Are you seeing quality utilizations.
Hi.
A big capacity categories.
Testing lab monitoring and.
Before.
Packaging are we starting to see any slack in any of these areas right now.
Okay.
I think the overall pattern and utilization remains the same as first quarter at about 80% to 85%.
The same pattern will be.
Going into third quarter as well.
And also for testing.
The overall utilization is still remains to be above 80%.
That will also go into third quarter as well.
In terms of has it genius AC overall.
Loading as well as.
It's higher in the us.
The more advanced packaging, whereas the wire bonding.
It's still growing and there is still quite full.
Comparing to the advanced packaging I think.
Everything seems to have a stronger momentum.
Got it. Thank you very much so Ryan morning, Dan you mean this.
Overall in <unk> also.
Some increase in pricing.
Given the nice capacity last year.
Are you talking about.
Alright.
Discussions with customers growing.
Yes exactly.
We're seeing a stable pricing environment.
In other words between the.
If you are asking.
Is there any.
Structural negotiation on the price down the answer is no we.
We do see a stable pricing environment across all of the service category.
I think we expect that between the Q3 as well as Q4 and I think this scenario well last into 2023.
Alright, Thanks Franco.
Maybe one more question on that Brian I think new.
Long term loading agreement with a lot of question marks.
Brian last year early this year.
Are there any customers starting to discuss any changes to the rules.
Similar to what we are heading in the foundry side.
<unk> is being renegotiated.
I think every company is signing LTA all different form when.
When we signed the LTA typically is with the MPI loading agreement as well as the pricing stability for specific lines.
We don't sign the LTA for some lines and but we do Si LTA for like 100% LDA for some lines are right. Now is is mix to answer. Your question. The short answer is no. We don't have any customer coming back to renegotiate LTA.
Next question is from Mr. Xie Horton of China Renaissance.
Seahawks.
See how.
Alright, I'm sorry, yes.
Yes actually yes.
Two questions from my side first one regarding dividend policy, yes, because they're coming to penetrate high dividend. This year. So I just want to note the company's dividend policy also low philosophy going forward.
I think we will we will.
Yes.
I think the in terms of the dividend amount is higher than previous year. This because but in terms of the payout ratio is pretty much the same and.
I anticipate that we will continue with this.
This.
Payout percentage going forward.
Hum.
Although.
Part of the.
Profit.
That we generated through the sale of the sites.
Some of that.
<unk>.
We will maybe have a few.
Maybe you have some percentage of that.
Profit will be given out.
In the following years.
Okay Alright.
Roughly speaking what percentage of your capacity right now is under agreement.
Agreement.
About 70%.
Alright, okay.
Last one on the Capex front okay.
We are sticking to the <unk> Africa for this year.
Vantage breakdown amongst different divisions.
Capex percentage breakdown okay.
Overall for this year.
We're looking at.
The allocation between assembly test material and EMS.
In terms of packaging.
The overall percentage will be about 54% down from 65% last year.
We're increasing our tests capex.
From last year's 25 to <unk> 30.
Material, we're also increasing.
Capex as a percentage will rise from 2% to 4% this year.
So for Etfs, raising that from 9% to 12% this year.
We have a question from Mr. Bruce Lu of Goldman Sachs.
Okay.
Yes.
Okay. Thank you for taking my question.
Congrats on a great result.
Very impressive.
Gross margin for both.
I know part of that is geared to the currency, but still the gross margin improve a lot.
Youre guiding for slightly declined in the third quarter, Florida ATM gross margin voice occur thing is still very weak and.
Although the capacity you touched already we met.
At a certain level can you give us a little bit more color on that.
There's some more.
There are two factors here one is.
So some of their product mix with.
With some of the higher material content.
Shipments will be higher and the other main reason is really the rising utility costs.
Which will give us.
Over over 50 basis points.
Increase in terms of costs.
But can I assume that you've.
<unk> has already.
In the current label that 48% and above would be a new adult for eight years.
Profitability moving forward.
<unk>.
Tim mentioned.
Just about the structural improvement in terms of our margin.
Go back past 10 years I think the ops.
The margin range is from a gross profit margin range from.
<unk> to mid <unk>.
8%.
I think with the.
With the scale and large men with the technology proven it also the <unk>.
All of the efficiency improvement I think structurally.
We kind of anticipated.
<unk> of that range from <unk>.
Mid <unk> to 30%.
So we can expect from our 30% gross margin mix.
Yes.
That's the end.
Sure.
And also bear in mind that so with the raised range.
The new range is including the PPA, which has had about as about a 1%.
Impact on our overall margin.
That's fair enough yes.
Apple to Apple there is another 1% increase.
The increase in our structural margin.
Okay. My next question is regarding to the best pack.
Managing business I mean hydro Sir.
I'll pass the line.
TSMC is willing to outsource to Shlomo.
Packaging business to AAC do we have any <unk> in terms of profitability.
L E.
The AUC would take that kind of a business or not.
Companies.
Goldman strategy.
I mean the.
It certainly is in part of the growth strategy, but we will not comment any detail.
On this one.
Just a little bit color Ken.
No comment.
Yeah.
Okay I understand that will go back in the queue. Thank you.
Thank you. Our next question is from Mr. <unk> Chi of Taiwan Securities.
Yes, hi, guys as a ratio.
Look I guess.
Hello, Rick.
Yeah, Hey, I'll restate your question again.
Can you hear me yes.
Okay.
Right. So I got only one question for your outlook.
For the year 2023.
The tech cycle, and how much the cycle with job nobody knows but some.
Some.
The industry leaders at TSMC and UMC, they still expect a growth year for 2023, regardless of the cyclical curve.
<unk>, so I would like to have your view on your revenue growth. When this year can you give us a little bit color.
As I pointed out it's really too early to talk about quantifying three but if you really want to ask.
And I can offer you a most likely scenario.
Alright.
I believe next year.
It's going to be a challenging year with a lot of uncertainty and headwinds.
So the overall industry.
And it won't perform as far as the previous few years.
However in that scenario you will have some companies.
Some sectors doing better than the others.
And certainly I believe.
The company you have just mentioned.
As well as ASC.
We're striving to perform in the upper threshold.
After average.
In other words it is possible, even though the industry is flattish.
Slightly up or slightly down.
But some company will continue to all to outperform the others.
And I think next year will be a perfect scenario to see the differential.
Of technology.
Customer traction as.
As well as economies of scale.
And I believe that's what some of the companies we're referring to.
In terms of specifically.
<unk> is an upturn downturn on weather recession is going to hit us and.
That really is very very difficult I don't think anyone else. However, I do believe is.
There is a downturn.
It will be a good opportunity for us to demonstrate that the torrential.
Thank you.
Alright. Thank you so much Doug <unk> Thats very clear.
And then if I may add I think Neil.
Our goal our target is continue to.
Due to the large semi growth.
Okay.
Okay that sounds pretty good just one quick follow up about your guidance I think when you say <unk> Q3.
Presumably <unk> Q3 quarter on quarter growth will be around 25% rate.
Correct. Okay, great. Thank you. Thank you so much guys. Thank you.
Now we have a question from Mr frankly of HSBC.
Great. Thank you guys just wanted to ask I guess.
Looking at the bigger picture and you've talked about I think a consistent message some parts of the pockets of weakness some of the areas are still holding up but I guess, if we look at this as a whole the areas of weakness such as smartphones and Pcs looks like they keep getting worse and worse over the last couple of quarters.
Sure I'll, let has been good.
The overall business Hasnt been too negatively impacted as you go into next year I know, there's a lot of uncertainties are there any specific.
End market applications that would be a concern because it seems like no matter, how bad consumer goods.
And so far it's not impacting you guys in the overall industry, especially somebody other foundries, but are there any particular areas of concern that would be a bigger problem from a demand point of view that you can share.
C G.
So.
It's very it's very sensitive to talk about deal, which sector because we will be.
<unk> is linked to the company and the customers that we're supporting.
So I wanted to talk about bigger picture in general terms.
And then the.
From <unk> perspective, we are preparing for the following scenario.
I call. This one of the worst case scenario is people continuing to water.
Assuming that.
Either gaining share or nothing's going to change in the consumer most likely will go back to the traditional purchase path.
Now that will not affect the Q to Q3, and Q4 loaded because we have to prepare for Thanksgiving Christmas and maybe the Chinese new year.
Once we start up.
If the end market demand really showed strong signs of weakness.
Then there will be a major correction.
Chances are in very late December most likely will be in the January February timeframe.
This is why the general assumption right now of all of the supply chain guys that I talked to.
Are assuming we will go back to the normal seasonality in Q1 of 2023. Okay. So this is really what we paid out as the worst case scenario, but I really would like to give all of you some operational highlights.
Okay.
Now if you recall.
All of the supply chain guys, including ASC.
We have not had a break for almost two and a half years.
And you also understand that we're short of equipment well short of our manpower.
Everybody is calling everybody through.
Well the whole supply chain everybody just the same parts.
So for any operation under such an intensive distress scratch.
Ryan Ronnie Marathon three times.
There will be for peak.
So when I talk to all of the supply chain, including my gosh.
Everybody is kind of desperate.
Core break for seasonality.
Seasonality in our people can take.
The necessary attrition it couldnt upgrade software upgrade maintenance.
And many customers pushing loss to establish additional automation lie for.
But you understand that to do automation line. It takes a lot of resource a lot of qualification and then the COVID-19. After two years now the customer start traveling the NPI become very fascinating. So we have a lot of very interesting multi die co package all kind of application.
All of the NPI.
Well occupied.
Coal resources.
For qualification and redesign our material process equipment software everything.
We have not had the time to do the necessary things to prepare for the next five years of growth.
This is the general scenario and painting to you.
I don't think anyone is an exception.
So everybody is concerned about seasonality seasonality is this like a four seasons lasers at 90 day. This something we grew up with and this is something the healthwise biological wise. It makes sense business wise. So we really work on seasonality, we should not we look at.
After two years of Covid.
Assume the abnormal to be normal.
So I really would like to.
To start laying out yes, we'll go back to seasonality, we would try to well utilized the precious seasonality to do the right thing like what we have always been trained to do.
By doing this we're looking at swap to improvement of our baseline our capability our efficiency better MTI better engagement and then in our industry is really poised to below horizon. If you talk to anybody today.
People will tell you what makes five payers is fantastic, but 2023, we don't know so just take it 2020, we don't know.
Bob.
Future five years fantastic now if that is the scenario what would you do.
As an operator.
So I believe it will push things really in the big picture in perspective.
You will see that this is actually a necessary transition back to normalcy.
Wherever it is for the long haul it will be better for the industry. That's my honest opinion.
I really appreciate that and I think that's great answer.
Can I just ask a follow up then just on.
What you've painted as a worst case.
Or I guess, maybe the base cases to what you said.
Things start to normalize by beginning of next year or at least into two or three quarter slowdown because thats been the past correction cycles, we've seen in the industry, but we've also seen kind of an unprecedented two year upturn and inventory levels.
If you collectively look at semiconductors is probably at a multi year high which you're noticing so hard before.
Do you think it is normal to assume that it'll be just a normal Q3 I know, it's a very difficult question, but given where we are coming off of such a high base.
Would it be a longer period or is it or are we too optimistic to think that it's a.
A normal two or three quarters in light of the fact that everything is extremely elevated levels.
Joseph can are signaling asked me not to say it.
Okay, I think I want to say it.
Because if you look at the.
How bad the downturn is going to be please consider the following factors.
I think the if you look at the PC number now whether commercial or the personnel at the.
The consumer the commercial the <unk>.
Baselines moving up.
That's a fact.
And if you look at the the wireless I really do not want to talk about any customer.
While we have seen is the wireless inventory control started in January of this year.
I've never seen people jump in so early because.
Yes, now we are we have our agility we're shoot.
But our customers are more shoes.
I mean, you don't know Blake.
We used to be like 30, 40% over book, sometimes 50% over book.
In last few quarters things have changed dramatically starting January so.
So the inventory control.
<unk> been growing loans for two quarters already so.
So the question now is Dr. In Q3, Additionally, Missouri control by some sectors Q4, another control and.
And you believe this will last all the way to the second half of next year.
Nobody knows I only want to offer perspective.
I believe the baseline.
Because of the cold people travel differently people use zoom differently people use PC differently.
<unk> has absolutely move up and convinced.
The question now is with all of the BBB baseline moving up as was inventory control as well as everything that's going on right now we just don't know what it is.
But if you really ask my honest opinion I think next year will be a mild adjustment.
And the if you look at even the U S that I mean yesterday the market moved up and then the raise three basis point.
Hear everything.
But again I don't have a crystal ball and I don't want to share with you of what our internal compensation has to be people are sharing extreme salt that next year is going to be a whole cost terrible, but on the other hand look at the sites looking at all of the NPI and look at all of the bookings look at all.
All of the substrate look at all of the automotive guys, while a long waiting list.
A lot of customers the way so aggressively booking capacity.
It really makes you think why.
Well again.
Bye.
Next January we will see better.
And now we can compare to my notes.
Six months ahead of time.
<unk>.
Okay. Joseph asked me absolutely notwithstanding mall.
Bob.
Okay.
Yes.
Now we have a question from Mr. Bruce Lu of Goldman Sachs.
Hey.
I'll ask one more question about.
Multiyear approach, which is true at all.
Semiconductor growth.
Can you break it down into so like what is the dollar content growth what is the shipment growth.
Sure again in a way that we can better understand it or can you provide something like <unk>.
So as it has been saying that the dollar content.
We increased by mid to high single digit in the next few years, we have that kind of a qualitative.
Our guidance.
<unk> full year growth for the next few years.
My apology.
Don't have those kind of detail Paolo a breakdown in terms of the end product customers.
<unk>, our customers are to diversify and it's hard for us to track.
But in terms of D.
I mean organic growth is easy and.
We also have the technology, which means that for the same units.
We have to start adding more value because of the complexity.
On top of that the share gain actually is not difficult to comprehend.
If you look at the supply chain for the last two years.
And you really ask question.
We are we're award.
Also next.
You will understand our own fab as Harlan the bottlenecks.
And we have other bottlenecks therefore to have a more secure supply chain.
A lot of the end customer including Automotives.
Our demanding to have second soares.
And the second source theme moving to the foundry in the Ocean.
So in terms of market share gain we know we have market share gains.
And that is giving us more confidence in terms of how do we have a stability moving forward, even though you'll have a sector rotation up and down.
But can you say that the market share again, it's boring.
Additional value add to your product or EBIT dollar.
Gross which one is more on quarter factors.
So I think the.
Safer answers to all important because I really don't know.
I'm sorry.
Yes, I don't want to use the information I don't want to mislead you.
But no.
I think it's very very critical of that.
We have a very very unique scope scalability.
When that when the time is uncertain I think all the customers will see four.
Security and also filed for quality I think thats, what we have.
The whole industry, we will continue to see unit growth, we will continue to see.
IC content.
We will see continue to see increasing outsourcing.
Even.
Like automotive in the past.
Very little percentage of the auto parts are being all source and now because of the customers.
Requests being more outsourcing in the automotive is still happening as well. So we're seeing a lot of growth in the Iot where C. H.
<unk>, we're seeing a lot of.
The categories that are sales going forward I think the overall unit continues to make later very strong support for our business and given our leading position in the industry.
Market share gains is a very natural thing for us.
And just just to give some.
So some additional color to the last two years.
Because SDR ahead of operation you have to understand that in the last two years, there's a lot of.
Like commodity type of part number looking for volume.
Which is very critical.
In the last two years, there are very difficult parts like in automotive that not everyone can do it.
And then the ASC was constrained by equipment delivery and we're also constrained by manpower because of Covid.
If you look at the number of Pos that we shipped.
And also if you really look into it.
Content.
There has been we've made a lot of friends that produce way.
Screen difficult condition, we were able to.
Just to put it together and then really start shipping.
In record time.
A highly complex.
<unk> you.
Using some using the fully automated line.
And that gave us a lot of friendships.
And then <unk>, which is rewarded by additional NPI. So when we look at the whole scenario, yes, we do understand the installed capacity, we do understand our competitor.
Yes.
With everything consider and I think the <unk>.
Naturally in 2023.
I think it will be interesting just to see and are all of the friendship how much they had this morning.
Yes.
Or or.
Or can I put that can activate in a different way that for the last two years, obviously youre going to X then Sami.
So for the last two years at least you have some.
I'll take number that how much is coming from the share gap how much it was coming from the <unk>.
Higher value you provide to your customers.
So yes.
Okay.
Well I don't know the number I would just tell you 50 50.
Yeah.
Okay.
Thank you.
Okay.
We have a question from Mr. Randy Abrams of credit Suisse.
Andy.
Okay, yes, thanks for the follow up I wanted to ask on the capacity expansion. If you could clarify the announcements you've made and still in terms of timing and how much you're bringing on.
Second part today, we've had all these chips sack Europe now you estimate go ahead, India.
Is anything shifting in thinking because it looks like you have a lot on deck for expansion in Taiwan.
Alright.
I'll answer deal.
Well.
Im not sure Youre talking about.
The U S. The opera House, just passed the chip package that we're talking about fast fashion.
Got through all the way, but yes, the upper Senate passed.
And theres quite a bit of money in their recruiting some could better packaging, Brian obviously via our customers and our.
Our governments.
Fluor terms.
Are all pushing us to do.
Some some investment and.
Our answer is the following.
We will like to make that investment.
In different.
Geography.
Just to satisfy the supply chain security and everything.
But.
But we need to understand precisely.
What are the requirements.
So until today, we have not been able to narrow down.
Two the precise and investment that we need to make in order to make the supply chain security better.
Now the support.
The funding is always good to have.
However, we will not make any investment because of the funding for this order.
Subsidy.
We will make investments if we understand precisely the requirement in detail such that we can perform too.
To that expectation.
So the short answer is the short term no.
We're not engaging in any kind of fall capacity investment.
Our geography.
Outside of R. R.
Current beyond the jurisdiction.
In terms of our CTO I'm, sorry in terms of spilling blindness.
I think still is building.
Additional buildings.
In anticipation.
For the next few years of our ground up and then <unk> I think <unk> also.
Acquiring land and building facility because the facility.
And the.
The building.
On a different tempo.
Different time scale comparing to the business up and down. So we also want to make sure. The infrastructure is ready and then we will deal with the business the equipment and the qualification accordingly.
Okay makes sense and if you could talk you've.
You've mentioned a few times the multi die as a co packaged in.
In the past so there's a lot of focus which was a fair amount of BMS could you go a little more into the application of the products driving driving this and how big it is for the overall gets more IC ATM how big it is.
Okay.
When we talk about multi die co pack.
My apology for all this terms because it is different because we all talk about the multi chip module MCM the MCM tends to be multiple chip.
Stay using a similar method to be attached to one module.
When I talk about the multi die co package that means it could be multiple package.
The multiple die a multiple package and then to put it together so.
So when you think about this then your question is relevant.
This kind of multi die co package should that be going to the ATM business or should I go to the USA business.
The question really is the answer is yes both.
It really depends on the density the complexity.
And also the feature size.
Also dependent on the logistics so the ATM can do it.
Very fine pitch, a complicated ATM will do it.
The liberal whatever musca handled Ms. Wang.
But in terms of application we see this in all applications, especially we pumped the automotive the automotive used to be.
And if you look at the Tesla for example, right.
Their design always to be.
Compared to the old automotive design.
Automotive side was it like one microcontroller will control the radio and then the CD and.
The windows.
One chip will do.
One quick one just one thing.
If you look at how our password designs one chip does two things.
So you wanted to do this if you really have to start thinking about that the concept of multi die co package and the managing by the firmware software and everything around it.
In the future like known not only all of the combustion cars for going this way.
Electrical vehicle are absolutely going this way.
So thats just one example, so when you think about multi die co package and I think you bundle the DPP.
Part of the power management chip with ACI controller a memory.
They are necessarily did did the same in the wireless chip. Thank you.
Linear analog with digital.
They're not just die they can be die it can be die on the package and then somehow bundle all of the package together.
So things become a little bit more creative now I think that covers all of the applications and this is something that we believe will offer us more value and room for imagination in the future.
Okay, great. Thanks, a lot Tim.
There is no more question.
Thank you guys.
Okay.
Okay, if there's no.
No more question, we will end the.
We will end the call today.
Okay.
Thank you very much thank you very much and that sliver.