Q4 2022 ASE Technology Holding Co Ltd Earnings Call
T M revenues, our operating expenses were flat during the fourth quarter, while increasing $1 $6 billion year over year to $14 3 billion.
The annual increase was primarily related to a higher scale of operation.
Our operating expense percentage increased 0.5 percentage points sequentially.
And year over year to eight 1% the sequential operating expense percentage increase was primarily related to lower revenues during the quarter.
The annual Opex percentage increases are primarily due to lower revenue with lower G&A costs offset by increased NPI costs and higher head count.
Operating profit was $19 8 billion down $3 9 billion sequentially, while up $1 billion year over year operating margin was 11, 1% declining one five percentage points sequentially and down <unk> two percentage points year over year.
During the quarter, we had a net non operating gain of <unk> 4 billion. This.
<unk> includes net interest expense of $1 1 billion tax.
Tax expense for the quarter was $3 6 billion as we mentioned last quarter, our effective tax rate taper down a bit during the fourth quarter to 18%.
During the quarter, we were able to apply certainly beneficial tax rates related to high technology and <expletive> tubes.
Net income for the quarter was $15 7 billion, representing a decline of $1 8 billion sequentially and an improvement of $1 $2 billion year over year. The NT dollar depreciated, 418% against the U S. Dollar during the fourth quarter from a sequential perspective.
<unk>, we estimate the NT dollar depreciation had a 1.03 percentage point impact to the company's gross and operating margins.
From a year over year perspective, we estimate that the depreciating NT dollar had a 316 percentage point positive impact to gross and operating margins as a rule of thumb for every percent. The NT dollar appreciates, we see a corresponding 0.25 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 35 billion with a 19, 7% gross margin operating profit would be 21 billion with an operating margin of 11 eight.
<unk> net profit would be $16 9 billion with a net margin of nine 5% basic EPS, excluding PPA expenses would be $4 five.
Please refer to page four here you will find the 2022 consolidated full year results.
As mentioned earlier, we will be comparing against the pro forma 2021 full year results, which exclude the disposed China sites.
Fully diluted EPS for the year was $13 94, while basic EPS was $14 53.
For 2022 consolidated net revenues grew 23% as compared to 2021 ATM revenues grew 21%, while <unk> revenues grew 26% annually.
Gross profit for the year was $134 9 billion, increasing $29 $9 billion year over year or by 28%.
In 2022, our gross margin improved <unk> eight percentage points to 21% principally as a result of favorable foreign exchange environment for both our ATM and EMS businesses.
Operating expenses increased $8 7 billion for the year and came in at $54 8 billion.
We were able to lower our operating expense percentage by <unk> three percentage points to eight 2% for the year.
Operating profit for the year increased $21 2 billion or 36% to 82 billion for the year operating margin for the year was 12% representing an improvement of one two percentage points over 2021.
We recorded a net nonoperating gain of $1 5 billion for the year, including a net interest expense of $3 3 billion.
Total tax expense was $16 4 billion the effective tax rate for the year was 21%. We continue to believe our ongoing effective tax rate to be about 25%.
Net income increased by 37% to $62 1 billion on a full year basis, we estimate that the depreciating NT dollar had a positive one five percentage point impact to gross and operating margins and removing the effect of PPA depreciation.
Our gross margin would be 27% our operating margin would be 12, 7% our basic EPS would be $15 62.
On page five is a graphical presentation of our consolidated financial performance you can start to see the impact of the start of the inventory digestion here weaker revenues and a sub optimal production environment are impacting both our ATM and EMS businesses.
On page six is our ATM P&L.
Worth, noting here that the ATM revenue reported here contains revenues eliminated at the holding company level related to the intercompany transactions between our ATM and EMS businesses.
For the fourth quarter 2022 revenues for our ATM business was $94 3 billion down $4 5 billion from the previous quarter and up $9 1 billion from the same period last year. This represents a 5% decline sequentially and.
A 11% increase year over year, our ATM revenues came in at about our expectations.
Gross profit for our ATM business was $26 2 billion down $2 6 billion sequentially, while up $1 $9 billion year over year gross profit margin for our ATM business was 27, 8% down one four percentage points sequentially.
And 0.7 percentage points year over year, the sequential gross profit margin decline was the result of lower loading.
And offset in part by the Depreciating NT dollar.
On an annual basis without inclusion of our fourth quarter 2021 bonus reclassification, our ATM gross margin would be down <unk> three percentage points.
This decline is related to reduced loading levels, resulting in relatively higher utility and material related expenses offset in part by a favorable foreign exchange environment.
During the fourth quarter operating expenses were $10 4 billion up <unk> 2 billion sequentially.
One 3 billion year over year sequentially higher operating expenses were from higher NPI related costs, while the year over year increase was primarily driven by higher NPI costs and higher base of operations with higher employee head count.
Our operating expense percentage was 11% up 0.7 percentage points sequentially and 0.5 percentage points year over year. During the fourth quarter operating profit was $15 8 billion, representing a decline of $2 9 billion quarter over quarter.
And an improvement of <unk> 6 billion year over year.
Operating margin was 16, 7% declining to two percentage points sequentially and one two percentage points year over year.
For foreign exchange, we estimate that the anti U S. Dollar exchange rate had a one nine percentage point impact on our ATM sequential margins and a five seven percentage point impact on a year over year basis.
Without the impact of PPA related depreciation and amortization ATM gross profit margin would be 28, 7% and operating profit margin would be 17, 9% on page seven we have our ATM full year P&L 2022 revenues for our ATM business.
This increased by 20% with our packaging business and test business up 20% and 22% respectively.
Even on a reported <unk>.
Legal entity basis, our ATM business increased 11%.
This effectively means that our ATM business more than made up for the revenues lost from the China's entities disposed of in the fourth quarter of 2021.
Gross profit for the year improved 27% to $105 9 billion gross margin was up one six percentage points, primarily as a result of higher loading and efficiency.
And NT dollar depreciation.
Our operating expense percentage declined <unk>, one percentage points to 10, 6%. The decline was primarily the result of a higher revenue base.
Operating profit improved 32% to $66 4 billion.
Operating margin improving one six percentage points to 17, 9%.
For foreign exchange on a full year basis, we estimate that the strengthening NT dollar had a two seven percentage point impact on margins.
Without the impact of PPA expenses gross profit margin would be 29, 4% and operating margin would be 19, 1%.
On page eight you'll find a graphical referenced limitation of our ATM P&L, you'll note here the impact of our semi fixed cost base.
Sales declines not all costs are able to be scaled down.
On page nine is our ATM revenue by market segment. There is no change here.
On page 10.
You will find our ATM revenue by service type.
There isn't a significant change here it may appear that our wire bond businesses coming down a bit faster than our advanced packaging services. However, historically the seasonality of advanced packaging tends to be stronger than wire bonding in the fourth quarter.
You can see the fourth quarter and full year results of our EMS business during the quarter demand was impacted by an overall weaker demand environment supply chain issues and inventory destocking, resulting in weaker than anticipated revenues.
During the fourth quarter, Ams revenues declined $6 8 billion or 7% sequentially, while increasing $2 4 billion or 3% year over year.
Our EMS businesses gross and operating margins sequentially declined <unk>, eight and one percentage points respectively.
The sequential declines were primarily driven by lower than expected loading during the quarter, resulting an unplanned operational inefficiencies.
On an annual basis, our EMS gross and operating margins improved 0.6, and 0.3 percentage points respectively.
These annual improvements were primarily the impact of foreign exchange.
On a full year perspective, our EMS business revenues increased 26%.
The increase was broad based with our traditional EMS somewhat outperforming.
Business gross profit increased 35%.
Full year gross margins improved by <unk> six percentage points and operating profit margins increased by one percentage point.
On page 12, you will find a graphical representation of our EMS revenue by application.
Outside of our automotive segment, all other segments declined from softer loading during the quarter.
On page 13, 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 $65 6 billion. Our total interest bearing debt was $202 3 billion total unused credit lines amounted to 346.
Our EBITDA for the quarter was $35 9 billion EBITDA for the year was 143 billion.
Net debt to equity was 43% at the end of the year.
On page 14, you will find our equipment capital expenditures machinery and equipment capital expenditures for the fourth quarter in U S dollars totaled $339 million of which $121 million were used in packaging operations $183 million in test opt.
<unk> $25 million in EMS operations, and $10 million in interconnect material operations and others.
For the full year machinery and equipment capital expenditures were $1 7 billion.
0.9 billion was spent on packaging zero point $6 billion on test and zero point $2 billion on MF and others.
Given the overall slowdown within the industry. We have also taken action to reduce our packaging capital expenditures for the year.
However, we continue to believe we have the capability to gain share within the test marketplace and as such we have not actively reduced our test investments.
Current quarter EBITDA of $1 1 billion U S dollars relative to our capital expenditures 0.3 billion continues a pattern of a somewhat slower approach towards equipment capacity expansion.
You can see larger gaps starting in the third quarter of 2021.
For the full year out of $4 7 billion EBITDA generated machinery Capex was $1 7 billion.
For the near term, we believe our machinery capital expenditures should stay more at a similar reduced rate.
With that said ill pass the presentation over to Dr. <unk>.
Hi, everyone I would like to.
Yeah.
Give you a.
2020 to recap.
So 2022 revenue and margin improvement achieved our targets.
ASE ATM revenue grew 13% year over year.
Here I'm, referring to everything in U S dollar term.
Also on a pro forma basis.
Okay.
The 13%, we believe is more than twice of the largest semiconductor industry growth.
The 2022, ASE ATM gross margin operating margin.
Was 28, 5% and.
And 17, 9% respectively.
Surpassing historical peak levels of 2007 to 16, 6%.
2022, ASC consolidated revenue grew 16% year over year.
2022, ASC consolidated operating margin improved one one percentage points year over year.
With net profit growth.
Of 29% year over year.
2022 advanced packaging revenue grew 27% year over year test revenue grew 15% year over year.
Momentum continues in mid to long term.
2022, consolidator automotive revenue grew 50% year over year.
Achieving.
One 6 billion.
2022, ATM automotive grew also 50% year over year, reaching close to $1 billion milestone.
I would like to give you 2023 outlook.
ASE continue will be industry outperformer.
With enhanced structural profitability.
We expect ASE ATM first quarter 2023 revenue to be sub seasonal due to industry destocking.
However, ATM business should trough in the first quarter, followed by sequential quarter to quarter growth for the remaining of the year.
With multiple market uncertainties.
2023, ATM revenue year over year will range from flattish.
So high single digit decline.
Expect higher mix of advanced packaging and test business.
We also expect continuing market share growth due.
Due to increased semiconductor complexity IBM outsourcing and also our smart manufacturing offerings.
We reiterate.
ATM annual structural gross margin.
Mid Twentyish 230.
We believe ASC is late to fall early to rise.
During this market correction.
Because scale technology leadership flexibility also the proven erector <unk>.
Take ASC, an indispensable manufacturing partner, resulting in more resilient pricing and expanding lead against our competition.
During this volatile market timing.
<unk> global footprint.
Gifts.
Strong competitive advantages in current geopolitical environment.
ATM, we have high end supply chain in Taiwan.
We also have.
A group of diversified capacities in China, Korea, Malaysia, Singapore, Japan.
EMS supply chain, primarily in China.
We also have diversified capacity in Taiwan, Vietnam, Mexico and Europe .
Future expansion will be planned based on customer and market requirements.
Capacity expansion continues.
A second half of 2023, although at a slower rate compared to 2022, however, more expansion in building infrastructure as smart manufacturing.
Preparing for the next cycle.
Further improved cash flow based on disciplined capital investment scale efficiency and sustained profitability.
I will pass floor to our CFO Joseph.
Thank you Ken.
Absolutely.
I just mentioned.
With the aggressive Destocking software engineer.
We are.
Or a softer than expected first quarter.
Both in terms of revenue and margin performance.
However at this point, we are seeing signs of improvement, including increasing NPA.
<unk> forecast revisions.
Some rush orders and continued pressing facility.
We are now of the view that things will turn up in second quarter.
Decent recovery and further ramp up to full capacity in the back half of the year.
Now based on our current business outlook and exchange rate assumptions.
Management projects overall performance for the first quarter of 2000 and phase III to be as follows.
In NT dollar terms, our ATM first quarter 2023 business levels should be similar with pro forma second quarter 2021 levels.
Which was.
$72 7 billion.
Our ATM first quarter 2000, and phase III gross margin should be above second quarter 2019 gross margin.
Which was 18, 6%.
For emphasis in terms of the dollar terms.
In this first quarter of 2023 business levels.
It should decline high single digit year over year.
EMS first quarter 2020 operating margin should be similar with the first quarter of 2021.
Which was two 5%.
With that I'll give you the.
First quarter guidance. Thank you.
Okay.
Now we would like to open the floor for questions.
If you have any question please.
Raise your hand.
When you ask questions. Please hold two questions at a time.
Thank you.
We have a question from Mr. <unk> <unk>.
Yes, hi.
Can you hear me yes.
Hi, Thanks for taking my question.
First of all.
Can I ask a little bit Q1, clearly is quite weak.
It looks like Youre seeing most of the order cuts coming through in Q1.
A quick question on gross margin.
Led gross margin declining about 800 basis points or so.
Help us understand how much of that is primarily a utilization cyclical thing.
Versus are you also having to give up some pricing.
In the downturn.
How do we think about the gross margins.
Given that you are expecting to be starting from Q2, how is it legal and gross margin is going to be when you talk about the mid 20% to 30% gross margin.
Do we kind of fall within that range for credit quality overall as well.
Is that a long term guidance and not so much liquidity prudently.
That's my first question.
Well we are still.
Total towards the structural margin double year based on everything.
I think we.
Very positive throughout the year, we can continue.
Continuous in May.
For a mid 20% to 30% gross profit margin.
Boise emphasis.
And also for MFS.
Continue to target, a 4% or above.
Operating margin.
In terms of the.
Margin erosion in the first quarter.
Mainly it's really from the volume.
Because of the lower loyalty.
And also impacted by NT dollar appreciation versus fourth quarter of 2002, I think the the <unk>.
Price.
Okay.
AAC has very very minimum.
So very minimal impact on the overall margin.
Performance in the quarter.
Understood. That's very clear my second question could you talk a little bit about what are you hearing from your customers.
That gives you the confidence that we.
We get back to sequential growth in Q2.
Could you give a little bit more color on any subject.
Any particular areas that you're starting to CBS Sean does.
Blake customers kind of coming back to more activated based on demand.
Think about.
Q2 and beyond.
Okay.
Our confidence in the second quarter pickup.
Our primarily based on deal.
Our conversation with <unk>.
All customers.
And.
Starting December as matter of fact, the Destocking after startup acquire early in 2022.
Different sectors has gone through this railroad.
Pace.
They're destocking effort, so I will now comment too much detail in that.
What we're seeing today is some sector seems to.
Accomplish their short term target.
And they start to have rush order.
And we have seen that.
Yes.
January .
Also we have seen some forecast revision upward.
Now in terms of the pricing environment.
If we believe there is a sustained.
Downturn.
Then we believe that the pricing pressure.
Should be worse than what we're seeing today.
And there are quite a few reasons why we believe this is the case.
If you look at the industrial and automotive.
We continue to see strength strength.
Also our lighthouse factories provide very high quality and consistent high reliability output.
So that part of the business, we continue to see strength.
And we are seeing the consumer sector to go into some destocking effort.
In December .
As well as Q1 <unk>.
Have gone through very severe.
Destocking effort.
And with all indicators by talking to our customers they believe.
The enormous shipment should we assume in second quarter.
Okay. Thank you.
Next question.
Next question is from Mr. Randy Bran.
Hi, yes. Thank you.
Ask one follow up to it.
With that across customer pick up.
First quarter was so much sharper decline, especially bearish outlook to two months ago.
Do you see that our prospect in second quarter.
Sorry.
Resuming quite a strong pickup or do you still see kind of gradual rebound, where it's much more second half weighted year.
Okay.
That is that remains to be seen.
Alright, so today we are.
We have high confidence the second quarter, we will pick up.
And we believe the pickup should at least be double digit.
That's what we know today.
Now the forecast actually stronger however.
We would like to be a little bit more conservative.
Okay.
Okay.
You should expect it to be a double digit pickup from this first lower first quarter.
Correct. Okay. Good Okay, and then wanted to ask actually the mix. The you expect the advanced packaging tests to outgrow relative this year.
If you take the two areas are there certain areas youre seeing on the advanced side is it like the traditional mobile or do you see anything.
There's a lot more attention to things like the AI.
If you are seeing the HTC pickup and then I'm just curious on the mainstream it's been weaker for a while where that's where that side is that lagging on the pick up or do you think they have further to go.
We are seeing the strumpf economy in the second half.
For both sectors.
Based on the NPI activities.
Okay.
Four and just one other applications automotive, which has been very strong does it look like you.
Kind of a wait the downturn just given share gain.
Because you mentioned that you still stronger any sites.
Worries about that segment.
It will follow the other areas just curious I think last year at the start of the year, you expected, 40% growth and delivered at least that but.
But how auto.
Look so if you said it maybe flagship theyre kind of elevated inventory or the strength books to continue.
Well right now it would be automotive remains to be very strong and we.
We are looking at the.
Continued growth in 2023 for the full year.
But in terms of percentage right now is very very difficult to make that judgment call.
But we are seeing strong forecast.
Yeah.
Our next question is from MS. Laura Chen.
Hi, Hi, a question on can you hear me yes.
Yes.
I also have a follow up question on the gross margin.
Aside from the lower tier two ratio and also the foreign exchange impact I'm, just wondering that is more due to the lower loading pumping.
Pumping or wild bonding.
Or could you also give us some.
You to ration right thoughts.
Application or technology is that possible.
I think the overall.
Margin erosion is across the board.
Because of the lower loading, though we are facing now.
But in terms of different services.
<unk> strategy.
Do we relatively better.
At this point.
I think across the board the margin structure is pretty similar across different services.
Okay and also my follow up question is on the testing business could you remind us what's your current internal supplied or in terms of percentage Alastair touched him business and can you see that dwell further growth for the coming years.
Internal supply.
Yeah, sorry, I mean, the testing business portion internally.
We previously mentioned that our strategy to increase our testing business and a quick one I am not sure if that will continue the direction.
I think in 'twenty, two I think the.
Test portion of the business.
Continue to.
To grow a little bit.
Still hovering around 15%.
And with the growing momentum we believe in 'twenty three or this year.
That ratio will continue to rise.
So we in this year so.
Capex.
I think the composition will be.
Bit different from last year.
In terms of the overall capex for <unk> for the group.
Roughly 55% is for assembly and 30.
So the focus of it is for tests.
Things out.
Okay. This year to 44 and <unk>.
38.
So the investment in tests.
We'll continue.
At a faster pace than assembly.
We have a question from Ms be onshore of Taiwan.
Yeah, Hi, this is Rick.
No noise have you seen my associate name.
So.
Right. Thank you for taking my questions housekeeping can you provide you are utilizing raise across the board.
Packaging bumping and testing for Q4 last year in Q1 this year.
I think last Q.
Q4 <unk>.
As we expected it's about 80% across the board.
Before this quarter biggest reason.
Not very meaningful.
To talk about utilization at this point, because the destocking and the soft demand has been driving our loading.
Quite substantially so I don't think its really meaningful at this point to report these numbers for this quarter.
Okay, So basically suboptimal right.
Yes.
Yeah, right suboptimal, so quick follow up.
On this low load in Q1, and I guess, the larger Thats your gross margin for ATM.
And upon value also mentioned about the currencies change volatility and anything else, that's dragging down the gross margin for ATM.
Would that be coming from the pricing.
Yes, I mentioned the pricing impact is very very minimal.
In fact during the first quarter, we have gone through <unk>.
Pricing negotiation.
Yes.
Tim mentioned I think we are still maintaining our pricing.
Next question is from.
Mr Houghton of China Renaissance.
Oh, Hello, gentlemen, asked your questions I ever got into Capex. This year can you share with US there are capex breakdown by major site location.
Okay.
Uh huh.
Let me get back to you on this.
Okay, no problem regarding the Capex spending pattern first half compared with second half how should we model yes.
I'm sorry.
I mean spot.
Spanning patent first half compared with the second half of this year.
Spending pattern.
The bulk of the investment will be made.
So it is.
In the second half of the year.
Let me with a $45 55 tablets.
Hum.
Okay.
Let me ask the question.
Were you referring to sites.
At that location in let's say, China, Taiwan Korea.
Yes, the cost breakdown okay.
Nope.
Later for you Ralph Ralph breakdown requeue.
Great.
Next question is from Mr. Brad Lynch.
BLA.
Hi, Thank you for taking my question I have two questions. One is on the outsourcing trend from the IBM and secondly is on the ABS substrate. So the first question is that our.
Are you foreseeing a larger outsourcing from maybe a global leading IBM and then shall we expect any tag or capacity difficulty.
Oh, the really calm and then second question would be on the ABS Akshay is the ABS akshay supply.
Many of those in this year and <unk> stuck ABF cost trending lower.
Recently, and so we expect it to turn tighter again when demand come back second half of the year or before thank you.
Okay.
With.
The IBM all sourcing I think.
A good example will be the automotive business.
These automotive business traditionally are being conducted within the IBM the upfront and the backend capacity for.
<unk> facility.
We continue to see the the the the automotive business and the industrial business two to move up in this environment.
That lead us to believe that either we are processing something.
I'd.
Cannot do or prefer not to do it.
I think the lineup factory as well as some of the advanced technology are good examples so I think that trend will continue.
The ABF substrates situation the supply is better.
I will not say that the.
<unk> out of the supply constraint situation.
I will now comment on the pricing.
Because the pricing is quite dynamic.
Thank you very much.
We have a question from Mr. Bruce Lu of Goldman Sachs.
Hi can you hear me. Thank you for taking my questions.
Yeah, we'll go here yes.
I think that first of all this for the smart manufacturing I mean I think this is the first time the company was talking about that.
Can you be more specific on that definition of small manufacturing what's the revenue contribution from this model refresh rate, what kind of profitability or what kind of growth should we expect for the small benefits already in 2023.
Okay.
It's basically a fully automated factories that we have.
We sometimes call it unmanned factory or lifestyle factories.
Everything is automatic.
Automated lines.
Right now we have.
Thanks.
<unk>.
At the end of 'twenty, two we have there.
36, LIFO factories already and we're going to 44 factories.
This year.
We'll continue to make further investment into automating.
Manufacturing capacity.
I think the.
In terms of the.
Revenue contribution.
The capacity represents about 15%.
Our overall ATM.
Okay.
Sorry to.
Okay increase too.
Posted over 20% this year.
Okay.
22% decrease to 20%.
Although it's 15 to 20.
Okay sorry.
Okay. Good.
I think that this question is for the <unk> business I mean I understand that.
You might have.
Inventory corrections or.
For the last years.
Product or whatever right.
Can you talk about what.
What kind of like new <unk> projects.
What do you expect for this year onwards, all kinds of IP revenue growth.
Well, let's say, excluding the first quarter.
Although most situations what kind of slight growth outlook than we expected.
Well I think by and large I think it's going to be a more challenging year in terms of its IC business for the year.
Given the.
First of all it mostly in the consumer sector.
That's still going through a lot of turmoil at this point.
So.
So a lot of authorities in front of us.
Leader in military service.
The trend will continue as we continue to see further heterogeneous integration.
But in terms of how much growth or how much business, we will have.
For this coming year.
At the library May SBC.
Biologics, it's more challenging than last year.
But we're still making pretty good progress.
In terms of extending our.
Our projects as well as with new customers at this point.
Next question is from MS Sunny Lin.
Yes.
Thank you very much could you hear me.
Yes.
Thank you.
So my first question is to follow up on the Spa manufacturing.
If I look at.
Hum.
Fully automated fabs.
Your traditional fabs, how much margin expansion.
Could you expect.
Okay.
Okay.
Okay.
The margin expansion is difficult to quantify because the smart manufacturing.
It is easier to gain business when you have a fully automated factory.
Also the business youre gaining tend to be.
Requirements are high reliability.
So we do have some tangible aswell as intangible benefit.
From the fully automated.
Manufacturing will also provide customers.
With the full transparency of all of the data that go with the automated manufacturing.
So if you are thinking about the margin expansion.
I believe the.
Since we start building the first automated factory the.
The margin continues to improve I think at the margin improvement has been revealed.
In the in the previous years of margin expansion as have indicated this year than we have last year. We had a one 1%. If you go back to the 2021 and 2020 and then deal will continue to have margin expansion.
Got it.
So much for the color.
And maybe a quick follow up.
On your full year.
This outlook you provided some growth expectations for IC IC ATM I Wonder if you could also provide us some.
Color on that as well.
Okay.
Well I think.
Yes.
USAA has reported.
Two days ago.
I think what they are projecting is that.
This year.
We'll be a flattish to slightly down over a year.
But really it depends on the how is the.
Overall.
Tuition in China.
They believe that they will have a chance.
Small growth for the year.
Next question is from me, Sir I'm, sorry, I think they are also expecting sequential growth on the.
On a quarterly basis over the year.
Next question is from Mr. <unk> of Jpmorgan.
Yeah, Hi, Thanks for taking my question again.
First of all on the Capex for this year could you give us a little bit more color on how much capex is likely to be down.
Year on year, giving you a more conservative stance in spending and also any.
India are customers asking you to.
<unk> be more built up outside of maybe the general region.
In Asia and any request from clients also to go to maybe use some other locations in terms of B.
Supply chain diversification, especially for ADM.
Okay for <unk> last year, we had a total machinery.
Capex.
Well around a lot.
Yes.
A little Luckily $6 billion.
Yeah.
And this year I think is going to be.
$200 million below that number.
This year.
Uh huh.
I reported earlier on encompass.
Composition of such Capex would be.
It will be more.
Tess heavy this year than last year.
The competition will be 44% at this point, we're looking at 40, 45% to 45% for Assembly 40.
So 39% for tests.
Both 10% to 11% for Eos and the rest of the material.
And also to answer the earlier question about say allocation.
Okay.
In terms of different regimes.
In Taiwan, we will have roughly 65% off the cuff therapies.
The tower sites.
25% or lower.
In China.
And roughly 10% for the rest of the world.
Let me comment on the geographic.
Location for the ATM part of the business.
As you know.
In the next few years.
Majority of the high end packaging.
Wafers will continue to be out of Taiwan.
So when we talk to our customers it is very clear that.
We will focus on.
The execution.
To make sure all of the advanced packaging demand get fulfilled.
There is no question about the integrity of the Taiwan supply chain.
Let me comment on.
Customers do have requirement.
For expanding capacity.
Outside of power.
The proposal today, depending on working with each customer on their requirement.
We have made announcement there will be continued be Dr Kapoor.
Capacity expansion in Malaysia.
<unk> four and Korea.
Some of the factories.
We'll expand traditional packages.
To make sure the customer does have flexibility.
To have order fulfilled in Taiwan or outside of Taiwan.
For the high end advanced packaging outside of Taiwan.
The first question, we need to ask is the source of the wafer.
To that questions get answered.
Yes.
It is really not a real question.
There has been a lot of conversation in terms of in future when the advanced wafer is ready.
Do we fulfill.
Then we are talking to each customer regarding the source of the wafer the number of the wafers.
Our required advanced packaging types and also the necessity to be fulfilled within deep differential graphic locations.
So it's a very very convoluted.
Conversation right now.
I do acknowledge that the ASC is under a lot of.
Yeah.
Attention.
Negotiating are discussing with the multiple layers of customers as well as agencies regarding the future requirement.
However.
That is a longer term implementation for.
For the shorter term, we are expanding facilities to make sure.
If customer required anything to have flexibility it will get fulfilled within our current footprint.
We do acknowledge the possibility of expanding our footprint ATM.
Other than the current facility that we have geographically, we do acknowledge that however that will be longer term.
Good thanks, Thanks, Dan Thats very clear.
If I may ask one more question could you talk a little bit about <unk> got and explore shown in Brisbane in two <unk> and three D packaging.
You already have some HBC customers, who are already ramping up there to find quality and PD offerings and it seems like this is starting to become a little bit more.
Adopted so can you talk a little bit about alc's environment, we do hear a lot of more foundry environment, but just wanted to also get about asp's enrollment in this area and any kind of exposure in terms of revenue etcetera that you could share.
The $2 five.
It's a very very long engagement history of ASC and I think we're the first one to produce.
One of the leading edge product with one of our key customers and we presented the first generation of game machines using tools like <unk> and there has been ongoing development with almost all of our customers.
Two policies coincide the the fan out and also a different form of fan out as well as to a different form of chip led and <unk>.
Yes.
That's a major.
That's a major initiative of the whole company.
And.
I can only say that we will continue to be very interested and very engaged with all of our customers as well as a foundry partner and this is a big growth business to our customer would like to have the all of the flexibility and all of the possibility out of the channels and <unk>.
He is committed to be one of the channel to fulfill the customer's requirement working with customer as well as our partners in foundry.
Okay.
We have a question from Mr. Bruce Lu of Goldman Sachs.
Okay. Thank you for taking my question and again I have a question on the border.
<unk> geographical production.
I think that.
IP protection.
Highly highly concentrated Tiger I mean, do you have any plan to expand like other capacity or do you have the customer requesting you to have additional.
Ex China capacity.
Yes actually.
This is a work in progress we already have.
That being said I think the CFO .
Yes. It has started mass production already.
And.
Well, we will we will continue to look at our customers require.
To further expand.
Yes.
Within or outside of its tiger to suit our customers' needs.
So what kind of capacity outside of China in two years.
Only 3% or.
Oh.
Right No I think the overall in terms of non China production is about 35% up to company forever.
Yeah, but you have to exclude the AFG.
Yes that includes AFC.
However, excluding AFG because I don't think you can do it.
23.
Please go ahead.
Yes.
It's roughly 25%.
I see so 25% of its.
Capacity away of the outside of.
China in two years.
Right.
But Asia right.
Okay. Good thank you.
Another question on this side.
Do see that your EBITDA is much spy.
Spire that Capex number.
If you have any proof that for the last seven.
We have had eight quarters already and we expect a much higher payout ratio.
In July two at all.
It was because he did.
The cash flow generation this impressive.
I knew this was coming we will maintain.
Ratio of 60% to 65%.
I'm, sorry I was.
We will we will.
I think it's important to keep the.
Transparency and clarity on the payout ratio.
And we said, it's 60% to 65%.
And that number is there.
I see other size. So so the excess cash flow will mainly be used for to improve.
Our debt ratio or.
Well.
All.
And I think we still have a need to fund our overall operation.
And Capex.
And not just on the machinery side of it.
Also.
Expanding quite a bit in terms of ore.
Yeah.
Buildings and land.
Last year alone.
Continuing in this year.
We'll be spending more than $800 million for real estate as well.
And also.
We did.
Lower our leverage quite a bit last year. So at the end of the year over year, we have a net debt to equity ratio of 43%, which we believe it will help it's a healthier level.
<unk> going well.
Looking at this.
Downturn or.
Market softness, we do well too.
Have a.
But the reserve it soaks up a cash.
To see because you know there.
So it could be for <unk>.
Validation opportunities as well.
I think thats the general.
Picture overall.
Of our overall test situations.
Just a side note if you look at.
In the past 20 years.
Every single downturn.
<unk> gained share.
Without any exception.
I'm not saying that this is a downturn, but we are going through a correction.
It can be one quarter it can be two quarters.
Right now we have high confidence we will also gain share in this.
Correction.
Then the question is the next upcycle I know is a little bit long term, but.
This award the operator needs to think about it.
How do we expand.
Our footprint as well as land based facility space.
Because keep in mind.
In the Covid days in the previous two and a half years.
We have literally depleted ordered the factory reserve space.
<unk> of the high demand.
We are going through Q1.
Restocking effort.
But let's not forget.
The longer term horizon.
In case semiconductor, we will resume the path to the GDP plus.
<unk> resumed the path of gaining share.
In the next few years.
We'll need more building space in Taiwan, as well as outside of Taiwan.
Different technology and also if you look at the NPI right now there is a lot of very exciting new applications, and new technology, and all of which will require a lot of attention and investment.
I believe that yes, ASC is very mindful of the short term cash management as well as the payout ratio.
But also I think Dr for the shareholder as well as for the semiconductor industry.
We really need to be mindful of the long term potential.
As a reader will like to be a responsible partner to make sure we fulfill all of the possible scenarios.
Okay.
Okay.
If you have any questions. Please raise your hand.
I've got a question from Bruce Lu of Goldman Sachs.
Well I have all of our questions sorry about that thank you again for taking my question I, just don't have a lot more.
TSMC was talking about are still a value for their product, which the geographical location is a value.
I think as you mentioned that like AAC has the most.
Diversified capacity globally in all kinds of different countries and cities, which is a value I do you consider to sell this value, which means that increase your price.
He will oversee capacity.
So the value.
How do you define the value the value is really the service.
As well as to quality and a timing that you provided to customers.
And I believe the you are correct.
There could be one scenario, where the timing the location.
Present that becomes a tangible value for the customers, but all of this are in the making.
The fact that we are expanding overseas, we're expanding Singapore, Malaysia footprint.
And.
We're also creating.
<unk> site of <unk>.
Some of the facilities upfront Taiwan to overseas.
That that secure the long term partnership and further gain the confidence from our customer the ASE is willing to do whatever it takes to make sure the low coal the customer the regulatory requirements are fulfilled.
Does that present a value long term yes.
Now with that filing.
Can we only reflect the value for all our pricing increase.
I'm not exactly sure because NPI every generation eight months or 18 months.
I think the business is really look at the technology partnership volume partnership and I think goes much much deeper than the ESP.
Alright.
I always say from the.
TSMC USA was like you know, maybe just charged with different pricing different geographical locations.
Sure.
Of course, I understand that the VAT because a lot of beach.
The Investor General onboard.
Simply the political ad.
Can we expect some of that pricing differential.
Among different capacity.
Geographical locations.
Okay.
Im not sure Im not sure the what is the politically correct way to answer that question.
My apologies.
So I'm, sorry, I'm going to pass that question.
This is dana.
Thank you that's all my question. Thank you.
Okay.
If you have any question please raise your hand.
There is no more questions.
Okay. Thank you everybody. Thank you very much happy Chinese new year, Okay Fedex.
Okay.