ASE Technology Holding Co. Ltd. Q1 2023 Earnings Call
Speaker 1: soft environment and noted prognosticating outlooks can be incredibly difficult, especially when trying to spot the end of an inventory correction.
Speaker 1: Our business during the first quarter ran expectedly soft, given that we expected many customers were going to be drawing down product inventories.
Speaker 1: For the large part, our customers generally met their near-term plans. However, towards the end of the first quarter, when many customers reviewed their channel inventory relative to their expectations, they realized their inventory depletion was happening slower than anticipated.
Speaker 1: Apparently, end markets had not performed as they expected, whether it be poor lunar new year sell-through or a missing corporate IT refresh.
Speaker 1: sluggishness and excess inventory persisted.
Speaker 1: For our ATM factories, during the quarter, key equipment utilization rates were hovering slightly above 60%.
Speaker 1: And given these levels are near term record lows, our factories focused on how to lower ongoing expenses. Working hours and bonuses were trimmed, raw materials pricing was scrubbed with our vendors, projects were reviewed and re-prioritized.
Speaker 1: all in the name of costing down. However, the soft loading environment did allow us to continue automating factory lines, scaling up new product introductions, and completing R&D projects.
Speaker 1: Our EMS business entered into its seasonally soft period. The front half of the year generally acts as a preparation and build-up for the back half mass production builds.
Speaker 1: Our EMS business actually came in slightly better than our guidance last quarter, but as you will see, the overall macro environment did appear to have an impact, albeit somewhat smaller than the impact to our ATM business.
Speaker 1: With that, please turn to page 3 where you will find our first quarter consolidated results.
Speaker 1: For the first quarter, we recorded fully diluted EPS of $1.30 and basic EPS of $1.36.
Speaker 1: Consolidated net revenues declined 26% sequentially and 9% year-over-year.
Speaker 1: We had a gross profit of 19.3 billion with a gross margin of 14.8%. Our gross margin declined 4.4 percentage points sequentially and 4.9 percentage points year over year. The margin declines are principally the result of inventory digestion.
Speaker 1: in a weak macro environment.
Speaker 1: Our operating expenses declined $2.7 billion sequentially and $0.7 billion annually.
Speaker 1: The declines were primarily attributable to lower profit sharing expenses across the company.
Speaker 1: Our operating expense percentage increased 0.8 percentage points sequentially and 0.3 percentage points year-over-year to 8.9%. The operating expense percentage increases were primarily related to lower revenues during the quarter.
Speaker 1: Operating profit was 7.7 billion, down 12.1 billion sequentially, and 8.4 billion year over year. Operating margin was 5.9%, declining 5.2% sequentially, and 5.3% year over year.
Speaker 1: During the quarter, we had a net non-operating gain of $0.2 billion. This amount includes net interest expense of $1.1 billion.
Speaker 1: Tax expense for the quarter was $1.8 billion. The effective tax rate for the quarter was 22.6%.
Speaker 1: The rate variance during the quarter was largely due to incremental controlled foreign company tax expenses.
Speaker 1: We believe that our annual tax rate will be between 20.5 to 21 percent.
Speaker 1: Net income for the quarter was $5.8 billion, representing a decline of $9.9 billion sequentially.
Speaker 1: and 7.1 billion year over year. The NT dollar appreciated 3.05% against the US dollar during the first quarter. From a sequential perspective, we estimate the NT dollar appreciation had a 0.88% point negative impact.
Speaker 1: to the company's gross and operating margins.
Speaker 1: From a year-over-year perspective, we estimate that the depreciating NT dollar had a 2.63 percentage point positive impact to gross and operating margins.
Speaker 1: As a rule of thumb, for every percent the NT dollar appreciates, we see a corresponding 0.29% impact to our holding company gross margin.
Speaker 1: On the bottom of the page we provide key P&L line items without the inclusion of PPA related expenses.
Speaker 1: Consolidated gross profit excluding PPA expenses would be $20.3 billion with a 15.5% gross margin.
Speaker 1: Operating profit would be $8.9 billion with an operating margin of 6.8%.
Speaker 1: Net profit would be $7 billion with a net margin of 5.3%. Basic EPS excluding PPA expenses would be $1.63.
Speaker 1: On page four is a graphical presentation of our consolidated financial performance. You can see the impact of the current weak environment here.
Speaker 1: Unusually soft loading, even for a correction environment, are leading to lower revenues and a low utilization rate environment, impacting our ATM and EMS businesses.
Speaker 1: On page 5 is our ATM P&L.
Speaker 1: 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.
Speaker 1: For the first quarter 2023, revenues for our ATM business were $73.3 billion, down $21 billion from the previous quarter and $10.7 billion from the same period last year. This represents a 22% decline sequentially and a 13% decline year over year.
Speaker 1: This decline, though steep, was in line with our outlook.
Speaker 1: Gross profit for our ATM business was $14.7 billion, down $11.5 billion sequentially, and $8.4 billion year-over-year.
Speaker 1: 7 percentage points sequentially and 7.4 percentage points year over year. The overall margin declines are the results of lower loading due to customer inventory digestion in the weak macro environment.
Speaker 1: During the first quarter, operating expenses were $8.3 billion, down $2.1 billion sequentially, and $0.7 billion year-over-year. The declines in operating expenses were primarily driven by lower labor costs due to lower profit sharing and bonus accrual.
Speaker 1: despite having significantly lower absolute operating expenses.
Speaker 1: their declines did not keep up with the pace that revenues declined.
Speaker 1: Our operating expense percentage for the quarter was 11.4 percent.
Speaker 1: Up 0.4 percentage points sequentially and 0.6 percentage points year over year. During the first quarter operating profit was 6.4 billion representing a decline of 9.4 billion quarter over quarter and 7.6 billion year over year. Market margin was 8.7.
Speaker 1: 7% declining 8% sequentially and year over year. For foreign exchange we estimate that NT, the US dollar exchange rate had a 1.52% impact on our ATM sequential margins and a 4.55% impact on a year over year basis.
Speaker 1: Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 21.3% and operating profit margin would be 10.3%.
Speaker 1: On page six, you'll find a graphical representation of our ATM P&L.
Speaker 1: You'll note here the impact of a semi-fixed cost base with a low correction level loading.
Speaker 1: On page 7 is our ATM revenue by market segment. Even though the current software loading environment is fairly broad-based, we do see the communications market segment inventory digestion to be more pronounced than other market segments.
Speaker 1: On page 8, you will find our ATM revenue by service type. There isn't a significant change here, but the advanced packaging side of the business is somewhat more impacted.
Speaker 1: On page 9, you can see the first quarter results of our EMS business and a graphical representation of its market segment allocation.
Speaker 1: During the quarter, demand was impacted by an overall weaker SIP demand environment along with our typical seasonality.
Speaker 1: During the first quarter, EMS revenues were $57.7 billion, declining $26.2 billion.
Speaker 1: or 31 percent sequentially and 3.4 billion or 6 percent year-over-year.
Speaker 1: Our EMS business's gross margin declined 1.4 percentage points while our operating margin sequentially declined 2.4 percentage points. These sequential declines were primarily driven by seasonally soft loading and to a smaller extent a soft electronics demand environment.
Speaker 1: Our EMS first quarter operating profit was $1.3 billion, down $2.7 billion sequentially, and $0.9 billion annually.
Speaker 1: Given the overall quarter decline significantly as compared to last quarter, the percentage share information here may be somewhat biased.
Speaker 1: For our EMS market segment, our consumer and communication segments declined off of their seasonal peaks into their typical trough periods, while our computing segment was also impacted by inventory corrections.
Speaker 1: Our industrial and automotive segments were more resilient and flattish on an absolute dollar perspective.
Speaker 1: But, from a percentage of business perspective, their relative percentage share increased sharply.
Speaker 1: It is worth noting here that from a year-over-year perspective, our automotive segment grew close to 30% year-over-year. On page 10, you will find key line items from our balance sheet.
Speaker 1: At the end of the quarter we had cash, cash equivalents, and current financial assets of $68.4 billion.
Speaker 1: Our total interest-bearing debt was down $12 billion to $190.3 billion. Total unused credit lines amounted to $337.2 billion. Our EBITDA for the quarter was $23.8 billion.
Speaker 1: Net debt to equity was 42% at the end of the quarter. On page 11 you will find our equipment capital expenditures.
Speaker 1: Machinery and equipment capital expenditures for the first quarter and US dollars total 231 million of which 101 million
Speaker 1: We're used in packaging operations, 90 million in testing operations, 32 million in EMS operations, and 8 million in interconnect material operations and others.
Speaker 1: Given the overall slowdown within the industry, we are taking incremental action to push out more of our originally planned capital expenditures during the year. However, we will continue to spend on implementing incremental automation capabilities, including additional investments in our lights-out factories.
Speaker 1: Current EBITDA was $0.9 billion US dollars relative to our capital expenditures of $0.2 million.
Speaker 1: For our outlook, we will first address our EMS business. Our EMS business will continue its typically soft season during the first half of the year. However, based on continued relative strength within its automotive business paired with some order improvement in our consumer and computing segments.
Speaker 1: We're looking for a slight pickup in business during the second quarter relative to the first.
Speaker 1: Similarly, margins should move off our expected trough and improve roughly 50 basis points.
Speaker 1: From a longer perspective, we continue to expect a strong ramp during the third quarter, with a peak during the fourth quarter primarily driven by new product launches.
Speaker 1: Continuing our earlier comments about our ATM business, at the end of the first quarter, what became more apparent was that the expected improvement in the macroeconomic environment did not materialize.
Speaker 1: Instead, world governments continued aggressive policy trying to curb hyperinflation.
Speaker 1: Unintendedly, this even led to separate banking crises in the US and surprisingly in Switzerland.
Speaker 1: Meanwhile, more and more consumers and businesses around the world are grappling with spreading higher energy prices that initially stemmed from supply shocks related to the Russia-Ukraine war.
Speaker 1: rather than seeing an overall post COVID recovery.
Speaker 1: In return of electronic spending during and post the lunar new year, we along with our customers saw consumers instead catching up on spending on other items like services, globalism, service, technical and leisure.
Speaker 1: It should be noted that our customers' sell-through of their devices are generally not visible to us. And usually, inventory draw and replenishment are in sync.
Speaker 1: With this current inventory digestion period, customers are selling inventory without the action of replenishing inventory.
Speaker 1: which gives us even less visibility.
Speaker 1: With wafer banks fully loaded, we basically can only wait for our customers signal to restart production.
Speaker 1: And, given the lack of recovery, a broad set of customers have communicated to us that their restocking will most likely happen later than anticipated.
Speaker 1: What was originally scheduled to ramp during the May-June timeframe?
Speaker 1: now has been pushed back into the third quarter.
Speaker 1: On a somewhat more positive note, we do see some level of rush order sporadically happening across our ATM factories.
Speaker 1: We remain optimistic and expect that rush orders should continue to rise during the second quarter as various product restocking and new product launches.
Speaker 1: start to happen.
Speaker 1: However, with a large amount of orders being pushed out for the second quarter as a whole, we expect continued sluggishness and a suboptimal loading environment.
Speaker 1: As a result, we effectively see revenues much the same as the first quarter.
Speaker 1: From our cost perspective, we are actively pursuing various avenues to trim costs, including expanding our automation efforts.
Speaker 1: However, given the higher utility rates instituted by the Taiwan government, effective April 1, 2010, the economic literatureOTT understandably recently cleaned the Coast of Mexico CPUs
Speaker 1: increasing electricity rates by 17 percent and the higher summer rates in the back half of the second quarter.
Speaker 1: our utility costs will rise sequentially. We currently see the rate increase and the start of the summer rate season is expected to have a 0.5 percentage point negative impact to our gross margin when compared to the first quarter.
Speaker 1: However, we are hopeful that a number of cost savings efforts will bear fruit during the quarter and we will be able to offset most, if not all, of the impact of the utility rate increases.
Speaker 1: Such offset is not guaranteed, but we are targeting to keep our gross margin at a similar level with the first quarter.
Speaker 1: And if we step back and look at the bigger picture at this point Despite all the distracting noise related to this correction
Speaker 1: We believe we are in the process of proving that we have a fundamentally improved business.
Speaker 1: We've already seen higher margins through the cycle peak. Now we are seeing structurally higher trough margins going through the cycle bottom.
Speaker 1: We are seeing pricing resiliency and the minimization of irrational competition.
Speaker 1: We also see our scale of manufacturing continue to give us competitive advantages in the form of lower manufacturing costs.
Speaker 1: thereby maintaining customer resilience.
Speaker 1: We basically see an industry possessing a wider moat with ASE outpacing its competition.
Speaker 1: We would like to summarize our outlook for the second quarter as follows.
Speaker 1: for ATM business and NT dollar terms.
Speaker 1: Our ATM second quarter 2023 revenues and gross margin should be similar with the revenues and gross margin of the first quarter 2023.
Speaker 1: For our EMS business in NT dollar terms, our EMS second quarter 2023 revenues should increase mid single digit percentage wise.
Speaker 1: quarter over quarter. Our EMS second quarter 2023 operating margin should improve by 0.5 percentage points versus the first quarter 2023.
Speaker 1: This concludes our prepared remarks. I'd like to open up the floor for Q&A.
Speaker 2: If you have any questions, please raise your hand.
Speaker 2: If you have any questions, please raise your hand. When you ask questions, please raise your hand.
Speaker 2: Please limit two questions at a time. Thank you.
Speaker 2: Our first question is from Mr. Randy Abrams of Credit Suisse.
Speaker 3: Okay, yes, thank you. I want to test the first question. If you could talk a little more about the outlook. First, for rush orders, if you could talk about the areas you're seeing rush orders, and then for the area of resilience, if you could go through the view automotive, if you see auto.
Speaker 3: quarter and what do you what do you do as a reasonable normal for a third quarter? So just curious about as well. Thank you.
Speaker 4: I think in terms of rush orders, I think we've been seeing sporadic rush orders in different areas, although more seems to be in the consumer sector.
Speaker 4: I think we believe that we'll continue to see some raw shoulders coming in in the second quarter as well. But in terms of its volume and magnitude, I think it's difficult to predict at this point.
Speaker 4: Overall, I think the overall market softness seems to be persisting into second quarter. Going into third, I think we would definitely see a
Speaker 4: a rebound because of the new products being launched. And some of the customers, as Ken pointed out, the restocking for new products launches will be starting in the third quarter.
Speaker 4: So we will be seeing an uptick in third quarter, although for the whole year.
Speaker 4: I think the overall situation is softer than what we've been expecting. I think in the beginning of the first quarter,
Speaker 4: we were projecting that, or kind of estimating that for the whole year, we could be seeing a flat year to a high single digit decline in terms of our overall ATM revenue. But now we are of the view that the full year.
Speaker 4: It should look like a high-single to low-teen kind of a decline for the whole year.
Speaker 4: And in terms of the automotive, I think we have made very good progress in terms of expanding that part of the business, both from an ATM as well as an EMS perspective. I think that movement is...
Speaker 4: is still going on. I think, compared to the other sectors, automotive continues to be more resilient than the others.
Speaker 4: We are still expecting double digit growth for this year and will continue to try to penetrate this market further through automation of our factory and also
Speaker 3: expanding our product line or service offerings. OK. And second question, just on the cost structure, actually good progress to bring it down, the OPEX, especially ATM. Sounds like most of it was the bonus accrual. From this level, though, because you mentioned the ongoing costs.
Speaker 3: How should we see the OPEX trending? Is there anything you've taken out beyond the bonus expense that brings us to the end? I think we're actually...
Speaker 4: facing a
Speaker 4: quite a challenging environment from the cost aspect. We're looking at higher material costs that's continued to roll forward, and we're seeing higher utility costs.
Speaker 4: We're seeing higher net interest expenses because of the rate hike.
Speaker 4: So, you know, it's quite challenging, but we have been implementing quite a bit of cost.
Speaker 4: reduction programs throughout the factories. And we are kind of confident that we can maintain Bieber's Bob sellasty for the five inch
Speaker 4: for ATMS plus EMS.
Speaker 4: businesses. Our target is to maintain the OPEX ratio at the same level as last year.
Our next question is from Mr. Goku Hariharan of JP Morgan.
All right, thanks for taking my questions. First of all, could you talk a little bit more on where are the areas you're seeing and previously we were looking for double digit growth in Q2. So mainly in communication that you're seeing the lower the next.
And what should we be expecting for CAPEX this year? Looks like CAPEX already come down a fair bunch in Q1, but maybe it's about looking at CAPEX this year.
I think it's fair to say that we were banking on a better situation with the communication sector, particularly when we're seeing most of the Taiwanese customers started the inventory digestion earlier.
And, but I think the overall.
macwell.
economic situation did not improve, and the end demand seems to be still remain to be soft. So we're seeing the softness persisting into second quarter, and hopefully this will start to turn around in the third quarter.
So I think at this point we still think the pricing is resilient, particularly for, in our case, being the
preferred vendor of our customers. I think we are more resilient in protecting our pricing. We will continue to pursue or seek for a suitable pricing structure to meet both our customers as well as ourselves.
meeting our goals and try to protect our marginal return better.
Got it. And could you also talk a little bit about the CapEx outlook for the year? And also, there were certain customers and putting capacity that you had some loading guarantees and loading arrangements, agreements.
How have those progressed given that the overall utilization, like Ken mentioned, is closer to the 60% mark? Are customers still kind of retaining those or you already renegotiated most of those? If they are renegotiated, how do the terms look like today that may be a year back?
I think the LTA has served its purposes. It's been run down.
expiring period. As I mentioned, we will continue to seek for us.
suitable pricing structure to serve both our customers as well as our own needs.
In terms of capex, I think in the first quarter, we already mentioned that a whole year of capex for the year will be a few hundred million dollars lower than previous year. But at this point, given the softness persisting.
We are lowering that CAPEX budget by another couple of hundred millions for the year.
And also the combination of the capex will be a bit different from we previously anticipated. I think right now in terms of assembly, it will be about 53% of the overall. And tests.
Last year we have about 34% of our CAPEX being spent on tests. The ratio will be reduced to about 25% for this year. In terms of material, we're maintaining that 3 to 4%. For EMS, actually we are expanding...
the capex because of the new projects that we are taking on particularly in the automotive sector. So the EMS capex will represent roughly 15 to 16 percent of overall.
We have a question from Mr. Rick Hsu of Daiwa Securities.
Yeah, hi, Joseph.
Can you hear me? Yeah, you're kind of breaking off. So yeah, I can hear you now. OK, sorry for that technical issue here. So hi, Joe. Just want to double check on the housekeeping questions about your utilization rate, 60% roughly. That's for the Q1 across the board of your packaging testing, right?
Pretty much it's across the board and I think the same level of utilization will persist into a second quarter. And going into the second half of the year, I think it will substantially improve.
And we're expecting at some point the utilization rate should reach around 80% in the back half of the year.
Okay, great. Thank you. That's pretty helpful. And the second question is about your profitability, especially your growth margin. Would that still be a...
above the COVID-19 level, when you guys move into second half, when all the operations improve and the utilization rates go to the optimal level, is that...
is still effective? I think our target is still try to maintain our gross profit margin to the new structural margin range of mid 20 to 30%. I think we still have a shot in maintaining that. But if the overall revenue decline is still going up, we still have a shot at maintaining that.
I think we could look at another 1 to 2% drop.
from our original target. Okay, fair enough. All right, that's all I have. Thank you so much again. No problem.
We have a question from Laura Chen of Citigroup.
Next question is from Brett Lin of BOA.
Hello, hi, thank you for taking my question. I have two questions. One is on the testing part. So the mix of our CAPS on the testing lowered to around 25%. I remember last time we talked about that we would like.
this testing business to be one of our key drivers going forward. So, well, would you please discuss what were the barriers there and what changed the mind for our testing business target? And then that's my first question. Thank you. Yeah, I think our
Our drive into test buses is continuing, although there will be periodic modifications or revisions in our capex plan based on the current capacity as well as the incoming demand.
for our services. So there will be periodic adjustments in terms of capex.
But the overall goal remains the same. We'll continue to build that part of the business. And we still believe that the potential of test business is greater than assembly. And our target remains that we want to bring our test business to a level that is more
to its historical peak of about 18% of overall ATM business. Got it. Thank you very much for the clarification. And my second question will be on the ABF substrate. So last time, as we mentioned that the ABF supply improve.
And we are not seeing further AVF constraint at this point. And if we look at the second half, I think AVF should not continue to be a...
constraint for us now.
Our next question is from Laura Chen of CIDU Group.
Thank you. Hello. Hi. Can you hear me? Yes. Thank you. Thank you, gentlemen. And good afternoon. My license just dropped previously. I got a question on the
earlier like automotive older seems to be slowing down into second half and also the idea and some their inventory level and also lead time seems also kind of slower right now. I'm just wondering your view on the automotive business so far seems to be resilient at the moment.
But do you see any potential softness into second half?
For last year, I think the overall automotive revenue for us is over $1.6 billion.
which is split between ATM and EMS.
ATM is close to a billion, EMS is over close to...
somewhere close to $700 million. And we're expecting this part of the business to have relatively resilient growth for the year. And we're still looking at double digit growth.
for both EMS and ATM.
In terms of the overall automotive...
I think there is a lot of noises, you know, so far from our own forecast or from the business outlook that we are seeing from our end. I think it's still...
still looks very resilient. And I think part of the reason is that we are
Aside from the organic growth, we are also...
Aside from the organic growth, we are also gaining shares.
in this part of the business. So there may or may not be some softness going into the second half of the year, but as far as our own business, I think the combination of organic, as well as share gaining, I think the...
That's really the layoff the prospect for us in terms of our automotive business. Okay, thank you. And my second question is also about the ATM business. We know that given the weakness, we probably will slow down the Perpex expansion space. But on the other hand, we are seeing like a high computing PC or AI.
to pursue your own solution. So can you elaborate more on your strategy and your business plan on this space?
I think the AI chips definitely presents a good potential for us. Although this is still at a very early stage, it's kind of difficult to quantify the impact. But as a whole, I think it does create a good business opportunity for us.
believe that creates a good opportunity for us going forward. In terms of the ultra-advanced type of packaging, I think for any type of new product technology, I think because of the characteristics of it.
Most of these new packaging is more of a waiver process. So we believe in the earlier stage.
It should be the foundries that are taking the lead in developing this technology. Whereas when we come in, we need to wait until these applications become available.
as a wider adoption and with the volume becomes a real volume production type of business, then there will be a natural division of works between us and the foundries. So I think it's a
It's a good opportunity and we do have a...
We do have a natural migration of technology from Fondri to OSAP players including us. In this environment, I think being the largest and most technologically advanced player in the world,
OSAP player in the field. I think we will gain the most potential from this business.
Our next question is from Sunny Lin of UBS.
Hello, could you hear me? Yes. Thank you very much. Thank you. Thank you for taking my questions. My first question is on second half just want to better understand the trajectory of your recovery. So I think Joseph earlier you mentioned for your IC ATM utilization rate.
need to get back to 80% or higher in late this year. And so I understand it's still a bit early, but based on your current communication with the customers, would you expect a similar recovery pace for Q3 and Q4, or do you think potentially it will be very back and loaded mini Q4, the recovery will be a lot more significant?
I think it should be third quarter being the highest sequential growth rate and then going to fourth quarter we're still expecting growth on a quarterly basis but to a lesser magnitude.
But all in all, I think I already mentioned that from a whole year perspective.
I think the softness, because of these softer than expected second quarter, I think for the whole year, we are, we're now taking a more conservative view from originally expecting a flat-tool reaction.
high single digit decline ATM revenue to a high single digit to admit teens kind of a decline for the whole year.
ATM revenue to a high single digit to admit teens kind of a decline for the whole year.
Got it, got it. Thank you. That's very helpful. So just to follow up, for second half, any particular areas that you see better strengths? I'm sorry? So for second half recovery, any particular applications that you see better strengths?
I think it should be a broad-based recovery. I think a lot of the new products in all segments should be brought out and I think the customer will resume to a restocking type of mode.
to meet this new product launches.
Next question is from Sihong of China Renaissance.
Oh, hello, Joseph. Two questions from my side. The first one, within the ATM business, what are the major applications that are driving the automotive momentum?
Driving the automotive? Yeah business within the ATM portfolio.
The IBM MCU sensors.
infotainment processors, telematics.
dithematics.
There's a pretty wide application and for EMS I think it's
A large chunk of it, a better chunk of it is for power module and power management type of products.
A large chunk of it, a better chunk of it is for power module and power management type of products and also telematics and infotainment.
I see. So basically it's on the wire-borne applications, right, for those products. Huh? Yeah. What? Mostly on wire-borne, right, for those products. Right, right, at this point. Although it is migrating into Flipship as well.
I see. All right. Yeah. Second question on the financial side, on the gearing ratio right now, the company has been driving down the gearing ratio to a quite healthy level. So is this something that we are comfortable or do we want to bring it down further? We are comfortable.
Given the circumstance, I think we will.
We will try our best to continue to bring down our interest-bearing debt level so that we can have some savings.
has to continue to bring down our interest bearing debt level so that we can have some savings on interest.
Our next question is from Bruce Lu of Goldman Sachs. Hello. Thank you for taking my question. Can you hear me? Yes. Okay. Okay, so I want to follow up a lot of questions, but I want to start with the first one.
to focus on their own base CPU where you have higher market share. Do we see some kind of dollar content increase for you to do this kind of business, whether you get like you know better packaging AST, a longer testing time, or even have a level testing opportunity.
Like I said, it's in the early stage. We don't really have a number in our mind, except it's more complicated and it's more technologically advanced. So I think the uh...
the overall value content should be higher than the other chips involved. And also I think not just on these most advanced chips, but also to...
There will be also peripheral shifts coming out using mature packaging and that is also another potential for us. Do you see an emerging SLT business? Is that an ROE accredited business for ASE?
S-O-T?
Is the session level testing?
I need to get back to you on this. I'm not that familiar with it. Okay. Then I want to switch here to another question for the, do you consider
to do some kind of like capacity expansion in United States even there is like you know terror and stake approach from the government.
Well, we're not ruling out anything. I think we're evaluating different options. Try to find a suitable option for us, not just in the US but also in the other part of the world. As you know, we do have worldwide footprints.
Uh,
and we are expanding in Singapore, Malaysia.
and in Korea as well in terms of ATM. And we are expanding from EMS perspective, expanding in Vietnam, Poland, even some other areas.
So we'll continue to monitor the situation and try to find a suitable option for us to meet our customer's request and also to move to media overall.
kind of environment, geopolitical environment type of...
requirements.
If you have any questions, please raise your hand.
Our next question is from Charlie Chan.
The next question is from Charlie Chen, Morgan Stanley .
Hello Joseph and Ken and also Iris. Good afternoon. So first of all just a sample of to the previous questions. In terms of the advanced packaging, would the company consider to do some kind of waiver process?
For example, in the browser, can I ask you a follow-up question?
in the poster. Can I ask you a follow-up question?
Yeah, I think there will be some kind of alliances with the wafer producers and we already have the wafer process here. Okay, but it's still in early stage as you just mentioned.
of this year it would be 80% or at the beginning of second half you can see. Yeah because I just you know based on the utilization calculation right from 60% to 80% is like a 30% sequential growth. Can you clarify?
Yeah, I think what we're saying is that at some point we will reach 80%. I think that's up.
based on the focus that we're looking at. But it's too early to say when exactly that will happen and how long it will last.
So, you know, I think we still need to monitor the situation a bit more. Okay, yeah, thanks for the clarification. Lastly, pricing and also your structural margin improvement.
So this question could be a little bit more complex. So in terms of pricing, I understand that lower prices don't really drive the end demand, but your customers are quite suffering, meaning they're cutting price with their competitors.
their margin get squeezed. And also our understanding is that some of you are Chinese competitors. They are indeed cutting price for some mature, for example, well-bound business, right? So how do you address all those kind of pressures from no-medicat customers and also your competitors?
I'm trying to look at the find the right word. I think because of the supply of fabrication, I think the price competition from the Chinese, that is lessened.
So we're actually not feeling that much of a pressure from the Chinese competitors at this point. But in terms of a customer, I think the value at...
in terms of the backend services, much smaller than the front end. So I think most of the depressing pressures should be more on the fab level than us.
And given our scale and technology leadership and also the high degree of customer reliance on us, I think we're still, comparing to our competitors, we are,
We have a better pricing leverage, so we're saying the pricing seems to be still resilient.
Okay. In that case, we still need to find the suitable pricing strategy to serve our customers' needs and also to maintain the strategic relationship we have with our customers.
Sure, yeah, thanks. Thanks for that. And last one, attached to your comments about your pricing strategy. I'm wondering when you talk about or can talk about higher trough margin versus previous cycle, do you refer to the
ATM business only or ATM and EMS? And also, do you think that is the industry-wide, the top margin would be higher or is just more about ASC?
Compared to our competitors, I think from an ATS perspective.
we are in a much stronger position than our competitors. And because of the
Because of our scale, because of the higher degree of customer reliance on us, I think also the synergistic cost savings that we have after the spill combination, I think it does raise our overall margin prospects for us.
That's why we're saying that our structural margin range has improved from historically about 20 to 25 percent. Now we're moving that range from mid-20s to 30 percent. But even with this trial—
cycle, we're still maintaining that margin range for the whole year. Although there's more uncertainties in the overall environment, it's not
The overall environment is more challenging. As I had mentioned, we're facing higher utility costs. We're facing higher financial costs.
The overall environment is more challenging. As I had mentioned, we're facing higher utility costs. We're facing higher financial costs and so on and so forth.
So the challenge is higher, but given the position, we still believe that we do have the buffer to
So the challenge is higher, but given the position, we still believe that we do have the buffer to try to maintain that.
structurally improve the margin. If you have any questions, please raise your hand.
It seems like there's no more questions.
Okay, so thank you very much for attending this conference call. And, you know, I think the whole year is remains to be challenging, but we are we believe we will continue to be the leader of the industry and we will be the last to
Last to fall and first to rise. We will make up in it and.
weathering through this down cycle nicely, and we'll continue to make the necessary investments to meet the future demand going forward. Thank you very much.