Q3 2024 ASE Technology Holding Co Ltd Earnings Call

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Kenneth Hsiang: Hello, I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our third quarter 2024 earnings release. Thank you for attending our second consecutive Typhoon Holiday earnings. Please refer to our Safe Harbor Notice on page two. All participants consent to having their voices and questions broadcast via participation in this event. If participants do not consent, please disconnect at this time. I would like to remind everyone that the presentation that follows may contain forward looking statements. These forward looking statements are subject to a high degree of risk and our actual results may differ materially.

Okay.

Speaker Change: Hello, I am Ken Hsiang head of Investor Relations for ASE technology, holding <unk> welcome to our third quarter 2024 earnings release. Thank you for attending our second consecutive Typhoon holiday earnings release.

Speaker Change: Please refer to our safe Harbor notice on page two all participants consent to having their voices and questions broadcast via participation in this event.

Speaker Change: If participants do not consent. Please disconnect at this time I would like to remind everyone that the presentation that follows may contain forward looking statements. These forward looking statements are subject to a high degree of risk and our actual results may differ materially for.

Kenneth Hsiang: For the purposes of this presentation, dollar figures are generally stated in New Taiwan Dollars unless otherwise indicated. As a Taiwan-based company, our financial information is presented in accordance with Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiary using Chinese GAAP.

Speaker Change: For the purposes of this presentation dollar figures are generally stated in new Taiwan dollars unless otherwise indicated at a Taiwan based company our financial information as presented in accordance with Taiwan Ifr US results presented using Taiwan Ifr us may differ materially from results using other occur.

Speaker Change: Mounting standards, including those presented by our subsidiary using Chinese gap.

Kenneth Hsiang: I'm joined today by Joseph Tung, our CFO. For today's presentation, I will be going over the financial results and company outlook. Joseph will then be available to take your questions during the Q&A session that follows. We are altering our Q&A format slightly. During the Q&A session, I will be moderating, receiving and clarifying each question, and repeating your questions to Joseph. With that, let's get started. The third quarter ATM seasonality came in slightly better than originally anticipated. The pickups were mostly driven by strength and leading edge advanced packaging and the seasonal ramps of some communications devices.

Speaker Change: I'm joined today by Joseph Tung, our CFO for today's presentation I won't be going over the financial results and company outlook. Joseph will then be available to take your questions. During the Q&A session that follows we are altering our Q&A format slightly during the Q&A session I will be moderating receiving <unk>.

Speaker Change: Clarifying each question and repeating your questions to Joseph.

Joseph Tung: With that let's get started the third quarter a T M seasonality came in slightly better than originally anticipated. The pickups were mostly driven by strength in leading edge advanced packaging and the seasonal ramps of some communications devices.

Kenneth Hsiang: Our overall equipment utilization was between 65 to 70%. For our EMS business in the third quarter, demand for our services was also slightly ahead of our initial expectations. However, the higher demand was most likely attributable to an earlier seasonality.

Joseph Tung: Our overall equipment utilization was between 65% to 70% for our EMS business in the third quarter demand for our services was also slightly ahead of our initial expectations. However, the higher demand was most likely attributable to an earlier seasonality.

Kenneth Hsiang: please turn to page three, where you will find our third quarter consolidated results. For the third quarter, we recorded fully diluted EPS of $2.17 and basic EPS of $2.24. Consolidated net revenues increased 14% sequentially, and 4% year-over-year. We had a gross profit of $26.4 billion, with a gross margin of 16.5%. Our gross margin improved by 0.1 percentage points sequentially, and 0.3 percentage points year-over-year. The sequential improvement in margin is principally due to improved operating leverage offset by higher EMS product mix. Our operating expenses increased by $0.9 billion sequentially and by $1.4 billion annually. The sequential increase in operating expenses are primarily due to higher labor, bonus-related expenses, and other administrative expenses.

Speaker Change: Please turn to page three where you will find our third quarter consolidated results for the third quarter, we recorded fully diluted EPS of $2 17, fads and basic EPS of $2.24 consolidated net revenues increased 14% sequentially and 4% year over year.

Speaker Change: We had a gross profit of $26 $4 billion with a gross margin of 16, 5%. Our gross margin improved by 0.1 percentage point sequentially and 0.3 percentage points year over year. The sequential improvement in margin is principally due to improved operating leverage.

Speaker Change: Offset by higher EMS product mix, our operating expenses increased by zero point $9 billion sequentially and by $1.4 billion annually. The sequential increase in operating expenses are primarily due to higher labor bonus related expenses and other administrative expense.

Kenneth Hsiang: The year over year increase in operating expenses is primarily attributable to continued R&D staff up and other labor related costs. Our operating expense percentage came down by 0.7 percentage points to 9.3% sequentially, and increased by 0.5 percentage points year over year. The sequential decline in operating expenses is attributable to higher operating leverage due to higher loading levels. The annual increase was also related to higher R&D staff up for both ATM and EMS, overseas expansion, and higher incentive stock options and bonus expenses. Operating profit was $11.5 billion, up $2.5 billion sequentially, and $0.1 billion year-over-year. Operating margin increased 0.8 percentage points sequentially and declined 0.2 percentage points year-over-year.

Speaker Change: The year over year increase in operating expenses is primarily attributable to continued R&D staff up and other labor related costs.

Speaker Change: Our operating expense percentage came down by 0.7 percentage points to nine 3% sequentially and increased by 0.5 percentage points year over year. The sequential decline in operating expenses is attributable to higher operating leverage due to higher loading levels.

Speaker Change: The annual increase was also related to higher R&D staff up for both ATM and EMS overseas expansion and higher incentive stock options and bonus expenses operating profit was $11 5 billion up 2.5 billion sequentially and 0.1 billion.

Speaker Change: Year over year.

Speaker Change: Operating margin increased 0.8 percentage points sequentially and declined <unk> two percentage points year over year during the quarter, we had a net nonoperating gain of <unk> 8 billion.

Kenneth Hsiang: During the quarter, we had a net non-operating gain of $0.8 billion. Our non-operating gain for the quarter primarily consists of net foreign exchange hedging activities, profits from associates, and other non-operating income offset in part by net interest expense of $1.3 billion. Tax expense for the quarter was $2.1 billion. Our effective tax rate for the quarter was 16%. The effective tax rate during the quarter was lower primarily because of tax impacts of foreign currency fluctuation. We continue to expect an ongoing annual effective tax rate of approximately 20.5%. The income for the quarter was $9.7 billion, representing an increase of $1.9 billion sequentially and $0.9 billion year-over-year.

Art nonoperating gain for the quarter, primarily consists of net foreign exchange hedging activities profit from associates in other nonoperating income offset in part by net interest expense of $1.3 billion.

Speaker Change: Tax expense for the quarter was $2 $1 billion, our effective tax rate for the quarter was 16% effective tax rate during the quarter was lower primarily because of tax impacts of foreign currency fluctuations.

Speaker Change: We continue to expect an ongoing annual effective tax rate of approximately 25%.

Speaker Change: Net income for the quarter was $9 7 billion, representing an increase of 1.9 billion sequentially and 0.9 billion year over year. The NT dollar was relatively steady during the third quarter depreciating.

Kenneth Hsiang: The NT dollar was relatively steady during the third quarter. depreciating 0.3% against the US dollar sequentially, while depreciating 2.7% annually. From a sequential perspective, we estimate the NT dollar depreciation had less than a 0.1 percentage point positive impact to the company's growth and operating margin. While from an annual perspective, we estimate the NT dollar depreciation had a 0.7 percentage point positive impact to the company's gross and operating margin.

Speaker Change: Depreciating, 0.3% against the U S dollar sequentially, while depreciating, 2.7% annually from a sequential perspective, we estimate the NT dollar depreciation had less than a 0.1 percentage point positive impact to the company's gross and operating margin.

Speaker Change: While from an annual perspective, we estimate the NT dollar depreciation had a 0.7 percentage point positive impact to the company's gross and operating margins.

Kenneth Hsiang: On the bottom of the page, we provide key P&L line items without the inclusion of PPA related Consolidated gross profit excluding PPA expenses would be $27.4 billion with 17.1% gross margin. Operating profit would be $12.7 billion with an operating margin of 7.9%. Net profit would be $10.8 billion with a net margin of 6.8%. Basic EPS excluding PPA expenses would be $2.51.

Speaker Change: 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 $27 4 billion with 17.1% gross margin operating profit would be 12.7 billion with an operating margin of seven 9%.

Speaker Change: Net profit would be 10.8 billion with a net margin of 6.8% basic EPS, excluding PPA expenses would be $2.51.

Kenneth Hsiang: On page 4 is a graphical presentation of our consolidated financial performance. Since the start of 2023, we will see here a troughish but gradually improving environment for both our ATM and EMS business. On a year-over-year basis, gross margins have been gradually improving. On the operating margin front, as was stated earlier, operating expenses are increasing for expected ramps and leading-edge advanced packaging products, and to a lesser extent, offshore site expansion costs from our EMS business.

Speaker Change: On page four is a graphical presentation of our consolidated financial performance since the start of 2023 lets see here a trough ish, but gradually improving environment for both our ATM and P. M match businesses on a year over year basis gross margins have been gradually improving.

Speaker Change: On the operating margin front as was stated earlier operating expenses are increasing for expected ramps in leading edge advanced packaging products and to a lesser extent offshore site expansion costs from our EMS businesses.

Kenneth Hsiang: On page 5 is our ATM P&L. The ATM revenue reported here contains revenues eliminated at the holding company level related to intercompany transactions between our ATM and EMS business. For the third quarter of 2024, revenues for our ATM business were $85.8 billion, up $8 billion from the previous quarter, and up $2.1 billion from the same period last This represents a 10% increase sequentially and a 3% increase annually. gross profit for our ACM business was $19.8 billion, up $2.6 billion sequentially, and up $1.2 billion year over year. Gross profit margin for our ATM business was 23.1% up one percentage point sequentially, and up 0.9 percentage points year over year.

Speaker Change: On page five is our ATM P&L. The ATM revenue reported here contains revenues eliminated at the holding company level related to intercompany transactions between our ATM any EMS businesses.

For the third quarter of 2024 revenues for our ATM business were $85 8 billion up 8 billion from the previous quarter and up $2 1 billion from the same period last year.

Speaker Change: This represents a 10% increase sequentially and a 3% increase annually gross profit for our ATM business was $19 8 billion up $2 6 billion sequentially and up 1.2 billion year over year gross profit margin for our ATM business.

Speaker Change: <unk> was 23.1% up one percentage point sequentially and up 0.9 percentage points year over year.

Kenneth Hsiang: The sequential margin improvement was primarily related to higher equipment utilization, offset in part by higher raw material product mix and higher utility costs. We expect the higher raw material product mix environment to extend into the fourth quarter. The annual margin improvement is primarily the result of favorable foreign exchange and product mix. During the third quarter, operating expenses were $10.6 billion, up $0.6 billion sequentially, and $0.8 billion year-over-year. The sequential increase in operating expenses was primarily driven by higher labor related expenses. much of which is related to the staffing for leading edge advanced packaging service. The annual operating expense increase was driven primarily by the continued scale-up of R&D labor and other labor-related expenses.

Speaker Change: The sequential margin improvement was primarily related to higher equipment utilization offset in part by higher raw material and product mix and higher utility costs, we expect the higher raw material product fix environment to extend into the fourth quarter the annual.

Speaker Change: Margin improvement is primarily the result of favorable foreign exchange and product mix during.

Speaker Change: During the third quarter operating expenses were $10 6 billion at 0.6 billion sequentially and 0.8 billion year over year. The sequential increase in operating expenses was primarily driven by higher labor related expenses.

Speaker Change: Much of which is related to the staffing for our leading edge advanced packaging services. The annual operating expense increase was driven primarily by the continued scale up of R&D labor and other labor related expenses.

Kenneth Hsiang: Our operating expense percentage for the quarter was 12.3%, declining 0.5 percentage points sequentially, but up 0.6 percentage points annually. Sequentially, our lower operating expense percentage was driven by higher loading and thus higher operating leverage, while the annual increase was primarily due to labor ramp ups preparing for higher leading edge advanced packaging revenue. During the third quarter, operating profit was $9.2 billion, representing an increase of $2 billion quarter over quarter and $0.4 billion year over year. Operating margin was 10.8%, increasing 1.5 percentage points sequentially and 0.3 percentage points year over year. For foreign exchange, we estimate the NT to US dollar exchange rate had a positive 0.1 percentage point impact on our ATM sequential margins and a positive 1.3 percentage point impact on a year over year basis.

Speaker Change: Our operating expense percentage for the quarter was 12.3% declining 0.5 percentage points sequentially, but up <unk> six percentage points annually sequentially, our lower operating expense percentage was driven by higher loading and thus higher operating leverage while the annual IND.

Speaker Change: Increase was primarily due to labor ramp ups preparing for higher leading edge advanced packaging revenues during.

Speaker Change: During the third quarter operating profit was 9.2 billion, representing an increase of $2 billion quarter over quarter, and 0.4 billion year over year operating margin was 10.8%, increasing one five percentage points sequentially and 0.3 percentage points year over year.

Speaker Change: For foreign exchange, we estimate the NT to U S. Dollar exchange rate had a positive 0.1 percentage point impact on our a T M sequential margins and a positive 1.3 percentage point impact on a year over year basis without the impact of PPA re.

Kenneth Hsiang: Without the impact of PPA related depreciation and amortization, ATM gross profit margin would be 24.1% and operating profit margin would be 12.1%.

Speaker Change: Related depreciation and amortization ATM gross profit margin would be 24, 1%.

Speaker Change: And operating profit margin would be 12.1%.

Kenneth Hsiang: On page 6, you'll find a graphical representation of our ATM P&L. As you can see here, we've generally seen a very gradual recovery when looking at revenues and margins from a year-over-year basis.

Speaker Change: On page six you'll find a graphical reference intention of our ATM P&L as you can see here. We've generally seen two very gradual recovery when looking at revenues and margins from a year over year basis.

Kenneth Hsiang: On page seven is our ATM revenue by the 3C market set You can see here a slight blip in regards to communications product seasonality. Otherwise, not much has changed during the current quarter. Our leading edge advanced packaging services are in both our computing and communications sector.

Speaker Change: On page seven is our ATM revenue by three C market segments.

You can see here a slight blip in regards to communications product seasonality otherwise not much has changed during the current quarter, our leading edge advanced packaging services are in both our computing and communications segments.

Kenneth Hsiang: On page 8, you'll find our ATM revenue by service. Here, you can see that our business, at least during the softer environment... is shifting towards more advanced. The gray color represents both our advanced and leading edge advanced services. We believe our strategy is involved with growing our test are paying off. As a percentage of ATM business, our test business is just under 16.5% total. And though it may not be immediately visible here, our test business is actually significantly outgrowing our assembly business this year. Current year-to-date growth is 6% relative to 1% for our assembly business.

Speaker Change: On page eight you'll find our ATM revenue by service type here, you can see that our business at least during the softer environment.

Speaker Change: Shifting towards more advanced services.

Speaker Change: Great color represents both our advanced and leading edge advanced services, we believe our strategy that involved with growing our test business are paying off as a percentage of ATM business or test business is just under 16.5% total.

Speaker Change: And though it may not be immediately visible here our test misses is actually significantly outgrowing our assembly business. This year current year to date growth is 6% relative to 1% for assembly business.

Kenneth Hsiang: We see growth momentum for our test business. Further, given that test follows assembly from a process flow perspective, we expect a more pronounced pickup for our test business during the fourth quarter.

Speaker Change: We see growth momentum for our test business further given that tough follows assembly from a process flow perspective, we expect a more pronounced pick up for our test business during the fourth quarter.

Kenneth Hsiang: On page 9, you can see the third quarter results for our EMS business. During the quarter, EMS revenues were $75.4 billion, improving $12.5 billion, or 20% sequentially, and improving $4.4 billion, or 6% year over year. The sequential and annual revenue improvements are primarily attributable to our customers' timing of this year's product manufacturing start. It's important to note here that this year's seasonality has moved earlier as compared to last year. Sequentially, our EMS business's gross margin declined 0.6 percentage points to 9%. This change was principally the result of product mix. Operating expenses within our EMS business was $4.3 billion, increasing $0.2 billion sequentially, and $0.6 billion annually.

Speaker Change: On page nine you can see the third quarter results for our EMS business during the quarter EMS revenues were $75 4 billion, improving 12.5 billion or 20% sequentially, and improving 4.4 billion or 6% year over year.

Speaker Change: The sequential and annual revenue improvements are primarily attributable to our customers' timing of this year's product manufacturing start is important to note here that this year's seasonality has moved earlier as compared to last year sequentially. Our EMS businesses gross margin declines Euro 0.6 person.

Speaker Change: Manage points to 9%. This change was principally the result of product mix.

Speaker Change: Operating expenses within our EMS business was $4 $3 billion, increasing 0.2 billion sequentially and 0.6 billion annually. The inclusion of our newly acquired subsidiary accounted for the majority of the annual increase.

Kenneth Hsiang: The inclusion of our newly acquired subsidiary accounted for the majority of the annual increase. Our third quarter operating expense percentage was 5.7%. down 0.8 percentage points sequentially and up 0.5 percentage points annually. The higher annual operating expense percentage was primarily related to overseas expansion expenses and integration expenses related to a newly consolidated subsidiary. Operating margin for the third quarter was 3.3%, improving 0.2 percentage points sequentially and declining 0.6 percentage points year over year, primarily due to higher operating leverage from the current quarter seasonality. On an annual basis, operating margin decline was due to higher overseas expansion costs, including the addition of a newly acquired subsidiary.

Speaker Change: Our third quarter operating expense percentage was 5.7 per side.

Speaker Change: Down 0.8 percentage point sequentially and up 0.5 percentage points annually.

Speaker Change: Higher annual operating expense percentage was primarily related to overseas expansion expenses and integration expenses related to a newly consolidated subsidiary.

Speaker Change: Operating margin for the third quarter was 3.3% improving 0.2 percentage points sequentially and declining 0.6 percentage points year over year, primarily due to higher operating leverage from the current quarter seasonality.

Speaker Change: On an annual basis operating margin decline was due to higher overseas expansion costs, including the addition of a newly acquired subsidiary R. M. S. Third quarter operating profit was $2 5 billion up 0.5 billion sequentially, while down 0.3.

Kenneth Hsiang: Our EMF third quarter operating profit was $2.5 billion, up $0.5 billion sequentially, while down $0.3 billion annually.

Kenneth Hsiang: On the bottom of the page, you will find a graphical representation of our EMS revenue by application. The third quarter segment shares of 2024 looks very similar to the third quarter last year, showing similar seasonality. The only more substantial difference has been an increase in the automotive segment as a result of increased overall automotive business.

Speaker Change: So in annually.

On the bottom of the page you will find a graphical representation of our EMS revenue by application. The third quarter segment shares of 'twenty 'twenty four looks very similar to the third quarter last year showing similar seasonality.

Only more substantial difference has been an increase in the automotive segment as a result of increased overall automotive business.

Kenneth Hsiang: On page 10, you will find key line items from our balance sheet. At the end of the third quarter, we had cash, cash equivalents and current financial assets of $78.4 billion. Our total interest bearing debt increased by $29.3 billion. to $213.2 billion. Total unused credit lines amounted to $361.3 billion. Our EBITDA for the quarter was $28.6 billion. Our net debt to equity this quarter was $0.41.

Speaker Change: On page 10, you will find key line items from our balance sheet at the end of the third quarter, we had cash cash equivalents and current financial assets of 78.4 billion. Our total interest bearing debt increased by $29 3 billion.

Two 213.2 billion <unk>.

Speaker Change: Total unused credit lines amounted to 361.3 billion, our EBITDA for the quarter was $28 6 billion, our net debt to equity this quarter was zero point for a while.

Kenneth Hsiang: On page 11, you will find our equipment capital expenditures relative to our EBITDA, machinery and equipment capital expenditures for the third quarter and U.S. dollars totaled $603 million, of which $312 million were used in packaging operations, $274 million in testing operations, $14 million in EMF operations, and $3 million in interconnect material operations and other We are in the midst of a substantial pickup in our leading edge advanced packaging revenue. As was stated in our second quarter earnings release, we continue to expect at least a doubling of such revenues for the next fiscal year of 2025.

On page 11, you will find our equipment capital expenditures relative to our EBITDA machinery and equipment capital expenditures for the third quarter in U S dollars totaled $603 million of which 312 million were used in packaging operations 270.

Speaker Change: $4 million in testing operations 14 million in EMS operations, and $3 million and entered connect material operations and others.

Speaker Change: We are in the minutes of a substantial pick up in our leading edge advanced packaging revenues.

Speaker Change: Asthma stated in our second quarter earnings release, we continue to expect at least a doubling of such revenues for the next fiscal year of 2025.

Kenneth Hsiang: we continue to see substantial growth opportunities related to packaging and testing for leading edge products. These revenue opportunities are not only related to AI and high performance computing, but also touch upon high end networking and communication. As these high-end processes become more complex, this impacts our capital investment methodology in two major ways. First, the time it takes to put in place our equipment extends. Advanced products have significantly more process steps, and each step has become more complicated. As a result, our capital expenditures will need to be made further ahead of anticipated revenues when compared to traditional ATM capital expenditures.

Speaker Change: We continue to see substantial growth opportunities related to packaging and testing for leading edge products.

These revenue opportunities are not only related to AI and high performance computing, but also touch upon high end networking and communications.

Speaker Change: As these high end processes become more complex this impacts our capital investment methodology in two major ways first the time it takes to put in place our equipment extent.

Speaker Change: Advanced products have significantly more process steps at each stop has become more complicated as a result, our capital expenditures will need to be made further ahead of anticipated revenues when compared to traditional ATM capital expenditures.

Kenneth Hsiang: Second, because of the increasing precision necessary for leading edge services, the cost of equipment has become more expensive. relative to our traditional businesses. This increases our capital intensity per unit along with our unit ASP. This is starting to play out in the current quarter. We are seeing an increased level of capital equipment investment to satisfy 2025 As a result, we now project our annual machinery and equipment capital expenditures to end the year above our annual depreciation and amortization levels. of 1.9 billion U.S. dollars. From a historical perspective, 2021 was the last year we spent more on machinery and equipment than our depreciation and amortization.

Speaker Change: Second because of the increasing precision necessary for leading edge services the cost of equipment has become more expensive.

Relative to our traditional businesses this increases our capital intensity per unit, along with our unit a S. P.

Speaker Change: This is starting to play out in the current quarter. We are seeing an increased level of capital equipment investment to satisfy 2025 business. As a result, we now project, our annual machinery and equipment capital expenditures to end the year above our annual depreciation.

Speaker Change: <unk> and amortization levels.

Speaker Change: 1.9 billion U S dollars.

Speaker Change: From a historical perspective 2021 was the last year, we spent more on machinery and equipment than our depreciation and amortization.

Kenneth Hsiang: This inflection point not only represents ASE's belief in the revenue opportunities ahead, it also signifies a major step into the next evolution of packaging. For us, the leading edge component is becoming more mainstream and significant in terms of size and scale. We expect this elevated rate of investment to stretch into next year as we prepare for services to be delivered during 2025 and beyond.

Speaker Change: This inflection point not only represents a S. <unk> belief in the revenue opportunities ahead. It also signifies a major stock and to the next evolution of packaging for us the leading edge component is becoming more mainstream and significant in terms of size.

Speaker Change: Eyes and scale.

Speaker Change: We expect this elevated rate of investment to stretch into next year as we prepare for services to be delivered during 2025 and beyond.

Kenneth Hsiang: Looking into the fourth quarter from a business outlook perspective, we can separate our business into three separate service categories. leading edge products, typically seasonal products, and everything else. Meeting Edge is going gangbusters. Whether it's AI, networking, or other products in the pipeline, the need for our advanced interconnect technologies, in all its forms, looks extremely promising. Seasonal products such as communications and handset related products are going through its paces. not really great, not really bad, and some devices doing better than others. It's kind of really neither here nor there. For everything else, there just isn't a lot of demand or optimism.

Speaker Change: Looking into the fourth quarter from a business outlook perspective, we can separate our business into three separate service categories, leading edge products typically seasonal products and everything else leading.

Speaker Change: Leading edge is going gangbusters, whether it's AI networking or other products in the pipeline the need for our advanced interconnect technologies in all its forms looks extremely promising.

Seasonal products such paths communications in handset related products are going through its paces, not really great not really bad and some devices doing better than others.

Speaker Change: It's kind of really neither here nor there.

Speaker Change: For everything else, there just isn't a lot of demand or optimism.

Kenneth Hsiang: recoveries related to general demand for this year have not really happened. The fourth quarter pickup is not as strong as we would like it to be, but at least we still see a pickup, albeit slight.

Speaker Change: Recoveries related to general demand for this year have not really happened the fourth quarter pick up is not as strong as we would like it to be but at least we still see a pick up albeit slight.

Kenneth Hsiang: From the expense perspective, there are three items impacting our expenses for the fourth quarter. One, typhoon costs. Even though our factories are still running, such as today, typhoon holiday labor counts as overtime hours for much of our direct labor. Two, utility costs. Base utility rates were increased by Thai Power. The higher base rate went into effect mid-October, coinciding with the end of summer rates. And three, a stronger NT dollar environment. With these impacts in place, we will attempt to keep our ATM fourth quarter margins flattish.

Speaker Change: From the expense perspective, there are three items impacting our expenses for the fourth quarter, one typhoon costs, even though our factories are still running such as today typhoon holiday labor counters overtime hours for much of our direct labor.

Speaker Change: Two utility costs base utility rates were increased by Thai power the higher base rates went into effect mid October coinciding with the end of summer rates and three a stronger NT dollar environment.

Speaker Change: With these impacts in place we will attempt to keep our ATM fourth quarter margins flattish.

Kenneth Hsiang: The environment for our EMS business appears to be a bit more challenging. As was mentioned in our second quarter results, our EMS business appears to have an earlier manufacturing cycle or shifted seasonality. This combined with lackluster general demand is creating a declining fourth quarter outlook.

Speaker Change: The environment for EMS business appears to be a bit more challenging as was mentioned in our second quarter results. Our EMS business appears to have an earlier manufacturing cycle or shifted seasonality. This combined with lackluster general demand is creating a declining.

Speaker Change: Fourth quarter outlook.

Kenneth Hsiang: Given this unusual seasonality and the ongoing costs related to geographical rebalancing, we are expecting lower operating margins for the fourth quarter for EMS. We would like to summarize our outlook for the fourth quarter 2024 as follows. For our ATM business in NT dollar terms, our ATM fourth quarter 2024 revenues should grow slightly quarter over quarter. Our ATM fourth quarter gross margin should be flattish quarter over quarter. For our EMS business in NT dollar terms, our EMS fourth quarter 2024 revenues should decline mid single digit quarter over quarter. Our EMS fourth quarter 2024 operating margin should decline one percentage point quarter over quarter.

Speaker Change: Given this unusual seasonality and the ongoing costs related to geographical rebalancing, we are expecting lower operating margins for the fourth quarter for our EMS business.

We would like to summarize our outlook for the fourth quarter 2024 as follows for our ATM business in NT dollar terms, our ATM fourth quarter 'twenty 'twenty four revenues should grow slightly quarter over quarter.

Speaker Change: R. A T M fourth quarter gross margin should be flattish quarter over quarter.

Speaker Change: For E&S business in NT dollar terms, our E. M. S fourth quarter 2024 revenues should decline mid single digit quarter over quarter.

Speaker Change: Our EMS fourth quarter 'twenty 'twenty, four operating margin should decline one percentage point quarter over quarter.

Kenneth Hsiang: In order to make all our hardworking analysts have fair opportunities to ask questions during our earnings We are adjusting our Q&A format slightly. During the Q&A session that follows, we would appreciate if questions can be kept concise and asked one at a time. Callers will be allowed to ask two questions per turn, but questions are asked one at a time. I will be receiving each question and repeating the last question to Joseph. Again, we will be limiting the number of questions asked to two questions per turn, but ask one at a time. Callers may return to the queue for additional questions.

Speaker Change: In order to make all our hardworking analysts out fair opportunities to ask questions. During our earnings call. We are adjusting our Q&A format slightly during the Q&A session that follows we would appreciate if questions can be kept concise and asked.

Speaker Change: One at a time.

Speaker Change: Collars will be allowed to ask two questions per ton, but questions are asked one at a time I won't be receiving each question and repeating the ask question to Joseph again, we will be limiting the number of questions asked to two questions per turn.

Speaker Change: Ask them one at a time collars may return to the queue for additional questions. Thank you.

Operator: Thank you. If you have any questions, please raise your hand.

If you have any questions. Please raise your hand.

Operator: We have a question from Ms. Sunny Lin of UBS.

Speaker Change: We have a question from Ms Sunny Lin of UBS.

Sunny Lin: Hi, could you hear me okay?

Sunny Lin: Hi can you hear me okay.

Sunny Lin: Yes. Thank you very much for taking my questions. So my first question is on your opportunity in leading-edge events packaging. As you said, you continue to raise KPAC's t-shirts to support businesses in 2025. So any updates that you could share with us on your running targets for 2025, whether it's going to be higher than the one billion target that you provided back in July? Yeah, that would be my first question.

Sunny Lin: Yes.

Sunny Lin: Thank you very much for taking my question.

Sunny Lin: So my first question is on you all for joining leading adjuvant packaging I think value continue to rank APAC theatres acquired but they're going to decline 25. So any update that you could share what that ideal target for 2020 five I wasn't going to be higher than the 1 billion target that you provided.

Sunny Lin: Back in July.

Sunny Lin: Yeah that that would be my first question.

Joseph Tung: Sunny, so your question is related to our leading edge advanced packaging targets for next year. Is that correct? That's right. Yeah. Okay, I think we are seeing, we're maintaining our view for this year. We continue to be ahead of our target of doubling our revenue from the leading edge, both for packaging as well as tax revenue. And going forward, I think we continue to see very, very strong demand coming in. And as we are scrambling to increase the capacity, we do see a very... Healthy Pickup next year in terms of leading edge. I think it's safe to say that we will be having over 10% of our revenue, if not, more likely to be at low teens of our overall ATM revenue coming from leading edge.

Speaker Change: So your question is related to our leading edge advanced packaging targets for them.

Next year.

Speaker Change: Is that correct that's.

Speaker Change: Yeah.

Speaker Change: Okay. That's the hill, we're seeing we're maintaining our view for this year.

<unk> to be ahead of our target.

Speaker Change: Doubling our revenue from leading edge.

Speaker Change: Both for our private units will test revenue.

Speaker Change: And going forward I think we continue to see very very strong demand.

Speaker Change: Coming in.

Speaker Change: As we are scrambling to increase our capacity.

Speaker Change: We are we do small.

Speaker Change: Okay.

Speaker Change: Healthy pickup next year in terms of a leading edge.

Speaker Change: Think it is safe to say that we will be having bought back over 10% up or revenue is now.

Speaker Change: More likely it could be a low at low T boy overall, ATM revenue coming from leading edge.

Sunny Lin: Got it.

Speaker Change: No not at.

Sunny Lin: Yeah, well, so maybe, sorry, just to be more specific, I think people maybe care more about if you have any breakthroughs in the full process co-ops. TSMC is still very determined in expanding the chip on wafer capacity going to next year. And I think NCORE earlier this week also talked about, for the full process co-ops, we are seeing some client-based expansions to the second and also the third clients. I understand this year you had very good pickup overall for Leading Edge, but that's probably mostly coming from the outsourcing business from TSMC. And so one, they're going to make sure whether we should also expect some pickup into your own full process co-ops.

Amit: Yeah, well, it's Amit.

Speaker Change: Sorry, just to be more.

Speaker Change: I think people are maybe care more about if you will have any back to Ignacio passes co op.

Speaker Change: He is M D you're right the timing and funding either a chip on wafer capacities going into next year, and I think in Kuwait and the quake.

Speaker Change: <unk> talked about for the other co pack with Colombia being dumped a climbing basic branch out to the second also that their clients.

Speaker Change: I've done this year you had very good pickup overall operating is probably mostly coming from outsourcing is a bumpy as M D.

And so one day going to next year, whether we should also expect some pickup in P. R O Philip.

Joseph Tung: Thank you very much.

Speaker Change: So Patrick correct. Thank you very much.

Joseph Tung: And Sunny, your question relates to the composition of our Leading Edge Advanced Packaging revenues going into next year. Is that correct? Correct. Thank you, Kenneth. Yeah. Well, I think TSMC's aggressive extension of their backend, or leaving its backend capacity, is really a testament of a very, very strong demand coming in the next few years. And being the chosen partner of our customer, as well as a funding partner, I think we will definitely share that huge potential in front of us. And we are making the necessary investments across the board, including 2.5B, including our test. That the investment will be made or capacity increase will be made in line with our customers' requests and also all the economic parameters that we need to put in place too for consideration of what are the suitable capacities that we will be adding and where and when and how we will be adding those capacities.

Speaker Change: So suddenly you're your question relates to the.

Speaker Change: The composition of our leading edge advanced packaging revenues going into next year.

Speaker Change: Is that correct. Thank you yeah.

Speaker Change: Well I think our kids and sees the aggressive tuition out there backend or leading edge back in capacity is really a testament of our very very strong.

And then coming in the next few years.

Speaker Change: And being the.

Speaker Change:

Speaker Change: Chosen part of their offer a customer as well as the foundry buzzard I think we will definitely share that.

Speaker Change: Huge potential in front of us.

We are making the necessary.

Speaker Change: This is across the board, including to go with IP, including a test.

Speaker Change: But the investments will be made or capacity increase will be made in.

Speaker Change: In line with our customers' requests.

Speaker Change: And also all the economic parameters that we are we need to put in place to because the duration of what a good suitable capacity that will be adding and where and when and how we will be adding at those capacity.

Sunny Lin: Basically, it should be aligned with the customer's request. Does that answer your question? Yeah, thank you. Thank you, Ken. Thank you, Joseph.

Speaker Change: Basically it should be aligned with the customer's request.

Speaker Change: Does that answer your question.

Speaker Change: Yeah. Thank you think you can think you jumped up a quiet at my second question now.

Sunny Lin: Could I ask my second question? That was your second question. Please return to the queue. Thank you. No problem. Thank you.

Speaker Change: That was your second question. Please return to the queue. Thank you.

Speaker Change: No problem. Thank you.

Speaker Change: Next question is from Mr. Goku Holly Hunt on.

Gokul Hariharan: Gokul.

Speaker Change: Goku.

Gokul Hariharan: Yeah, hi. Good afternoon. Thanks for taking the question. My first question is, again, on the leading-edge advanced packaging. How do you characterize the relationship with CSMC on a, let's say, two- to three-year basis? I think next year you're getting a lot of the outsourcing business, but they're also working with Amcor. I think we just announced the MOU signed with Amcor for the U.S. capacity, I believe, from 2027.

Goku Hunt: Yeah, Hi, good afternoon. Thanks for taking the question My book with me again on the leading edge advanced packaging.

Speaker Change: How do you characterize the lesions, but you had been on a bit it would be a bit the.

Speaker Change: I mean next year, you are getting a lot of Yahoo.

Speaker Change: And then also looking at them God.

Speaker Change: With the announced the Mou signed with AMCOL.

Speaker Change: For the U S capacity I believe from Bill you can meet them. So you can think about next year and that will likely be to five years out what portion of the meeting and advanced packaging with Nook will come from DSM be those those being and what portion of it will be coming from A&P Gallnut Budd.

Gokul Hariharan: So if you think about next year, and as well as maybe three to five years out, what portion of this leading-edge advanced packaging business will come from CSMC's outsourcing, and what portion of it will be coming from ASC's own efforts, kind of seeking out their own customers directly? Hi, Gokul. So your question relates to our relationship with our foundry partners. Is that correct?

Speaker Change: And I'll be your own customers directly.

Speaker Change: Okay. So your question relates to our relationship with our foundry partners is that correct yes.

Joseph Tung: Yeah, and also in relation to how the Amcor arrangement that they have also will work, like how you both did that. and Matt Kahn. Yeah, I think, you know, we are we are partnering together to with our fund refund to continue to expand our capacity to meet the growing demand. And it really depends on the voter. You know, there will be a natural division of votes where each partner will be focusing on what they do best and what makes the most economic sense for each. Um... So, you know, as I pointed out, the capacity extension that we were going to be making will be across the board, including all aspects of the whole process.

Speaker Change: And also in relation to how the encore arrangement that they have also been book, how you're booking that.

Okay in that context.

Speaker Change: Yeah I've I've seen you know we are we are partnering together to a with a foundry partner to continue.

Speaker Change: <unk> continued to expand our capacity to meet the growing demand and it really depends on the water.

Speaker Change: There will be a natural divisional gross where each partner will be focusing on what they do best and what makes the most economical sense for each.

Speaker Change: Hum.

Speaker Change: So you know as I pointed out of the capacity expansion that we will go to be making a will be a it will be across the board.

Speaker Change: Putting all aspects of the whole process.

Joseph Tung: But again, you know, there will be priority allocation between different processes. Depending on the customer's request. In terms of AMCORP, I think, you know, right now we are really focusing on meeting the current demand and we are scrambling to increase the capacity so as to meet the current strong demand. We're not particularly worrying at this point, worrying about what's going to happen. What kind of a competition may or may not have, you know, three years down the road, I think what we're busy on today is really focusing on meeting the current demand at this point.

Speaker Change: But again, there will be a priority.

Speaker Change: The allocation between different processes.

Speaker Change: Depending on the.

Speaker Change: Customers request.

Speaker Change: In terms of Amcor is a big deal.

Speaker Change: Right now we are really focusing on meeting the current demand and a wheel scrapping to increase the capacity.

Speaker Change: So as to meet the current strong demand.

We'll now.

Speaker Change: A war.

Speaker Change: Paul worry about what.

Speaker Change: What kind of a competition may or may not have.

Speaker Change: You know three years down the road.

Speaker Change: But what we are busy today is really focusing on.

Speaker Change: The current demand at this point.

Gokul Hariharan: Does that answer your question, Gokul? Yeah, that's good.

Speaker Change: Does that answer your question Okay.

Gokul Hariharan: So second, second question is basically on the chip-on-vapor portion. Could you talk a little bit about whether you will have significant chip-on-vapor related assembly next year? If it is happening, how big is it going to be of this low team's percentage of ATM revenue? Is it going to be quite significant or is it going to be quite small next year? So, Gokul, you're asking about the... the composition of our leading edge advanced revenues as it relates to the wafer attach portion. I keep on waiting for questions, yeah. We don't use that. But we do understand what you're saying.

Speaker Change: Yep that's been.

Second question is basically on the Japan, the first portion.

Speaker Change: Could you talk a little bit about whether you will have significant upon wafer related assembly next year, if it is happening.

Speaker Change: How big is it going to be a bit.

Speaker Change: Low teens with me the ADM revenue there couldn't be glad significant noted is going to be more next year.

Speaker Change: So coca you're asking about the car the.

Speaker Change: The composition of our leading edge advanced revenues as it relates to the.

Speaker Change: The wafer attach Porsche.

Speaker Change: Coupon vehicle what have you.

Speaker Change: We don't use that term.

Good luck.

Speaker Change: But we do understand what you mean.

Joseph Tung: As I mentioned, we will be investing in both, in all aspects of the process, I think, including wafer, chip-on wafer, as well as on-stop trade and end-tasking as well. Again, it really depends on the economics. benefits that we'll be looking at or considering to make the necessary or appropriate investment in terms of building this capacity. So, yeah, sorry, Joseph. I think the, you know, of course, the, in terms of managing to, there will be The thing more will be on substrate as we are seeing the situation now. But you know, the situation can be very, very dynamic.

As I mentioned, we will be investing in both is all aspects of the process of being including a waiver.

Speaker Change: Chipotle for us was our subsea and <unk>.

Speaker Change: And testing as well.

Speaker Change: Again, it depends on the economics.

Speaker Change: Benefits that will be.

Speaker Change: Looking at or considering to make the necessary or the appropriate investment in terms of our building lease capacity.

Speaker Change: So anything that would be great.

Speaker Change: Yes.

Speaker Change: I think the Oh of course, we are in terms of magnitude there will be a.

Speaker Change: I think more will beyond March Australia as we.

Speaker Change: As we're seeing the situation now.

Speaker Change: The situation can be very very dynamic.

Joseph Tung: It depends on the environment. ourselves, our customers, and also our foundry partners, the progress in terms of developing these products and capacities. So we'll make the necessary adjustments as we go along. Does that answer your question, Gokul? Any chip-on wafer is in your guidance for the low teens of ATM revenue. I guess we, I guess we'll allow. But yeah, we would prefer you keep to the two questions. But go ahead. Yeah, just a clarification, in your guidance of looting, is any chip-on wafer already included? Any meaningful revenue from chip-on wafer already included or the one wafer processing part already included?

Speaker Change: Zone.

Speaker Change: <unk>.

Ourselves of customers, there's also a bunch of others.

Speaker Change: The progress in terms of developing these products and capacity.

Speaker Change: So we will make the necessary adjustment as we even as we go along.

Speaker Change: Does that answer your question <unk>.

In Egypt, and we put it in your guidance or the low teens of ADM revenue.

Speaker Change: Hum.

Speaker Change: I guess, we I guess will allow this.

Speaker Change: But yeah, we would prefer to keep to the two question limit at this point, but go ahead.

Speaker Change: Yeah, just isn't as Atlanta, forgetting annual guidance of looping any Dupont before already included any meaningful revenue from Dupont, we put already boulevard, the unveil dropping but already put it yes, we will be having both a focus focus bridge and.

Joseph Tung: Yes, we will be having both focus and focus bridge and Solutions under our mass production and we are adding new capacity aligned with the customer demand. Okay, that will be that will be part of the overall leading edge type of revenue that we're going to have next year. Does that answer your question, Gokul? Okay, thanks. Thank you.

Speaker Change: Okay solutions under a mass production and we are adding new capacity aligned with customer demand.

Speaker Change: Okay, but I will give you that that will be part of the.

Overall, leading edge type of revenue that we're going to have next.

Speaker Change: Next year.

Does that answer your question Okay.

Speaker Change: Okay. Thanks, Thank you.

Bruce Liu: Next question is from Mr. Bruce Liu of Goldman Sachs.

Speaker Change: Next question is from Mr. Bruce Lu of Goldman Sachs.

Bruce Liu: Okay, can you hear me?

Speaker Change: Okay.

Bruce Liu: Yeah. Okay, so for the 500 million revenue we've generated out of this package initially, how much is this from the testing? And you know, testing will account for 15%, 16% of your total in addition for the advanced course, you know, advanced one, you know, how much is it from the testing? And the ratio got changed meaningfully for, you know, $2.5 billion revenue. Bruce, your question relates to the amount of testing within our total outlook of leading-edge advanced packaging services for next year. Is that right? I mean, what's the ratio? for this year or next year, please?

Speaker Change: Yeah.

Speaker Change: Okay. So more of the 500 more rather than only general economists Apple when they say how much is that from the astral.

Speaker Change: That's what we're comfortable with the clinical 36 months in terms of your Cologuard ambitions for the railcars.

The first one you know how much is online husky and that's always a godsend hemoglobin for Oh go among fireworks, though a billion dollars.

Speaker Change: Revenue.

Bruce Your your question relates to the amount of testing.

Speaker Change: Within our total outlook of leading edge advanced packaging services for next year.

Alright.

Speaker Change: And I wonder what's the ratio.

Speaker Change: Sure.

For this year or next year. Please.

Bruce Liu: Both, both.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Yes.

Joseph Tung: Well, first of all, we are ahead of our schedule in terms of ahead of our plan in terms of doubling our leading edge revenue, so it will be over 500 million. But at this point in time, we, particularly for this year, we're basically focusing on building up the The assembly. Saturday The overall leading ed revenue for this year will be relatively smaller Next year, I think, I'll be Well, as Ken pointed out earlier on, we are seeing our investment in tests are starting to pay off. And we believe that the percentage will continue to rise into next year.

Speaker Change: Got it.

Speaker Change: First of all we are ahead of our schedule in terms of ahead of them and so doubling our <unk> revenue. So it will be over 500 million.

Speaker Change: At this point in time, we feel.

Speaker Change: Look at this year, we're basically focusing on a b.

Speaker Change: Building up the.

Speaker Change: The assembly.

Speaker Change: Capacity.

Speaker Change: So the <unk> portion of the overall, leading edge revenue for this year will.

Speaker Change: It will be relatively smaller.

Speaker Change: Next year I think of this testing.

Speaker Change: Well as.

Speaker Change: As Ken pointed out earlier on we are seeing our investment in tests.

Speaker Change: I need to pay a bill and we believe that the percentage will continue to rise.

Speaker Change: Into next year.

Joseph Tung: And we are targeting at 15, anywhere from 15 to 20% of our leading edge revenue coming from tests. Thank you. Does that answer your question? Yes.

Speaker Change: And we are targeting a 15 anywhere from 15% to 20% all for our leading edge revenue coming from tests.

Speaker Change: I can tell that answer your question. Yes. My second question is for mill customers concentration.

Joseph Tung: My second question is for your customer's concentration for the leading edge advanced patching portion. What's the customer concentration right now and is the concentration going to change for 2025? Oh, you're asking the customer composition of concentration. Concentration. Yes. Okay. I don't think we have a concentration issues here. I think the We are having engagement with all the direct customers, with the system houses, with the fabless houses, we are dealing with foundries. So the demand is coming from all different directions and, you know, basically all the who's and who's that are involved in the leading edge will be having engagement with.

Speaker Change: For the leading edge.

Speaker Change: Khartoum Olson whats the cosmic <unk> assessment right now is the concentration is on a chance but.

Speaker Change: Because I'm honeypot.

Speaker Change: Oh, you're asking the customer composition of concentration.

Speaker Change: Duration, yes.

Speaker Change: Okay.

Speaker Change: Adam I don't think we have a concentration issue here I think the.

Speaker Change: We are we are having engaged with with Oh, the direct customers with the.

Speaker Change: System houses with the Fabless houses we are.

Speaker Change: Boundaries.

Speaker Change: So it is the demand is coming from all directions and Neil.

Speaker Change: Basically all the homes the rules that are involved in the leading edge will.

Speaker Change: It will be a little heavy engagement with you.

Joseph Tung: And, you know, we just saw at this point. concentration is not a real issue. It's the real issue is how we how fast or how efficiently or how effectively we can we can catch up with the Technical Capacity with the demand. I'm sorry, just to be clear, it's not the case that you pop to talk to your customer account for the majority of your event packaging business? I'm sorry? Okay, I thought that the top two or top three customers in your website accounts for like, you know, 80 or 60% of your $500 million revenue. at this point yet.

Speaker Change: And you know we're just at.

Speaker Change: At this point.

Speaker Change: Concentration is not a real issue is the real issue is how do we how fast or how efficiently or how effectively we're getting a.

We can catch up with the.

Speaker Change: That's the real capacity with the demand.

Speaker Change: I'm, sorry, just to be clear, it's not the cold stack them up to talk to a customer a console that majority of your ethylene business.

Speaker Change: I'm sorry.

Speaker Change: Uh huh.

Speaker Change: Oh that Ah I thought I'd give a top two or three customers in Europe, that's backing our comfortable lives.

Speaker Change: Oh I think he doesn't help your I know $5 million revenue.

At this for years.

Joseph Tung: Yes, that's the customer concentration which is supposed to be high for this year, right? Do you see the customer concentration remain this high for next year? That was the question. It will not be the same percentage as we're seeing today. I think it's going to be a much more prosperous next year. I understand. Thank you.

Yes, it's about customer concentration, which supported the highest for this year right you do see the consumer coming through the numbers for next year.

Speaker Change: That was the question.

Speaker Change: It will it will not be the thing that we're seeing today I think there's going to be a much more progress next year.

Speaker Change: I understand thank you.

Speaker Change: Thank you.

Rick Hsu: Next question is, I'm sorry, is from Mr. Rick Hsu of Taiwan Securities.

Speaker Change: Next question is.

Speaker Change: I'm sorry.

Speaker Change: He is a problem.

Speaker Change: Mr <unk> Zhu of <unk> Securities.

Rick Hsu: Hi, can you guys hear me?

Speaker Change: Hi, guys Jeremy Yes.

Rick Hsu: Yes, we can.

Speaker Change: Yes, we can.

Rick Hsu: Okay, yeah, thank you so much for taking my questions, especially during the typhoon season. Yeah, I guess maybe just end it now and you guys are still on the duty.

Speaker Change: Okay. Yeah. Thank you so much for taking my questions, especially typhoon season.

Speaker Change:

Speaker Change: Yeah, I I guess, maybe just the NBA La you guys are you on.

Joseph Tung: Okay, just one one quick question from me. How is your utilization rate across your assembly testing for Q3 and Q4, please? I think the utilization will be very similar between the two quarters. We're now, for both packaging and testing, we're running at 65 to 70 percent. So 55% to 70%, is that correct? Correct.

Speaker Change: The duty.

Speaker Change: Okay.

Speaker Change: One quick question from me.

Speaker Change: Housekeeping, but your utilization rates cross you assemble and test vehicle Q3 and Q4. Please.

Speaker Change: I think the utilization will be very similar between the two quarters.

Speaker Change: We're now for both packaging and testing, we're running at 65% to 70%.

Speaker Change: So 55% to 70% is that correct.

Joseph Tung: Okay, and second question is regarding the global semi-conductor revenue forecast, or the semi-conductor market as memory, what's your take, what's your update right now for this year and next year? Will you think next year the growth will be better than this year? Rick, are you asking that for our view on the general market, general market? Yes, and if you can share also your own revenue growth this year and next year, especially for next year, that would be great. Oh. I think, you know, I think the general market this year is still not recovering very well, and I think going into next year, I think in terms of general market, it's still going to be a lukewarm year.

Speaker Change: Okay.

Speaker Change: Okay and the second second question is regarding the global semi called other global semiconductor revenue forecast or is it on the market as memory. What's your take what's your update right now for this year and this year we will.

Speaker Change: Do you think it next year the growth will be better than this year.

Speaker Change: Rick are you asking.

Speaker Change: So our view on the general market generally I think the market.

Speaker Change: Yeah, and if you can sue also your own revenue.

Speaker Change: Growth this year and this year, though there's also been a <expletive> that'll be great.

Speaker Change: Okay.

Speaker Change: Uh huh.

Speaker Change: I think the thing with general market. This year is there's still not recovering very well and I.

Speaker Change: I think the.

Speaker Change: Next going into next year I think in terms of general market is still going to be a lukewarm year.

Joseph Tung: Kim. I think the the only bright spot at this point is really the leading edge and all AI HPT related type of So, you know, this year, I think the overall, if you look at the whole non-memory, if you exclude the AI or HPC related, I think the whole market is actually came down. to some degree. So there was really negative growth for this year. Going into next year, I think if you look at different analysis of different interest reports, I think people's view on next year is really all over the map. I think there will be low, mid-single digit, all the way up to close to 20% kind of growth.

Hum.

Speaker Change: I think we are the only bright spot at this point, it's really you got a leading edge and the OE HPT related.

Uh huh.

Speaker Change: Business and.

Speaker Change:

Speaker Change: So Gil this year I think the overall.

If you look at the whole.

Speaker Change: Non memory.

Speaker Change: If you exclude the AI or HTC related I think the whole market is actually.

Speaker Change: It came down.

Speaker Change: To some degree.

Speaker Change: So there was.

Speaker Change: Within that negative growth this year.

Speaker Change: Going into next year I think Neil.

Speaker Change: If it is that look at different.

Speaker Change: Different analysis of different research reports are being with our people.

Speaker Change: If you will on this year is really over the map, but they will be.

Speaker Change: Low to mid single digits, all the way up to close to 30% kind of growth. So it's a it's really at this point I think the situated as we get there.

Joseph Tung: So it's really, at this point, I think the situation is really very unclear. What we are doing is really focusing on what we are seeing, our own business, and where those businesses are coming from, and what are the mentality, momentum of each different category. At this point, I think we continue to see that leading edge will be the main driver for next year. Although the general market will have a, you know, kind of a Slow Recovery. We are seeing that our investment in tests is paying off, and we're seeing that both We have very good progress in terms of increasing our turnkey ratio, and our turnkey business as well as our direct business in Old Treatment.

Speaker Change: Fear.

Speaker Change: So what we are.

Speaker Change: Well, we are doing is really focusing on what we are seeing our own business.

Speaker Change: Were those visits are coming from and what are the right therapy.

Bolitho involve each are different.

Speaker Change: Categories at this point.

Speaker Change: I think we.

Speaker Change: We continue to see that leading edge will be the main driver for next year.

Speaker Change: The.

Speaker Change: General market will have a oh, you'll kind of it.

Speaker Change: Slow recovery.

Speaker Change: We are seeing that we are the our investment in test is paying off where we're seeing that both.

Speaker Change: Okay.

Speaker Change: Very good progress in terms of.

Speaker Change: Increasing our turnkey ratio and all of our Turkey business as well as our direct business.

Speaker Change: Segment although.

Joseph Tung: Again, a large chunk of it is really coming from the living edge. So, without giving you a full, you know, in terms of what kind of growth we're going to have for next year, we will have a clear... picture once we...

Speaker Change: Again, a large chunk out of it is really coming from the <unk> meeting.

Leading edge.

Speaker Change: So without giving you a full you.

Speaker Change: In terms of what kind of laws, we're going to we're going to have one next year, we will have a theory.

Speaker Change: Picture.

Speaker Change: Leslie.

Joseph Tung: We've done our budget cycle, and I'm sure we're going to have a more meaningful discussion come next quarter. Great. Yeah, that's really helpful. Thank you so much.

Speaker Change: We've done our budget cycle and I'm sure, we're going to have a more meaningful discussion.

Speaker Change: Come next quarter.

Speaker Change: Okay, great. Yeah, that's really helpful. Thank you so much thank you.

Charlie Chan: Next question is from Mr. Charlie Chan of Morgan Stanley.

Speaker Change: Next question is from Mr. Charlie Chan of Morgan Stanley.

Speaker Change: Hi, Joseph.

Charlie Chan: Hi. Kenneth and Iris, I hope you stay safe and warm. So my first question is about your investment in testing business, right? Joseph, you just said that they will pay off next year. So can I ask you some more details? So first of all, for the testing revenue, do you expect more coming from the chip probing outsourcing or your sort of final test and kind of burning kind of business takeoff for next year? Charlie, your questions regarding the composition of our test market share gains that we're expecting, is that correct? Yes, for next year, yes.

Charlie Chan: Ah Okay, Ken and then Iris I hope are you are they are saving and warm.

Charlie Chan: So my first question is about your.

Our investment in pet and briefings right Joseph Joe said that they will pay off.

Charlie Chan: Next year, so can I ask some more details on the principal.

Further the testing revenue.

Charlie Chan: Jewelry is better more coming from the chip hobby in outsourcing or your.

Charlie Chan: Sort of the final CAD and.

Charlie Chan: In the end it burning.

Charlie Chan: A kind of a business plan for next year.

Speaker Change: Charlie your questions regarding the composition of our test.

Charlie Chan: <unk> share gains that we're expecting is that correct, yes for next year, Yes chess game.

Joseph Tung: Um, I won't be able to give you a breakdown. But what I can say is that we will be making the necessary investments covering all kinds of different businesses. Some can be for wafer sort, it can be for final tax or, you know, only related final test. I think, you know, we are also aggressively Spending Our Current Key Businesses As Well, With Our Existing Customer and Future Customers. So I think the— Our turnkey service really give us an edge in terms of going or test business both in the in all fronts, including the some outsourced business as well as direct business from a direct customer.

Charlie Chan: I won't be able to give you a breakdown.

Charlie Chan: So, but I can say is that we will be making the necessary investments.

Charlie Chan: Covering all kinds of different businesses.

Charlie Chan: I'm going to be for wafer sort it can be for final test.

Charlie Chan: Or you know burning related final test.

Charlie Chan: Think you know we are also aggressively.

Charlie Chan: Hum.

Charlie Chan: Expanding our turnkey business as well.

Charlie Chan: With our existing customer and tissue customers.

Charlie Chan: I think the.

Charlie Chan: Our turnkey services really gives us an edge in terms of going our test business both in the Oh.

Charlie Chan: In the Ole.

Charlie Chan: Including the Oh.

All source business as well as.

Charlie Chan: The rug business from our guests on what the right customers.

Joseph Tung: Okay, this is perfect. Thanks, Joseph.

Speaker Change: Okay perfect.

Joseph Tung: And my second question is about the gross margin trend. I feel like it's a little bit disappointing, per se, because for your fourth quarter, ATMs and revenues are flat, but your margins are so flat, right? But I thought that your advance page, especially the test testing part, continue to grow in the fourth quarter. So can you give us some sense about how we are going to model gross margin trending to next year? Do you really benefit from the growth from the advance page and testing? Thanks. So your second question is regarding the characterization of our gross margin, one for this coming quarter and then from a longer-term future outlook.

Speaker Change: Yes.

Speaker Change: And then second question is about the sort of.

Speaker Change: Gross margin train them.

I feel like H b.

Speaker Change: Uh huh.

Speaker Change: Disappointing per se.

Speaker Change: Because super your first quarter.

<unk> revenues it says that your projects that go flat, but I felt that your advanced packaging, especially there has been parts.

<unk> continued to see growth in the fourth quarter. So I can't give it give us some sense about how we are going to model. Our gross margins are going to next year.

Speaker Change: There is benefit from the.

Speaker Change: Growth.

Speaker Change: Okay.

Speaker Change: So your second questions regarding the characterization of our gross margin.

Speaker Change: One for this coming quarter, and then from a future longer term future outlook perspective.

Joseph Tung: Correct? Yes. Thanks, Ken. Yes, we are a bit disappointed with this year's margin performance. As we pointed out, once we reach a loading of 70% and above, we can go back to our structural margin range. Unfortunately, I think that at this point, because the general market is still relatively weak, while the leading edge still represents only a small percentage of our overall revenue, so we weren't able to make it this year. But going into next year, I think, of course, things are looking up, both from a general market perspective, it's, like I said, it's going to be, although not as strong, but it's still going to have a a better recovery than this year, while we also...

Speaker Change: Yes, yes, thanks, Ken.

Speaker Change: Yes, we are a bit different disappointed with this year's margin performance.

Speaker Change: As we pointed out once we are located to reach the loading or 70% and the bulk of it will be.

Speaker Change: We can go back to a structural margin range. Unfortunately, I think that at this point because of the general market is still relatively weak.

Speaker Change: The leading edge is still represents only a small percent percentage of our overall.

Speaker Change: Revenues, though.

Speaker Change: We weren't able to make.

Speaker Change: Make it this year.

Speaker Change: But going into next year I think those four things are looking up.

Speaker Change: Both from a general market perspective is like I said, it's gonna be.

Speaker Change: Although not as strong, but it feels to go to half a year.

Speaker Change: <unk>.

You're.

A better recovery than this year.

Speaker Change: We also.

Speaker Change: Aggressively expanding the.

Joseph Tung: The Leading Edge capacity, which should represent more than 10% or maybe at the low teens kind of percentage of overall revenue. So and also the test portion of our business will continue to increase. All these put together will definitely help our margin for next year. Although I, one thing I would like to mention is that, you know, all the investments that we'll be making for capacity expansion, it's more front end loaded. And, you know, because this leading edge is much more compact. You really have to have very high competencies in all process, including equipment, including process, technology, scale, logistics, everything.

Speaker Change: Leading edge capacity.

Speaker Change: Which should represent more than 10% or maybe at the low teens kind of percentage of overall revenue so and also.

Speaker Change: The task forces of all of our business will continue to increase all these put together will definitely help our margin.

Speaker Change: Next year yeah.

Speaker Change: And.

Speaker Change: Although I one thing I will like to mention is that you know all the investments that we'll be making for capacity.

Matt: Sharon it's Matt.

Matt: More front end loaded.

Matt: And Neil because these leading edge is.

Matt:

Matt: Is much more complex.

You really have to have a very high.

Matt: Our competencies in the whole process, including equipment, including a.

Matt: Process technology scale logistics everything.

Joseph Tung: So I think a lot of the investment, hard and soft investment, needs to be put in front end. And so it's going to be more front end loaded. And the revenue will come later. It will be more back end loaded. So for next year, you know, it will be. bit more. I shouldn't say tough, it's very natural that because of the front-end low-bid investment, the margin performance in the first half of the year will be weaker than the second half. But as a whole year, we are very, very confident that we will be able to bring the overall margin back to the structural margin range.

So I think a lot of the investment.

Matt: Heartland soft investment.

Matt: It needs to be put in front of it and it's always going to be more front end loaded and the revenue. Upon there is a it will be more backend loaded sulfur net so that's your oh it will be.

A bit more.

Matt: I shouldn't say tough it says, it's very natural that because of the.

Front end loaded investment the margin almost at the first half of the year will be weaker than the second half so as the whole year.

Matt: We are very very confident that we'll be able to bring the overall margin back to deal.

Matt: Structural module range.

Joseph Tung: Does that answer your question? Oh, here. He's already off.

Speaker Change: Does that answer your question.

Speaker Change: Oh sure.

Operator: Okay, the next next question.

Speaker Change: He is already off okay and Thats next question.

Flora Chan: We have a question from Ms. Flora Chan, South City.

Speaker Change: We have a question from MS. Laura Chen of C D.

Flora Chan: Hi, Justin. Thank you for taking my question. My question actually is also similar to the growth margin trend. We assume that the leading-edge advanced packaging would be able to generate better ASP and also growth margin. But like Joseph, you mentioned that that would be fun and loaded. So I'm assuming that initially that could be the margin dilution. But at the same time, because of the deterioration rate, it should be high. So how should we think about the growth margin at this moment for the most leading-edge advanced packaging? Laura, your question relates to Leading Edge Advanced Packaging's impact on gross margins, now and going forward, right?

Speaker Change: Hello, Good afternoon and.

Laura Chen: Thank you for taking my question. My question actually is also similar to the gross margin can we assume that the leading edge advanced packaging would be able to generate the data S. P. And also glass margin for like Joseph you mentioned that that would be fine.

Speaker Change: No David So I, assuming bag initially that could be the margin dilution.

Speaker Change: But other sometimes because of bad debts of Rachael Ray actually high so how shall we think about the gross margin.

And this nominal four right on.

Speaker Change: The most a little and get their own packaging.

Speaker Change: Laura your question relates to leading edge advanced packaging has impact on gross margins right now and going forward.

Joseph Tung: Yes, yes, correct. Thank you. Well, the Leading Edge bulk packaging test, I think it's really a margin accretive. This is for us. I think the key question here is for us to really do a good job and continue to ramp up the capacity and to raise this part of the revenue. as fast as possible and as high as possible moving forward to continue to to to move up our margin. And, uh, you know, when at a more static state kind of, I think the structural margin should be closer to the higher end of the structural margin.

Laura Chen: Correct. Thank you, believing as a bulk parody and says that they can be a it's really a margin accretive.

Speaker Change: This is for us.

Speaker Change: I think the key question here is for.

Speaker Change: For us to really do a good job.

Speaker Change: And continue to ramp up the capacity.

Speaker Change: And to raise the as part of the revenue.

Speaker Change: Yeah.

Speaker Change: As fast as possible and as are as high as possible going forward to continue to to to move up our margin.

Speaker Change: And you know one.

Speaker Change: At a more steady state kind of says I think the special Mark our margins should be closer to the higher end up you spoke to your margin.

Speaker Change: Okay.

Joseph Tung: Okay, thank you. Yeah, and also, just a quick follow up if I may. I mean, for the AI accelerator, we also see the trend of the CPU opportunity. I'm not sure that is also considered as advanced packaging from an AI perspective, or you will view that more like a module or FIP type of business. Is there a question there? I think the answer is yes, we do look at it as part of the leading-edge revenue that we're going to have. And, you know, personally, I don't really think that it's a simple module. It does require a very high standard of precision, and it requires leading-edge technology to make this thing happen.

Speaker Change: Okay. Thank you.

Speaker Change: Yeah and also just a quick follow up I know I mean, Florida Aif salary. There. We also see the trend of the GPU opportunity in Russia bag. There's also consider of the advanced packaging.

Speaker Change: Okay perspective, or are you or is that more like a module is on foot tied up a business.

Speaker Change: Okay.

Speaker Change: Is there a question there.

Speaker Change: Okay.

Speaker Change: I think the answer is yes, we do look at it.

Speaker Change: As a leading that part of the leaving that revenue that we were gonna have.

Speaker Change: Yeah, and you know.

I I personally I don't I don't really think that is it's a it's a physical module.

Speaker Change: This will require a very high standard of physician and it requires a leading edge technology to make this thing happen.

Joseph Tung: Okay, thank you.

Joseph Tung: Thank you, Laura.

Speaker Change: Okay. Thank you.

Laura.

Gokul Hariharan: Next, we have Mr. Gokul Hariharan back.

Speaker Change: Next we have Mr. Goku highway her them back.

Gokul Hariharan: Well, hey, thanks very much for taking the round of questions. So first of all, on the leading-edge advanced packaging business, Joseph, now that you've done a fair round of investment here, any map in terms of how was the return profile looking like for this business? Like previously, you've talked about a dollar invested gives you a dollar back, I think, in flip checks in a year or so.

Goku Hunt: Well hey, thank you very much for taking another round of questions. So first of all on the.

Goku Hunt: On the leading ended months ethylene business.

Speaker Change: Now that you're Oh.

Speaker Change: Done a bad round of investment.

Speaker Change: Any any math and done the hours that are done profile looking like or the like previously you have talked about a dollar investor. It gives you a dollar back I think in Blue chip.

Joseph Tung: Any math on the ROI for this investment based on your current expectations? Gokul, your questions regarding the return profile of Leading Edge Advanced Packaging. That's right.

In a year or so any any math on b at a life of this investment.

Speaker Change: On your current expectations.

Speaker Change: Both of your questions regarding the return profile.

Speaker Change: Leading edge advanced packaging.

Speaker Change: That's right.

Joseph Tung: I think this is a bit difficult to answer. I think this is new. And like I said, in terms of investment, because it is new, it's more complex. Aside from the hard costs that we need to put in, there's also a lot of soft costs that's involved.

Speaker Change: Oh I think this is a bit difficult to answer I think there's this view.

Speaker Change: And.

Speaker Change: As I said the.

Speaker Change: In terms of the investment.

Speaker Change: Because of recent new is more complex.

Speaker Change: Set aside from the hard cost that we need to put in there's also a lot of salt costs.

Speaker Change: It involved.

Joseph Tung: So it's difficult at this point to pinpoint what kind of return profile this kind of investment will have. But, uh, you know, From what we're seeing today, I don't think we're too far off from what we have as a rule of thumb before, on a blended basis, each dollar of investment could create close to a dollar of revenues. That kind of profile remains to be seen, but you know, at this point, I don't, we haven't, I haven't seen a major deviation from that. Understood.

Speaker Change: So it's it's difficult at this point to pinpoint what kind of return profile.

Speaker Change: Discovery, that's what it will house.

Speaker Change: But.

Speaker Change: You know.

From what is what we are seeing today.

Speaker Change: I don't think we're too far off from where we are and.

Speaker Change: While we have made.

Speaker Change: As a rule of thumb before.

Speaker Change: On a blended basis each dollar of investment.

Speaker Change: Quickly a corporate bylaws, rather deals that's kind of.

That kind of profile remains to be see but you are at this point.

Speaker Change:

Speaker Change:

Speaker Change: Idaho.

Speaker Change: We haven't so I haven't seen that.

Speaker Change: A major deviation from that.

Gokul Hariharan: My second question is on your communication business, which is still the largest part of the ATM revenue. There is obviously a lot of excitement about Edge AI, etc., larger chip sizes. Anything that is helping you on this regard from an outlook perspective when you talk to your customers, do you think this is a segment they are growing into next year, or do you think that is also going to be kind of very slow growth going into next year for the communication part given that's the biggest part of the revenue? Gokul, you're asking, from an Edge AI perspective, whether that is going to impact our overall communication segment going forward or our expectations related to that?

Understood. My second question is on your communication business.

Speaker Change: It's still the largest part of the Indian revenue.

Speaker Change: That is the leads me lot of excitement about Adi.

Speaker Change: Larger sizes.

Speaker Change: Anything that is helping you on the Bard from outlook perspective, and your Doctor at the most you'd think Hickman.

They are a bit going into next year or is it you think that is also going to be kind of very low growth going into next year or the communication, but given that's the biggest part of the revenue.

Speaker Change: Okay, you're asking from an edge AI perspective, whether that is going to impact our overall communications segment going forward or our expectations related to that yes.

Gokul Hariharan: Yes, for 2025. Oh, you mean...

Speaker Change: Thank you bye.

Speaker Change: Uh huh.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Oh, you mean.

Joseph Tung: AI Debate. Yeah, HDI, yes. And any, any expectation on 2025 improvement in, like, chip packaging, and the CSP, BGA, etc, for your core communication portfolio? Well, I think that's, that's certainly the theory. And, you know, I was the Once the AI comes into play, I think there's going to be a lot more applications that are coming on board. It will definitely take some time, and we will continue to observe the magnitude of AI-related product proliferation. And with our technology and capacity, we'll certainly be the biggest beneficiary of the going trend.

Speaker Change: AI devices.

Speaker Change: Hey, Jay.

Speaker Change: And any any occasion on our go to 25.

Speaker Change: <unk> been gaining in lithium EBITDA potentially our core communication portfolio, well I think that the certainly the theory and you know what was the.

Speaker Change: Was it must be yes.

Speaker Change: Conversely, you could play ethane is there's going to be a larger ASP devices.

Speaker Change: Or more applications that are coming on board.

Speaker Change: It will definitely take some time and we will continue to without sort of the magnitude of AI related product proliferation, and you know with our technology and capacity.

Speaker Change: It would be a bit.

The biggest beneficiary of the going trend.

Joseph Tung: I can't answer whether that's going to happen in a big way in 2025 or any specific timing, but we believe that is certainly the trend, and it's going to happen sooner or later. Thank you. That answers your question, right? Thank you. Please raise your hands.

Speaker Change: I can't answer whether that's going to happen in a big way and probably 45 or anytime.

Speaker Change: Any specific timing.

Speaker Change: We believe that is certainly the trend and if its going to happen sooner or later.

Speaker Change: Okay.

Speaker Change: That answers your question Matt.

Speaker Change: Thank you alright, thank you.

Speaker Change: Can you give us your opinion.

Speaker Change: Please raise your hand.

Hu Tzu: We have a follow-up question from Mr. Hu Tzu of Goldman Sachs.

Speaker Change #100: We have a follow up question from many deter Lu of Goldman Sachs.

Hu Tzu: Oh, okay. I got a question for the ATM gross margin. I think we were talking about like margin recovery a couple quarters ago.

Speaker Change #101: Oh I've got a question for the <unk>.

Speaker Change #101: And gross margin they were talking about our margin recovery a couple of quarters ago.

Joseph Tung: And, you know, but the gross margin for ATM is still around like low 20s even for the fourth quarter. But if you look at the business, the testing business is supposed to be higher gross margin, grow faster than other business. Your other business, you know, AI which is supposed to be a higher margin. And it's also exceed $500 million revenue, suggesting that a fourth quarter revenue can be even lower, supposed to be much higher.

Speaker Change #101: But the gross margin for ATM is still wrong low corn. This result for the fourth quarter.

You can look at the business the testing that's supposedly.

Speaker Change #101: Supposedly be higher gross margin grow faster than our auto business your or the vendors are you now.

Speaker Change #101: AI business, which of course would be higher.

Speaker Change #101: Margin is.

Speaker Change #101: There is also a positive unit revenues, suggesting about fourth quarter revenue is going to be where most of those are much higher.

Joseph Tung: So after the lower utilization rate from your mature technology capacity, is there anything we missed or anything we see as a margin headwind? I think for fourth quarter, we are We are facing a higher cost environment. Like I said, you know, a lot of the not just the hard , and John . We have a lot of cost that we need to put in for capacity. There is a lot of cost that we need to put in. There is a lot of R&D effort that we need to put in. Also, if we look at the overall environment, we are facing , you know, a lot of Weather Difficulties.

Speaker Change #102: So Arthur the lower utilization rates from you.

Speaker Change #102: You know what your technology capacity.

Speaker Change #102: Is there any thing we missed or anything we see that as a margin headwind.

Speaker Change #102: Hum.

Speaker Change #103: I think for fourth quarter, we are.

Speaker Change #103:

Speaker Change #103: We are facing a higher cost environment.

Speaker Change #103: Like I said, you know a lot of the.

Speaker Change #103: Not just the Oh.

Speaker Change #103:

Speaker Change #103: Cause that we need to put in for capacity.

Speaker Change #103: There's a lot of development cost that we need to put in there.

Speaker Change #103: There's a lot of R&D effort that we need to put in also if we are if we look at the overall environment we are facing.

Speaker Change #103: Yeah.

Speaker Change #103: Weather difficulties are.

Joseph Tung: We are looking at, we are having You know, the second round of electricity bill rates, you know, last time it was about 15%, and on top of it, starting from October, just another 14% increase in our electricity bill. We are staffing up for the new capacity that we're gonna put in. So a lot of the front-end investment that we need to put in, or expenses that we need to put to concerning does have an impact for our fourth quarter margin.

Speaker Change #103: We are looking at we are.

Speaker Change #103: Having oh.

Speaker Change #103:

You know the second round of electricity Bill rates.

Speaker Change #104: Uh huh.

Speaker Change #104: Your last night, it was about 15% and on top of it.

Speaker Change #104: Starting from October at this level.

Speaker Change #104: 14% increase in our electricity Bill.

Speaker Change #105: We are staffing up.

Speaker Change #105: Two will.

Speaker Change #105: There will be a new capacity that will be going to put in so a lot of the front end and our investment that we need to put in all of our expenses that we need to put a two to three.

Speaker Change #105: It does have an impact for our fourth quarter margin.

Joseph Tung: So we're kind of scrambling to... Although there are some upsides for us, including the... the higher percentage of test revenue. But I think the progress in that is not enough to offset all the other expenses that we will be We'll be encoding for a fourth quarter, and that's why... We're saying, you know, although we've got slight growth in our overall revenue. A margin doesn't seem to be... We'll pick up in terms of a margin for fourth quarter.

Speaker Change #105: So we're kind of scrambling to.

Speaker Change #105: Although there are there are some upside for us, including the Oh, the higher percentage of pest revenue.

Speaker Change #105: But that I think the.

Speaker Change #105: The progress in that.

Speaker Change #105: It's not.

Speaker Change #105: The offsets are all the other expenses that we will be.

Speaker Change #105: We'll be incurring for fourth quarter.

Speaker Change #105: That's why.

Speaker Change #105: Saying, though although with a slight growth in overall revenue.

Our margin business seem to be.

Speaker Change #105: It will be.

Speaker Change #105: A real pick up in terms of our margin for the fourth quarter.

Joseph Tung: But like I said, you know, once we get into a more steady state, we are very, very confident that we will be reaching our structural margin and more so on the higher end of that range. Can you restate your structural gross margin? And can you raise that after you achieve 1 billion dollar revenue from I think the structural margin continues to be 24 to 30 percent. And, uh, you know, um... Like I said, the for next year, it will be back end loaded basically in terms of a margin improvement. And because of a lot of the funding investment that we need to put in.

Speaker Change #105: Like I said, you know once we get into a steady state.

Speaker Change #105: We are very confident that we will be reaching our structural margin.

Speaker Change #105: And also all of the higher end of that.

Speaker Change #105: That range.

Speaker Change #106: So does that answer your question Bruce.

Speaker Change #105: Sure.

Speaker Change #107: Uh huh.

Speaker Change #108: Yeah, I'll restate your structural gross.

Speaker Change #107: Gross margin.

Speaker Change #107: Do you.

Speaker Change #107: As you'll raise that after you Oh.

Speaker Change #109: If you achieve a $1 billion revenue flow.

Speaker Change #109: On nature.

Speaker Change #109: Oh, I think the structural margin.

Speaker Change #109: We continue to be 24% to 30%.

Speaker Change #109: Is the you know.

Speaker Change #109: Said the so this year it will be backend.

Speaker Change #109: I get a little bit basically in terms of our margin improvement.

Speaker Change #109: And because of a lot of the front of it.

Speaker Change #109: I said that we need to put it.

Speaker Change #109: So.

Joseph Tung: This half of the year, and there's a lot of engineering R&D efforts that we need to put in.

Is half of the year and there's a lot of engineering R&D effort that we didn't get it.

Joseph Tung: Thank you.

Speaker Change #109: Thank you.

Charlie Chan: Next question is from Mr. Charlie Chan of Morgan Stanley.

Speaker Change #110: Next question is from Mr. Charlie Chan of Morgan Stanley.

Charlie Chan: Thanks, Eric, and thanks for taking my second question. So my question is about the end demand, especially recently there are several. Several companies reported very disappointed in Smartphone. related guidance, right? No matter MCOR or last night's Quovo. So I'm wondering whether ASE Associates in return of the smartphone with me, especially for the major U.S. brand smartphone, the so-called whole-cat, cat, or other cats.

Charlie Chan: Thanks, Eric and thanks for taking my call.

Charlie Chan: The main question so.

Charlie Chan: My question is about the and demand, especially.

Speaker Change #111: You said, yes several.

Speaker Change #111: Total company reported basis.

Speaker Change #111: It is disappointing smartphones.

Speaker Change #111: Our royalty guidance right no matter amcor or last night Corvo.

Speaker Change #111: So I'm wondering whether.

Speaker Change #111: He is here so we can at the time of the.

Speaker Change #111: Its novel liquid associated with a major U S. Brian Michael here.

Uh huh, so called the <unk>.

Joseph Tung: Thank you. You're looking for our view on the communications segment in particular. Yes, indeed. Yeah, because there are lots of noise, I would say.

Speaker Change #111: Okay, it's kind of a order pets.

Speaker Change #111: Youre looking for.

Speaker Change #111: Our.

Speaker Change #111: Our view on the communications segment.

Speaker Change #111: Segment.

So in particular assets.

Speaker Change #112: Yes, Glenn do you yet because there are a lot of noise I would say and.

Joseph Tung: And if you can also talk about automotive, that would be much appreciated, because also that's a different view there. Oh, okay, um... I think it's kind of hard to comment on noises that... that's playing around. I think we are, from our own perspective, we're seeing typical seasonality for smartphones going into fourth quarter and also in the coming quarters. At least from our own forecast, we're not seeing a huge or a large scale movement in our forecast. I think it's, as a general comment, I think the... I think both for communication and maybe for computing, I think things are, you know, kind of, I think the inventory issue is kind of behind us.

Speaker Change #112: You can also.

Speaker Change #113: Doug about automotive there'll be much I appreciate it because I would say that's sort of a different view there.

Speaker Change #113: Oh, okay.

Speaker Change #114: I think it's kind of hard to comment on noises that.

Speaker Change #114: That's laying around that I think we.

Speaker Change #115: For more from all perspective, we're seeing typical seasonality for smartphone.

Speaker Change #115: Going into the fourth quarter and.

Speaker Change #115: Also in the coming quarters.

Speaker Change #115: <unk>.

Speaker Change #115: We are.

Speaker Change #115: At least for multiple own forecasts, we're not seeing a huge.

Speaker Change #115: Q or a large scale.

Speaker Change #115: This is in our forecast.

Speaker Change #115: Mhm.

Speaker Change #115: It.

Speaker Change #115: As a general comment I think the.

Speaker Change #115:

Speaker Change #115: Okay, both therefore communication and Oh, maybe for computing.

Speaker Change #115: Things are a meal out of I think the inventory issues.

Speaker Change #115: The issue is kind of behind us.

Joseph Tung: But then I think the real question is how the end demand or the consumption is coming. how that is coming back at this point. And that remains to be seen. I think a lot of the noise may come from, you know, if it's a season. I think there's a lot of hype in terms of all the new devices coming out with AI features in it and whether those will be appealing and when these AI applications will be actually put in place for the consumers to enjoy. So there could be some timing gaps between, you know, a real products coming out when the consumption really starts to pick up.

Speaker Change #115: But then I think the real question is avia and.

Speaker Change #115: And demand or because obviously, there's a I mean.

Speaker Change #115: Or how is that coming back at this point and that we basically seen as they go along.

Speaker Change #115: A lot of the noise may come from Oh.

Speaker Change #115: The season.

Speaker Change #115: I think theres a lot of heightened in terms of.

Speaker Change #115: All they do.

Speaker Change #115: It is coming out with AI features are that that whether those will be appealing and win these applications will be as we put in place.

Speaker Change #115: For the consumer to enjoy.

Speaker Change #115:

Speaker Change #115: So there.

Speaker Change #115: There could be some timing gaps.

Speaker Change #115: Between.

Speaker Change #115: You know a real.

Speaker Change #115: Products coming out of winter when the consumption reassessed to pick up so there's a different.

Joseph Tung: So there's different kinds of noises flying around. But what we need to do is really to focus on our own businesses and see how that fluctuates and how that affects our business.

Speaker Change #115: Most of our voices, we're fighting around.

But what we need to do is really to focus on our own business and see.

Speaker Change #115: How that fluctuated.

Joseph Tung: And for the time being, at this point, we're seeing a stable fourth quarter in terms of all segments, although we're still seeing some softness in terms of automotive and maybe to some degree in industrial. Other than that, I think things are in kind of a normal pattern for us. Thank you. Yeah, it's a super, super helpful.

Speaker Change #115: Our federal business as well I mean at.

Speaker Change #115: At this point, we're seeing a stable fourth quarter.

So both segments.

Speaker Change #115: Although.

Speaker Change #115: We're still seeing some softness in terms of Automotives and maybe it's to some degree in industrial.

Speaker Change #115: Other than that things are better.

Speaker Change #115: Have a normal pattern for us.

Speaker Change #116: Thank you.

It's a super Super helpful and my second follow.

Joseph Tung: And my second follow up question is about, about your progress in burning. And so may I know, how do you think about your kind of cost structure? Meaning if you need to buy third party's burning tool, would that sort of dilute your margin for your future testing business? Uhhhh I think it's a little bit early to comment on that, you know, what kind of burning, what kind of specs for it and whether it goes burning. No problem. Thank you. Thanks again. Thank you. There's no more questions. All right.

Speaker Change #117: Follow up questions about.

Speaker Change #117: With all your progressing in burning and so may I know how do.

Speaker Change #117: Are you thinking about your.

Speaker Change #117: Kind of cost structure.

Meaning if you need to.

Speaker Change #117: By third parties barring tour with that Oh sort of it dilutes your margin for your future testing these things.

Speaker Change #117:

Speaker Change #118: I think there's a little bit early to comment.

Speaker Change #118: To comment on that are you know what kind of burning, though what kind of specs for it and.

Speaker Change #118: Whether those burning.

Speaker Change #118:

Capacity will be co signed over purchase themselves.

Speaker Change #118: It depends on what the.

Speaker Change #119: With your business looks like at this point I think it's very difficult for me to comment on that.

Speaker Change #120: No problem. Thank you. Thanks again.

Speaker Change #119: Yeah.

Speaker Change #119: There is no more question.

Speaker Change #119: Okay.

Joseph Tung: Well, thank you very much for attending the call. I'll turn it over to Joseph to close it all out. Okay, thank you all for attending our conference call, even at this typhoon. I think that overall we had a pretty good third quarter and a stable fourth, and you know, going into next year, I think we are We are very happy. Last but not least, I'd like to thank all of you for joining us today. And we'll be producing very good results for our shareholders and for ourselves. Thank you very much. Thank you. Goodbye.

Speaker Change #121: Alright, well. Thank you very much for attending the call and I'll turn it over to Joseph to close it all out okay. Thank you all for attending our conference call even at this type of thing.

Joseph Tung: I think that overall, we had a pretty good third quarter and a stable fourth and yoga going into next year I think we are we.

Speaker Change #121: We are very.

Recipe.

Speaker Change #121: Expanding on capacity for leading edge and also for tests.

Speaker Change #121: We believe that the momentum will continue to build into a 30 35.

We are really looking up for next year.

Speaker Change #121: And we'll be producing very good results for us.

Speaker Change #121: While shareholders Air Force Us Thank you very much.

Thank you.

Speaker Change #121: Goodbye.