ASE Technology Holding Co., Ltd.

Hello, I am Ken Shung, the head of investor relations for ASC Technology Holdings. Welcome to our third quarter 2021 earnings release. Thank you for attending our earnings presentation today. Please refer to the 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. For the purposes of this presentation, our dollar figures are generally stated in new Taiwan dollars, unless otherwise indicated. As a Taiwan-based company, our financials are presented in accordance with Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiary using Chinese GAAP. I am joined today by our CFO, Joseph Tung. For today's presentation, I will make the prepared remarks going over our financial results, and Joseph will be available to answer questions during the Q&A. During the quarter, ASE saw new historical highs in its revenues and profits led by strength within our ATM business. Despite electronic industry challenges with various supply chain shortages, the overall health of our businesses remain relatively strong. During the third quarter, our ATM factory lines remained highly utilized through the entire quarter, despite some device order volatility. Supply chain security still appears to be of primary importance to our customers. Even as certain parts of the supply chain appear to be improving in health, various shortages such as wafers and substrates continue to persist. Meanwhile, some of our capital equipment installations for the current season have been completed. And while it's true, lead times on some equipment have come in, but others remain in short supply. Our EMS business also completed the quarter with strong year-over-year growth in revenues, despite finishing the quarter slightly behind our own expectations. Our EMS factories still faced significant challenges related to component shortages and supply chain issues disrupting end product manufacturing. Things continue to be sticky with the various manufacturing limitations making EMS factories run less smoothly. With that said, let's go over the numbers for the quarter. Please turn to page three where you will find our third quarter consolidated results. Intercompany transactions between our ATM and EMS businesses have been eliminated during consolidation. For the third quarter, we recorded fully diluted EPS of $3.20 and basic EPS of $3.29. Year-to-date fully diluted and basic EPS is now $7.43 and $7.66, respectively. Consolidated net revenue increased by 19% quarter over quarter and by 22% year over year. The sequential increase was primarily driven by growth within both our ATM and EMS businesses. We had a gross profit of $30.8 billion with a gross margin of 20.4%. Our gross margin improved by 0.9 percentage points sequentially and by 4.4 percentage points year-over-year. Our gross margin improvement is primarily driven by margin improvement in our ATM business, offset in part by higher EMS business mix. Our operating expenses increased by $0.8 billion sequentially and $1.8 billion annually to $12.4 billion. Our operating expense percentage declined one percentage point sequentially and 0.4 percentage points year over year to 8.2%. For the full year, we continue to see an improvement from last year's 9% level. Operating profit was $18.4 billion, up 40% sequentially and 102% year over year. Operating margin increased 1.8 percentage points sequentially and 4.8 percentage points year over year to 12.2%. During the quarter, our non-operating income was zero and contains $0.6 billion of net interest expense offset entirely by gains related to our foreign exchange hedging activities, investments, and asset sales. Tax expense for the quarter was $3.6 billion. The effective tax rate for the third quarter was 20%, slightly lower than our expectation. As a result of increased profitability, we were able to offset the recognition of our annual undistributed earnings tax with higher recognition of deferred tax assets during the quarter. Going forward, we continue to believe our ongoing effective tax rate to be about 20%. Net income for the quarter was $14.2 billion, representing an increase of $3.9 billion sequentially and an improvement of $7.5 billion year over year. From a foreign exchange perspective, NT dollar per U.S. dollar exchange rate was at 27.8 during the third quarter of 2021, $28 NT during the second quarter of 2021, and 29.5 NT dollars during the third quarter of 2020. we approximate that NT dollar appreciation had a negative 0.3 percentage point impact sequentially and a negative 1.7 percentage point impact year over year to both gross and operating margins at the holding company level. 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 $31.7 billion with a 21.1% gross margin. Operating profit would be $19.6 billion with an operating margin of 13%. Net profit would be $15.4 billion with a net margin of 10.2%. Basic EPS excluding PPA expenses would be $3.56. On page four is our ATM P&L. It is worth noting here that the ATM revenue reported here contains revenue eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses. Business grew rapidly during the quarter. A strong seasonal uptick in advanced packaging led the way driven by applications in the computing and communications and markets. Utilization rates across our key equipment were full or near full. For the third quarter of 2021, revenues for our ATM business were $90.1 billion up $11.1 billion from the previous quarter, and up $18.3 billion from the same period last year. This represents a 14.1% increase sequentially and a 25.4% increase year over year. On a U.S. dollar basis, our ATM revenues grew by 15% sequentially, which is slightly ahead of our own expectations. Gross profits for our ATM business was $24.7 billion, up $4.5 billion sequentially, and $10.2 billion year over year. Gross profit margin for our ATM business was 27.4%, up 1.8 percentage points sequentially, and 7.2 percentage points year over year. Our sequential gross margin improvement was primarily due to higher loading offset in part by a higher raw material product mix and Forex impact. The year-over-year gross margin improvement was primarily the result of higher loading, improved efficiency, and a friendlier ASP environment offset somewhat by NT dollar appreciation. During the third quarter, operating expenses were $9.1 billion up $0.7 billion sequentially and $1.4 billion year-over-year. The sequential and annual operating expense increases were primarily driven by higher employee bonuses, which are based on a profit-sharing model. Our operating expense percentage continued to decline to 10.1%, down 0.5 percentage points sequentially, and down 0.7 percentage points year over year. During the third quarter, operating profit was $15.6 billion, representing an improvement of $3.8 billion quarter over quarter and an improvement of $8.8 billion year over year. Operating margin was 17.3%, improving 2.3 percentage points sequentially and 7.8 percentage points year-over-year. From a foreign exchange perspective, we approximate that NT dollar appreciation had a negative 0.4 percentage point impact sequentially and a negative 2.5 percentage point impact year-over-year to both gross and operating margins at the holding company level. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 28.4% and operating profit margin would be 18.6%. On page 5, you'll find a graphical representation of our ATM P&L. ATM revenue for the quarter represents an all-time high. We believe that the current year strength has been generated by strong demand across all product lines, including various trailing edge wire bond based capacities. a revival in use and a reset in terms of profitability in wire-bonded product lines have helped boost business for us during 2021. Going forward, we believe that wire-bonded products will continue to grow along with our advanced packaging product lines. From an application of technology perspective, we increasingly see more opportunities for our ATM technologies to proliferate into subsystem and system level manufacturing. These products service a growing market created by increased transistor costs at leading edge nodes and expanding consumer appetites for smaller, more elegant electronic solutions. We increasingly provide cost effective manufacturing solutions that make visionary products viable. On page six, is our ATM revenue by market segment. You can see here a pickup in our communications and computing market segments with a decline in automotive, consumer, and other products. On an absolute revenue perspective, all segments grew. Of particular interest is that our automotive business grew 68% on a year over year basis. we believe that the automotive market segment will be a significant contributor to our own growth during the coming year. On page seven, you will find our ATM revenue by service type. As we mentioned last quarter, our advanced packaging business picked up in accordance with our expectations, increasing three percentage points, becoming 36% of our ATM revenues. Wire bonding as a percentage of revenue came down three percentage points, but on an absolute dollar basis, wire bond revenue grew 7% sequentially. On page eight, you can see the results of our EMS business and a graphical representation of our EMS revenue by application. The information we provide in regards to our EMS business may differ materially from the information directly provided by our subsidiary, as they report independently using Chinese GAAP. The overall environment at the EMS level has been sticky. Mass production continues to be choppy. Component shortages and supply chain deviations made their impacts felt during the quarter. And when we look at the entire situation, we believe we have been adversely impacted by various upstream component shortages and downstream manufacturing issues. This resulted in manufacturing delays for multiple devices and customers. This is why our third quarter EMS revenues came in slightly behind our expectations. Fortunately, we do believe that most of the impacted revenue will get pushed out into later quarters, but overall manufacturing throughput continues to be choppy, limiting production efficiency. During the third quarter, EMS revenues increased by 24% sequentially and 15% year over year. Our EMS gross profit was $5.9 billion, increasing $1.4 billion sequentially and $0.8 billion year-over-year. The sequential EMS gross profit increase was the result of the seasonal build. The year-over-year gross profit increase was the result of a higher volume business. Gross profit margin for our EMS business unit came in at 9.6%, which is an improvement of 0.5 percentage points sequentially and a decline of 0.1 percentage points year over year. The sequential improvement is primarily the result of cost differences from differing product mix and better utilization. On a year over year basis, there is a slight decline in gross margin due to new facility ramp up costs. Our EMS business units third quarter operating expenses were $3.2 billion flat sequentially while increasing $0.4 billion year over year. Annual operating expenses are up primarily as a result of a larger operating base. Our operating expense percentage declined 1.2 percentage points sequentially to 5.3% while staying flat year over year. The sequential operating expense percentage decline was primarily driven by flat operating costs with higher revenues. Our EMS operating profit improved $1.4 billion sequentially and $0.3 billion year over year. Our EMS operating margin was 4.3%, improving 1.7 percentage points sequentially and declining 0.1 percentage points year over year. The overall difficult manufacturing environment continues to persist. We were able to exceed our targeted 4% operating margin in the third quarter and likely will in the fourth quarter. However, for the full year, we believe that we will be unable to reach our EMS operating margin target of 4%. We believe that the operating margin variance is generally attributable to IC shortages and the COVID-19 operating environment. We expect some improvement in the operating environment next year, and as such, we believe a 4% operating margin target continues to be applicable for future years. On the bottom half of the page, you will find a graphical representation of our EMS revenue by application. Consumer product revenues as a percentage of total increased five percentage points in line with its seasonality, while our industrial segment came down 4 percentage points. On page 9, you will find key line items from our balance sheet. Total unused credit lines amounted to $261.5 billion. After payment of our dividend in the third quarter, our net debt-to-equity ratio temporarily increased to 71%. On page 10, you'll find our equipment capital expenditures. Amounts on this slide are denoted in U.S. dollars. Machinery and equipment capital expenditures for the third quarter totaled $468 million, of which $294 million were used in packaging, $101 million in testing, $60 million in EMS operations, and $13 million in interconnect materials and others. And at this time, we see a slight uptick in our capital expenditures, now up 25% from last year. This pickup in expected capital spending relates to additional opportunities in advanced packaging and test business generated by our turnkey strategy. Financially speaking, our equipment capital expenditures expand factory capacity. and utilization of that factory capacity generates EBITDA. Each equipment capital investment scales up facilities to generate additional revenue and EBITDA. This chart represents the ongoing EBITDA generating capability of the company. EBITDA for the most recent four quarters was 3.9 billion U.S. dollars. significantly ahead of our capex even in a high capex timeframe. 3.9 billion US dollars of EBITDA stated another way represents 25.8 NT dollars of EBITDA per share. As of the end of the third quarter, capital equipment availability for certain product lines appeared to be normalizing. However, this situation was not across the board for us. there are still extended lead times for certain pieces of capital equipment. For many product lines, we are still running capacity constraint and still in need of capacity expansion. We have noticed, especially recently, that much is being made about the timing of our capital equipment decisions. We understand this from a simplified perspective may serve as a predictive indicator. But this indicator can easily be misinterpreted as it means different things during different times of the season and in different contexts. Spending on capital equipment fundamentally indicates that we believe there is an additional production capacity needed for sustained new business. But what does our capital expenditures leveling off during a record year mean? And here is where some of the confusion seems to exist. It means that for this season, after a period of rapid expansion, factory capacity is finally aligned with near-term expansion needs and goals. We have historically had the luxury of being able to judge our capital expenditures with a relatively short lead time. meaning we traditionally finalize our equipment orders about three to six months ahead of delivery. This allows for a finer level of precision and granularity, as well as better alignment with incoming business. Because of these short lead times and the annual seasonality of electronics, this intersection of capacity and expansion goals happens every single year. In fact, this intersection is actually happening substantially later in the year than in previous years. Our wire bonding capex leveling off this late in the manufacturing season actually means there was strong demand this year and capacity took a long time to catch up. In short, we are having a really good year. What it doesn't mean from our perspective is that a near-term correction is coming. Quite to the contrary, we still see growth in our business next year. We usually do not make detailed comments on next year's outlook this early, but given the level of volatility driven by what would seem to be a focus on noise versus the actual signal, we feel it prudent to express a more extensive view. We are again put into a position, much like we were last year at this time, in which the company's outlook signaled strength amongst generally cautious sentiment. The overall manufacturing environment remains positive for us, but admittedly, some of the data is a bit difficult to interpret. And while we do not presume to have the definitive answer on the semiconductor cycle, we do wish to express that we continue to have strong order flow from the vast majority of our customers with orders extending well into 2022 and some as far out as 2023, well beyond normal booking times. From a more macro perspective, Our data points taken along with the understanding that global wafer supply remains in severe shortage. This shortage is at a grand scale, causing design products unable to find manufacturing slots across the semiconductor manufacturing supply chain. Products with high promise relating to 5G, AI, IoT, and ADAS are being delayed, if not outright being canceled in this environment. Despite noise of double booking, product and in-market softness, we believe there still exists substantial pent-up demand. Barring a significant industry-wide correction, we expect whatever future slack and wafer demand to be quickly taken up by other customers and products looking for production slots during this shortage environment. As such, we believe it's reasonable to continue to expect a somewhat full and linearized delivery pattern of wafers, leaving relatively little room for seasonal softness. With that said, We expect our own manufacturing linearization to continue, resulting in a better than seasonal first quarter outlook and extending into healthy but moderated growth during 2022. This seems to be in line with much of the industry. We would like to defer to Dr. Wu's year-end presentation for more detail, but given this macro environment, we see full year sales and earnings growth based upon simple annualization of our recent quarter's results. And using that same logic, we expect full year margins should also continue to expand. This is all before we even consider new high-end wafer capacity entering the system, efficiency gains, market share gains, and additional outsourcing from IDMs. From a pricing perspective, even though we may not see as many expedite fees this coming year, we believe the ASP environment will continue to be friendly. Pulling things back to the fourth quarter immediately in front of us, we expect for our product lines to remain loaded with business most likely staying steady. There are potential issues with substrate and downstream shortages, but we do believe things are manageable at this point. With that, we would like to provide our fourth quarter business outlook as follows. In US dollar terms, our ATM fourth quarter 2021 business level should be similar to our third quarter 2021 business level. Our ATM fourth quarter 2021 gross margin should be similar to our third quarter 2021 gross margin. For our EMS business and US dollar terms, our EMS fourth quarter 2021 business level should come close to our fourth quarter 2020 levels. Our EMS fourth quarter 2021 operating margin should come close to our third quarter 2021 operating margin. This concludes our prepared remarks I'd like to open the floor for Q&A. If you have a question, please raise your hand in the WebEx interface in front of you. Thank you.

We have a question from Mr. Goku Hariharan of JP Morgan. Goku? Goku, can you hear me? We have another question from Mr. Siho Ng of China Renaissance. Zihao.

Hello. Hello. Hi.

Yes, Zihao.

Can you hear me?

Yes.

Oh, yeah. My first question is regarding the China power rationing. I'm not sure if there's any impact to your Q4 business guidance.

Zihao, are you asking about the power rationing?

Yeah, the power shortage in China. Any impact to the business outlook in Q4?

It has very, very limited impact on us. I think the shortage through some of the logistic arrangements that we can have and also the support from the local government. I think the impact, there could be some minor disruptions on the operation, but the impact is very, very minimal. It's almost negligible.

Okay, good. My second question, given the fact that a lot of your customers are already on the long-term agreement arrangement, just one to know if the arrangement is more like a take-or-pay arrangement or there will be some flexibility of rescheduling in time spent with availabilities or some components in shortage?

Well, I think the long-term agreement is really for the customers to – it's a product of their seeking for supply security. particularly when we are having a capacity shortage as well as material and also wafer shortages. I think a lot of customers are a bit concerned with the current situation and they want to have a more stable supply. And I think that's really the reason why we have such long-term agreements. And, you know, it does create some stability for both our customers as well as for us.

Oh, that's true. But what about if they are not able to get the waiver, then would you impose a penalty if they are not able to load up our capacity, or you would basically allow them to reschedule and load up the capacity at a later time?

This is really the arrangement to have a better visibility or stability for our customers in terms of supply. I think there's no way it's being regarded as a tool for penalizing our customers because of the difficulty that they're facing.

Sure, sure. Okay, all right. And my last question, regarding the tax spending this year, is it all right to have a breakdown by location? Very rough breakdown would be fine. Okay, in terms of... Let's see how much in Taiwan, how much in China, Korea, for example.

Oh, geographical breakdown.

Right, right, right.

I would say about 85% is still in Taiwan and about 15% in China and other places.

Okay. All right. Okay. Thank you very much. Congratulations.

Thank you.

Next question is from Mr. Randy Abraham of Radio Suisse. Randy. Randy. Next question is from Mr. Rick Shude of Daiwa. Rick, please go ahead.

Hello?

Yes.

Okay. Yeah, I just want to make sure because it seems to be some system issue. Okay, so my first question, again, is housekeeping. Was your utilization rates across the board well-bound? testing and free shipping Q3 and then Q4, please.

Overall, I think packaging wise, we're still running at full capacity, basically above 85%, and that will continue into Q4. And the test is, as we mentioned, above 80%, and also continuing to Q4.

Okay, great. The second question is, It appears to be some disconnect between the sell-in and sell-through demand, meaning that when we look at the sell-in, right, the order from your customers and still very, very full, and also some customers still fighting for capacity, not only at your end, but also in the foundry space. So still very strong sell-in demand. However, sell-through, I think you guys must have heard some noises recently from Android smartphone sell-through, not so good. And TV also return week. Chromebook is coming down. So I'm just, you know, wondering how do you guys see this mismatch between the selling and sell-through? And are you worried about any, you know, snowball effect going forward into Q1 next year for the inventory market?

know inventory correction risk no i i think the uh what we're seeing here or what we're hearing is that you know there are some uh appeared immense softness in some some segments but all these are very very localized and is subject to only maybe a small portion of the overall i think the uh the in general The whole industry is still going through a rapid growth period because we're seeing rising IC content. We're seeing many more new applications coming on stream, including AI, 5G, IoT, EV, autonomous driving, and so on and so forth. So the unit continues to grow. because of the rising IC content as well as the new application coming on stream. So, you know, one particular, we're not seeing an overall widespread correction. In fact, we're still going through trying to catch up with the demand. As Ken mentioned earlier on, there's still a lot of pent-up demand that's going through, and we're still in a catching up kind of mode. Okay. I don't think there's really a disconnect. It's just that, you know, because of the shortages in terms of wafer and substrates and all kinds of different disruptions in terms of operation around the globe, because of the pandemic, I think right now the supply is still, you know, kind of short, and we're still chasing to add capacity to meet our customers' demand.

Okay, great. Yeah, that's good news to hear about. My last question is about your pricing power or your friendly pricing. Can you talk about this? Do you still see friendly pricing trend going forward into Q4 and Q1 this year?

Yeah, I think for right now, the pricing environment is still friendly, and we think it was – even go into uh next year as well i think what we meant by uh pricing friendly is really the price level the oil price the environment that can help us better protect our margin and also even to improve our return moving forward okay great um yeah thank you so much thank you

Our next question is from Mr. Goku Hariharan of JP Morgan.

Yes. Okay, thank you. First of all, many of your peers and customers have talked about inventory mismatch in the supply chain where you have more inventory of some components and very less inventory of something in most of the supply chains. Is it consistent with what you're seeing? And in your experience, how do you think the situation resolves itself if we think about the next three to six month kind of timeframe? Because it feels like right now it's not an outright shortage for every component, but it feels like some are in abundant supply, but some are in severe short supply. So I just wanted to hear your take. That's my first question.

Yeah, there's still a lot of mismatches going on at this point. And that's part of the reasons why we're seeing our EMS business is not growing as we were expecting. And this situation will continue because in various areas, there's still shortages in terms of way first in terms of some of the packaging equipments or even test equipments that we're trying to add. And material is also one concern areas. And if you look at the overall supply situation, the capacity increase for the year, at least for the OSAT part of it, I think the CapEx to sales ratio continue to be maintained at about below 200% level. And that means maybe adding, you know, 10, 15% of our capacity to meet the growing demand. And this is being, this additional capacity has really been outstripped by the growing demand at this point. And, you know, adding capacity is not an easy thing. And this mismatch is gonna be, it's gonna last for quite some time. I don't see, Uh, you know, real solutions within the next 6 to 9 months or even a year period.

Okay, I think the last time we talked about 2021 growth being 2 X of logic semis.

and it seems like we are pretty much on track to that um are we going to keep that kind of momentum going into next year also or you think that there will be a little bit more of a normalization in terms of growth as we look at next year yeah i think um you know two times logic semi growth is still our goal and uh we are very confident that we will continue to uh to reach that goal because the uh the overall demand is strong and on top of the unit growth that we mentioned uh in the industry. We're also seeing increasing outsourcing. We're expecting to continue to gain market share. A lot of this really push for our growth coming into next year. So we're very, very confident that we will continue to reach that goal.

All right, let's do it. Thank you. Let's say we, hypothetically at least, we get a downturn at some point and utilization rates go back to maybe 70%, 75% from the high 80% that we have for many of the parts of the supply chain. What would happen to – like how do you think the long-term loading agreements and price increases behave? Are there any kind of – riders in your contract with your customers where there could be some of these price increases that you have seen get rolled back. I just wanted to understand how I think how the next downturn will look like and how different it is going to be from previous downturns.

Well, of course, the the long term agreement, you know what it means is really a more predictable volume as well as pricing. for a longer term period. It does create another layer of buffer for both of our customers as well as us. But then I don't see we're expecting any major downturn coming anytime soon because like I said, the new application is still at their early stage and we're seeing tremendous opportunities in terms of unit growth. Plus our leading position today, we'll get the, not only the also sitting trend is continuing or accelerating, and we will get the lion's share of that. And also given our position, we would believe that we will continue to gain market share. So all of that creates a very strong support to our continuing growth.

Got it. Last question from my side. How should we think about CapEx for next? It looks like CapEx is likely to go down next year. Now your EBITDA has also improved quite a bit over the last several quarters. Any indications on how you're going to be using that increased EBITDA? Are we going to see a significant increase in dividends? Or is it primarily for debt repayment? I just wanted to understand both on the CapEx side and use of EBITDA as we go into next year.

Well, I think it's a little bit too early to talk about our capex for next year, but I can say that we will continue to make the necessary investments at the appropriate capacity to meet our customer needs. At this point, you know, it is also true that our cash flow situation continues to improve, and we're expecting further improvement into next year. At this point, we don't have a fixed plan on how do we want to utilize that cash flow, but it really depends on the opportunity. When it prevails, we will make the suitable usage of this cash.

Got it. Yeah. Thank you very much.

Thank you.

We have a question from Mr. Randy Abraham of Credit Suisse. Randy, please unmute your microphone.

Okay, thank you. Okay, yeah, I wanted to ask a couple of clarifications to remarks. You mentioned for fourth quarter that you're still, or I should say overall, you mentioned you're still trying to catch up to demand for ICATM that you're guiding fourth quarter flat. So is that a function you're supply-constrained, being able to ship more, or is it a mismatch on where you have capacity? I know it's been a strong year to date, but if you're catching up to demand-wise, it wouldn't be growing further into fourth quarter.

I think the – first of all, I think the fourth quarter is really a typical quarter for us. It's also coming off a very stronger-than-expected third quarter. So I don't – We're not seeing anything abnormal at this point. And yes, the shortage does create some problem for us, for us to continue to make more shipments out. So I think it's a combination of coming off a stronger than expected third quarter, as well as continue to have some material or even wait for shortages. that we're seeing.

And to follow up on the capex question, should we think of it this year? I think you still talked about a bit of moderation, like still healthy growth cycle, but moderation. Is that the view we should think on the overall spending, though, that this was probably a high point for what you need to put in or add in some moderation? And then would there be a shift where it's been a huge catch up? And I think your bonders have been up about 20%. So like a shift and mix toward advanced packaging and tests, or do you think pretty similar?

Yeah, I think for next year, I think more of the weight will be put on advanced packaging as well as tests. I think we'll continue to see making progress in terms of raising our turnkey ratio. So we're seeing pretty good potential for us to grow our test business going forward. events, you know, even starting from third quarter, we're seeing events packaging to start picking up their pace comparing to wire bonding, although both are, we're still seeing growth. So next year, I think more will be spent. This year, we kind of doubled our capex for wire bonding. And next year, I think the pattern will be shifting somewhat to more to advanced packaging as well as test.

And I'm not sure if I missed it. Would the spending level be at, I guess, direction, it feels like, after growing a good bit this year? Maybe it feels like maybe down a bit next year?

I think we're still in the budgeting cycle, and we're looking at how the business will come in. And we'll try to come up with the suitable CapEx budget for the year. Right now, I think it's kind of too early to say how much down or how much up we'll have on CapEx for next year. One thing is for sure that we will continue to invest. I think there's still a lot of pent-up demand for us to catch up with.

And to follow up two parts, one, you mentioned share gain. Is there a certain part, is a view generally across the business or is there a certain area you're seeing particular market share strength?

I think given the position that we're in, I think the outsourcing is, we're seeing outsourcing picking up and the The reason why it's picking up is because a lot of the, there's some market share changes or business model changes among our customers. So some of the new products that's coming out will be outsourced rather than being done in-house. And we will get the land shares of that. And from that point on, I think you will continue to gain market share.

I guess in terms of – I'm just trying to think of the products. Like, is there a way to think – are these, like, more compute, like high-performance compute area?

I think it's all across the board. I think, you know, in terms of automotive, I think we're making very, very strong progress, and we'll continue to gain share on that front. And for communication and for high-performance computing, I think the, you know, When the industry go into more advanced nodes, I think we will be able to grab most of the business opportunities coming out.

For automotive, your sales up, I think you said 68%. What's your take in terms of for your business catching up on supply? Because there's been downstream limiting quite a bit of vehicle production. or even to the point there might be a slowdown. There's a good content story, but how do you feel in terms of catching up or how you see continued growth out of automotive?

I think the industry is really scrambled to increase the wafer supply for automotive, and On our end, we are very, very aggressive in terms of further automating our factories which are more suitable for automotive parts. And I think from both directions, I think that gave us a very, very good opportunity to continue to expand our automotive part of the business.

All right. And just a couple final, the demand softness in some segments, are there particular areas you're seeing a bit of that softness show up?

Well, I think everybody's talking about, you know, the PC, talking about the Android-based cell phones, you know, the cell tool in China is not as strong as we're expecting. But I think, you know, overall, in terms of units, cell phone, both cell phone and PC are still growing. I mean, it's not that it's collapsing now. So we're seeing that continuing at a healthy level. And also, you know, even with these, you know, These products that seem to have some weakness of demand, bear in mind the IC content of these devices continue to grow. So, you know, this will still be a very strong demand segment for us.

And the last question, just on the EMS business, with the push-outs and a lot of the manufacturing IC constraints, Should it be the expectation – you mentioned ICATM above seasonal. Are you seeing that potential of shift where some production pushes out to first quarter?

You mean for us, for the ATM?

Yeah, for your EMS business.

Yes, there is some push out to first quarter. And so we're expecting a better than seasonal quarter for EMS as well.

Great. Thanks a lot, Joseph and Ken.

Thank you.

Next question is from Mr. Charlie Chen of Morgan Stanley. Charlie.

taking my question. So my question is about this year again, right? I mean, apparently, starting from June, there was some lockdown for Southeast Asia, biggest facility in particular in Malaysia. Does the company see a kind of order transfer from customers there? And now it seems like Malaysia, the the fab is recovering. Do you think that you can retain those transferred orders?

Thank you. You know, all our factories are running pretty full, so it's a bit difficult to move the volume around for us. Yes, there was a bit of a disruption. in the Southeast Asia side of ours. But I think the situation is under control now and think of back to normal. I think the overall impact is quite small for us.

OK, thanks. Yeah. And then now we start to hear, as you said, the substrate is kind of a big constraint and it seems like you also have your own you know, substrate supply, right? So how soon do you think does the LiFran supply can stabilize and catch up the customer's demand? You are referring to LiFran? LiFran or substrates?

What we have is substrates and it does create a good buffer for us to manage our overall substrate supply. Right now, about 20% of our internal use is being supplied by ourselves. I think the factories, our substrate factories are running very full at this time, and they are also scrambled to add capacity to help soften the situation for us.

Okay, and So lead frame, you need to source from third party, right? And several, you know, the IC, IBM, they kind of refer that lead frame is, you know, a big shortage right now. So any comment on that? I mean, the lead frame supply, whether they can catch up the demand?

Um, I hear it here and there from some of our sites that there seems to be a little bit, you know, the difference seems to be a little bit choppy. But I think overall the situation is still being managed quite well. I don't think there's any big problems in terms of leverage supply.

Okay. Okay. And lastly, I know that the company maintained capexing work on their installation, right? But I'm not sure why, but previously there was some industry chatter about why they're on the pushback. And if you look at not your major supplier, right, but ASM Pacific, their BB ratio dropped to 0.9 for the third quarter. It seems like a bookend for wirebounders is coming down. Can you help us to understand what's going on here? Do you really need to push out some wirebounders?

I think we are on track with our boundary installation for the year. I think what we mentioned to earlier on is that we we expect to have food delivery by october and we are we are getting that we're on track on that and so we believe that we'll there will be continuous uh we'll continue to make investment but uh on the on the boundary itself it's uh it's more it's balanced now it's more balanced now you know there's the uh the uh line balancing equipment is still lagging and uh in fourth quarter we will continue to uh to add those capacity uh for line balancing purposes and for next year you know there's still uh quite a bit of uh demand that we uh quite a bit of requirement that we will have for wire bonding uh particularly when we're seeing that uh uh wire bonding business will continue to grow uh in the in the automotive segment. So there's going to be further demand from us.

Great. And yeah, so it would be super helpful if you can provide that work on the lead time as you did over the past three quarters for those to get a sense.

Thank you. Lead time, I think it's... Maybe three to six months.

Okay. Yeah, it seems less tight, right? Okay. How about those fleet chip equipments? Do you feel like it's still very difficult to get a fleet chip rated at capacity or is it quite available? Meaning a fleet chip for testers?

I think the overall situation is that you'll the equipment lead time is still long because there's still a lot of mismatches in the whole value chain. So it's kind of difficult to predict how long this lead time will, a long lead time situation will resolve itself, how long it will take.

Okay, okay. Thanks, Joseph. Thank you. Thank you.

If you have any question, please raise your hand now. Thank you. We have a question from Mr. Bruce Lu of Goldman Sachs. Bruce.

Hi, Bruce.

Bruce, please unmute your microphone.

I think we're having some technical issues with this.

Bruce, can you hear me? Please unmute your microphone from your side. We have a question from Mr. Jeff Oberler. Mr. Jeff Wheeler, please unmute your microphone. Hi, Jeff.

I think we're having some technical challenges with the conference rate system. Apologies on that. I think for lack of any way to get these questions in, I think we're gonna have to conclude the call at this time. All right, thank you very much for attending and we look forward to talking to you soon. Thank you.