ASE Technology Holding Co., Ltd.

Hello, I am Ken Shung, the head of investor relations for ASC Technology Holdings. Welcome to our third quarter 2022 earnings release. Thank you for attending our conference call today. 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. 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. Intercompany transactions between our ATM and EMS businesses have been eliminated during consolidation, but appear within business unit results. For today's call, I am joined by Joseph Tung, our CFO. During the call, I will go over our financial results and outlook. Joseph will be available to answer questions during the Q&A session that follows. Also, as a reminder, we disposed of ASE Inc.' 's China sites at the end of 2021. For our financial results presented here, in addition to our legal entity results, we have included information on a pro forma basis, or as if the disposition of ASE Inc.' 's China sites had already occurred. We believe the pro forma results give additional meaningful information, which would assist in providing comparability of our financial results. For the purposes of this presentation, we will generally discuss our full company and ATM third quarter results sequentially, compared with second quarter legal entity results and year-over-year compared with pro forma third quarter 2021. Please turn to page 3 where you will find our third quarter consolidated results with legal entity and pro forma basis comparisons. For the third quarter, we recorded fully diluted EPS of $3.92 and basic EPS of $4.03. Consolidated net revenue increased 18% sequentially and 25% year-over-year. We had a gross profit of $38 billion with a gross margin of 20.1%. Our gross margin declined by 1.3 percentage points sequentially. and 0.3 percentage points year-over-year. The sequential and annual margin decreases were primarily attributable to higher EMS business mix offset in part by favorable currency conditions within our ATM and EMS businesses. Our operating expenses increased sequentially by $0.5 billion during the third quarter to $14.3 billion. primarily as a result of higher R&D expenses with new product introductions, or MPIs, and higher profit-sharing expenses during the quarter. On a year-over-year basis, our operating expenses increased by $1.9 billion mainly from the increase of scale in both of our ATM and EMS businesses. Our operating expense percentage declined sequentially to 7.6%. On an annual basis, our operating expense percentage declined one percentage point from 8.6%. Improvements in operating expense percentage were achieved as a result of operating leverage created. Operating profit was $23.7 billion, up $3.1 billion sequentially, and $5.3 billion year-over-year. Operating margin was 12.6%, declining 0.2 percentage points sequentially. Operating margin increased 0.3 percentage points on an annual basis as a result of higher operating leverage. During the quarter, we had a 0.1 billion net non-operating loss. This amount included gain from our net foreign exchange hedging activities offset in full by net interest expense of $1 billion. Interest expense is higher as a result of higher interest rates on our floating rate debt and higher borrowing after our dividend distribution during the quarter. Tax expense for the quarter was $5 billion. The effective tax rate for the third quarter was 21.4%. We expect the tax rate to taper down during the fourth quarter. We now expect a full year effective tax rate being closer to 21%. Net income for the quarter was $17.5 billion, representing an improvement of $1.5 billion sequentially and $3.3 billion year-over-year. The US dollar strengthened against the NT dollar and the Chinese yuan during the third quarter. Sequentially, we estimate that currency fluctuation had a 1.2 percentage point beneficial impact to our holding company gross margin. From a year-over-year perspective, we estimate that currency fluctuation had a 3.1 percentage point positive impact to gross margin. On the bottom of the page, we provide key P&L line items without the inclusion of PPA-related expenses. Consolidated gross profit would be $38.9 billion with a 20.6% gross margin. Operating profit would be $24.9 billion with an operating margin of 13.2%. Net profit would be $18.6 billion with a net margin of 9.9%. Basic EPS excluding PPA expenses would be $4.30. On page four is a graphical presentation of our consolidated financial performance. The overall gross margin performance of the company fluctuates somewhat generally in line with the mix of EMS revenue relative to our ATM revenue. The overall profitability of the businesses have improved with increased business scale. Despite the business environment appearing to slow down, we still delivered record revenues and operating profit at the holding company level and at each of our ATM and EMS business units. On page 5 is our ATM P&L with historical results on a legal entity and pro forma basis. During the third quarter, on a U.S. dollar basis, our ATM business revenues performed in line with our original outlook. Capacities continued to be relatively tight during the quarter and with strong demand for our advanced and SIP products, leading to higher material content. Overall demand for our services remained strong despite ongoing inventory digestion. Customer forecast achievement was also relatively good during the quarter. We did not see major surprises to either the upside or downside, although forecast adjustments for future quarters were more dynamic. Certain communications, automotive, and networking products were relatively stronger during the quarter. On the expense side of our ATM business, as somewhat anticipated, we continue to see a higher cost environment relating to various unfavorable macro situations. In particular, we are noting some inflationary impact on our cost of goods sold, including costs related to various bills of material, energy costs, and rising labor rates. These impacts have largely been offset by local currency depreciation and higher pass-through pricing to our customers. For the third quarter, revenues for our ATM business were a record $98.8 billion, up $3.8 billion from the previous quarter and up $8.7 billion from the same period last year. This represents a 4% increase sequentially and a 10% increase year-over-year. Gross profit for our ATM business was $28.8 billion, up $1.1 billion sequentially, and up $4.1 billion year-over-year. Gross profit margin for our ATM business was 29.2%, flat sequentially, and up 1.8 percentage points year-over-year. The sequential gross margins were flat primarily due to the effect of NT dollar depreciation offset by higher raw material product mix and higher utility costs. The year-over-year gross profit margin improvement was primarily attributable to business scale benefits and NT dollar depreciation offsetting the negative impact of a higher raw material product mix and increases in other manufacturing costs. During the third quarter, operating expenses were $10.2 billion, up $0.4 billion sequentially and $1.1 billion year-over-year. Our operating expense percentage was 10.3%, flat sequentially and up 0.2 percentage points year over year. The increase was driven by higher salary and profit-sharing expenses from achieving higher profitability targets. During the third quarter, operating profit was $18.7 billion, representing an increase of $0.7 billion quarter over quarter and an improvement of $3 billion year over year. Operating margin was 18.9%, flat sequentially, and up 1.5 percentage points year-over-year. The NT dollar depreciating against the US dollar had a positive 1.3 percentage point impact on our ATM sequential margins. On a year-over-year basis, we estimate that the strengthening US dollar had a 3.8 percentage point positive impact to margins. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 30.1%. Operating profit margin would be 20%. On page 6, you'll find a graphical representation of our pro forma ATM P&L. On page 7 is our pro forma ATM revenue by market segment. The market segments were relatively unchanged as compared with the previous quarter, with a percentage increase in communications and a percentage point decrease in automotive, consumer, and others. And though the automotive segment is not separately displayed here, it continues to outgrow other market segments. On page eight, you will find our pro forma ATM by service type service type percentages were relatively stable with advanced packaging and wire bonding each giving a percentage point to materials and others. seasonal softness within our advanced packaging and wire bond businesses compounded with the seasonality of our RF module production led to small percentage movements in each category. On page 9, you can see the third quarter results of our EMS business. During the quarter, demand was stronger than anticipated, driven by higher loading and stronger than expected demand for both our traditional EMS and SIP services. We believe some products may have an earlier manufacturing cycle when compared with the previous year. Customers in general have been proactive to produce earlier as a preventative measure against any unforeseen supply chain disruptions. In terms of EMS profitability, current quarter improvements were driven by increased scale of manufacturing and the strength of the US dollar relative to the RMB, causing short-term reductions in raw material costs recorded during the quarter. During the third quarter, EMS revenues increased $24.4 billion or 37% sequentially and increased $29.5 billion or 48% year-over-year. revenues were somewhat ahead of where we expected, primarily as a result of higher than expected SIP and traditional EMS business. Overall profitability for EMS business improved with gross margin increasing 0.1 percentage points to 10.1% and reaching 5.6% operating margin. The RMB weakening against the US dollar improved gross margins by 0.8 percentage points during the quarter. On the bottom half of the page, you will find a graphical representation of our EMS revenue by application. Application movements here are generally in line with underlying product seasonality, with consumer and communications peaking and other applications declining. On page 10, you will find key line items from our balance sheet. At the end of the quarter, we had cash, cash equivalents, and current financial assets of $62 billion. Our total interest-bearing debt was $224 billion. Total unused credit lines amounted to $296.1 billion. Our EBITDA for the quarter was $38.6 billion. Net debt to equity was 53%. Our annual dividend payment was made during the third quarter, resulting in higher net debt to equity percentage. On page 11, you will find our equipment capital expenditures. Machinery and equipment capital expenditures for the third quarter in US dollars totaled $400 million, of which $197 million were used in packaging operations, $134 million in test operations, and $50 million in EMS operations, and $19 million in interconnect material operations and others. We continue to provide our EBITDA and U.S. dollars here as a reference. We believe that the company's EBITDA relative to our equipment CapEx serves as a key financial performance metric for the company. For the quarter, EBITDA was 1.3 billion U.S. dollars. Looking forward, we would first like to address the potential impact of the recent U.S. EAR. We at this time believe that relatively few devices that are currently serviced by ASE fit the specifications indicated in the recently issued U.S. rules. As such, at this time, we do not believe there to be a material financial impact. Nevertheless, we will continue to work closely with our customers to assess if future products may cross such thresholds. Second, in regards to the ongoing business environment, as our COO, Dr. Tianwu, mentioned in our previous quarter's call, we believe the industry continues to be in a state of inventory correction. Unexpected demand compounded with supply instability created an unprecedented manufacturing situation. The volatile supply chain was unusually complicated as COVID spread throughout the world. Companies not only needed to order more products, they also had to deal with longer lead times and earlier order commitments. As signs of cooling began towards the end of 2021 into early 2022, production continued at previously established rates. This phenomenon appears to have created a higher level of inventory throughout the semiconductor manufacturing chain. Now, as most of the world adapts to in an endemic COVID society, the semiconductor industry looks to reset back to a more normalized level of inventory. In the same light that our customers look to bring up overall inventory, they are now choosing to bring down inventory to adjust for lower manufacturing risk and a softening demand environment. This is the framework of the current industry inventory digestion. For the fourth quarter, we see a generally softening environment. There will be some products that remain relatively strong. but issues with potential recessions and anti-inflationary policies look to be dampening overall demand. Even looking beyond the fourth quarter, our customer forecasts are also experiencing an additional level of volatility as customers balance inventory reduction with product demand. Despite adjusting downward, forecast movements are on balance very controlled. we do see this environment continuing to stretch into the first half of 2023. We believe that the interesting question to ask would be, what impact will the inventory digestion period have on ASE? And what will the impact be once it's over? Of course, we don't have a magic crystal ball, but we can take an educated guess based upon three differences between the previous down cycle versus the upcoming one. First and foremost, our combination with spill has been completed. This increases our service offerings and our pricing capability, even in a soft environment. Second, we have demonstrated that customers prefer ASE over our competition. As a result, we continue to gain share and even more so in a downturn. We estimate that we are roughly three times the size and scale in pure ATM business of our nearest competitor. With sizable scale advantages comes competitive advantages in the form of lower cost and better yield. Heterogeneous integration paired with recent developments in advanced packaging technologies are encouraging our customers to rethink how their future products are designed. ATM manufacturing processes are now becoming part of the mainstream methodology for increasing transistor density. ASE is in a unique position to deliver additional value in these newly developing markets. These competitive factors lead us to believe that we are in the most competitive position we have been in ever. And as a result, we believe we can continue to outgrow our competition. Even though next year we see the logic semiconductor industry's prospects as being somewhat soft, ASE can continue to outperform our competition. It's definitely early and customer forecasts are not particularly firm, but if we were to guess at this point, with the current information, we see a seasonally shaped but flattish year ahead of us. From a profitability perspective, we reiterate our belief that annual structural margins have been lifted from peaking and troughing historically between cycles, between 20% to 25%, to now from the mid-20s to 30%. Though we do not necessarily wish for a down cycle, we do understand that with one, we will be given the opportunity to prove our strategic assessment and demonstrate our resiliency. As a note, we are trying to improve transparency and simplify the methodology used to provide our quarterly outlook. We have made a few changes in the way we provide our outlook. Part of this change includes using NT dollar figures with applicable exchange rate assumptions. We see the US dollar and NT dollar exchange rate going from 30.1 in the third quarter to 31.8 in the fourth quarter. With those exchange rates in mind, we provide our outlook as follows. For our ATM business in NT dollar terms, our ATM fourth quarter 2022 business levels should be slightly below second quarter levels this year. As a reference, our ATM second quarter revenues were NT dollar 94.9 billion. our ATM fourth quarter 2022 gross margin should be slightly below first quarter 2022 gross margin. As a reference, our first quarter 2022 gross margin was 27.5%. For our EMS business in NT dollar terms, our EMS fourth quarter 2022 business levels should be slightly above third quarter levels this year. As a reference, our third quarter EMS revenues were NT$90.7 billion. Our EMS fourth quarter 2022 operating margin should be close to the operating margin in the same period last year. As a reference, our fourth quarter 2021 operating margin was 4.4%. Thank you. We can start our Q&A session now.

If you have any questions, please raise your hand. When you ask questions, please hold two questions at a time. Thank you. Now we have a question from Mr. Randy Abrahams of Credit Suisse.

Yes, thank you. Okay, the first question I wanted to ask, actually, On your acknowledgement of the slowdown, could you talk about the CapEx outlook? It looks like you slowed it down a bit for third quarter. If you could give the latest how you expect 22 to come in and then also a view for 23? And then within that, you've had relatively better utilization and strength on advanced technology. Whether you're seeing that start to slow or do you still see into the coming quarters the advanced holding up better than some of the mature wire bonding?

Yeah, I think for this year's CapEx, we will bring this down a little bit, roughly around 10%. And for next year we're still in the process of formulating the overall outlook and we will decide how much we will be spending for next year. In terms of utilization in quarter three, we continue to have pretty tight utilization. with assembly and tests both over 80%. But going into fourth, I think the overall utilization will range from 75% to 80% for both assembly and tests, with the advanced packaging capacity slightly higher than wire bonding.

Okay, great. And then the – I guess I'm going to get to – okay, the second question I wanted to ask, actually, if you could give a bit more detail about the margin, where it looks like in your guidance it's going back to first quarter level, sales back to Q2. So it implies a bit more dip despite currency being favorable. So if you could talk about that trend and then also – how the, I think you mentioned it should be a better pricing environment, but just how you are seeing that, whether customer pressure, competitive pressure, how that's shaping up, and then just a factor on the margin, what's driving a little bit bigger decline there?

Well, I think overall in fourth quarter, I think the pricing still remains to be stable. And although we do expect that there will be around going back to a normal pricing negotiation going into next year. In terms of margin, I think of course the loading really is the determining factor of our margin and going into quarter four, because there was gonna be some softness in terms of the overall utilization and the volume will come down So the margins certainly will have some impact. In quarter three, we have a better margin because the loading continues to be high. But I think in going to quarter four, the margin prospect we were looking at really reflects the differences in loading. And also, I think as we mentioned earlier, we are entering into a higher cost structure, higher cost environment because of the macro situations that we're facing.

Next question is from Ms. Sunny Lin of UVS. Sunny?

Hi, can you hear me? Yes. Thank you so much for taking my questions. So my first question is to get your thoughts on how we should think about the seasonality going to first of 2023. Understand things are still moving pretty quickly, but any initial expectation will be appreciated. Thank you.

Uh, like you said, there's a lot of, still a lot of uncertainties in front of us. And, uh, uh, we are, we are, we're not giving out any, uh, guidance for first quarter yet, but we could, what we can say is, uh, we're going to see a normal, uh, seasonality factor comes, comes into play. And typically, uh, in the first quarter, uh, In the past, under normal seasonality, we should be looking at a 5% to 10% drop in revenue.

Got it. Then my second question is, if we look at the demand environment for the second half of this year, automotive, server, industrial are still relatively stable. but how would you think about the sustainability going to early 2023? I guess in recent weeks, we started to hear from the supply chain regarding the increasing uncertainties. So just want to get your thoughts here. And also, would you expect the IDM outsourcing to also slow down somewhat going to 2023?

I think it's... We're not different from anybody else in the industry that we are facing the same uncertainties in front of us. And our best estimate for the year is that we should be looking at a flat-ish year. And given our position, we remain confident that we will outperform the industry as a whole and also our competitors. Going into the first quarter, I think the same pattern remains that the automotive and networking will continue to be performing stronger than the other sectors. And I think the industry... Inventory digestion will continue in the first half of next year. And also the new restrictions imposed by the U.S., that remains to be seen. So there are a lot of moving parts in front of us, and we'll be closely monitoring the situations.

Our next question is from Viya Kumar. Viya, please state your company name before your question. Viya. Our next question is from Rick Shu.

Yeah, hi. Can you guys hear me?

Yes.

Okay, just one question to Joseph. Hi, guys. I just want to clarify when you said next year you're looking for kind of flattish 2023, does that mean your total business or the total industry ICATM business or the global semiconductor market?

No, no, what we're talking about ourselves, I think the general idea is that the market will turn softer next year. But from our best estimates, we're looking at our overall situation and the customer forecast. We're still confident that we will out-compete everybody else and maintaining at least a flattish year for ourselves. in terms of ATM business. And another factor to look at is that we believe that, particularly in a downward market situation, our market share expansion should actually accelerate, given our leading position there.

Right. Okay. Just one quick follow-up. Can you give us more color about what's your view on the global semiconductor market next year? Would it be declining or just give us some direction?

Well, I think the chance of coming down seems to be higher.

Okay, great. Yeah, that does help. Thank you so much. Yeah, that's all I have. Thank you. You're welcome.

Next question is from Evelyn Yu of Goldman Sachs.

Hello, this is Bruce. Can you hear me?

Oh, Bruce.

Hi, Bruce.

Hi, let me try to ask some simpler questions. So can you give us what's your capacity distribution? You know, how much of a capacity in China? How much of a capacity from, you know, different geographical location? And what is the revenue coming from the different geographical location for ATM alone? And for EMS, you know, for your consumer and communication business, how much of the business and the capacity is coming from China?

In terms of ATM, we have about 7% out of China in terms of capacity. And our Taiwan operations is about 85%.

By EMS?

EMS around 60 some percent is in China and the others are already all over the place.

Do you see a strong customer demand asking for Taiwan plus one or China plus one capacity or i.e. that they're asking you to have some big upside outside of Taiwan, China?

I don't think it's that obvious in terms of ATM. I think our going rates still continue to be strong in Taiwan because of the much larger and more complete infrastructure. It's very difficult to go outside. to set up something new in a short run. And I think all the technology development are still here. So I think the customers are still pretty confident that working with Taiwan is a safer bet for them. But in terms of EMS, we do see more requests from our customers to further expand to outside of China. And- So we are making a lot of progress in terms of expanding our capacity outside of China, including our investment in Poland, in Vietnam, also in Taiwan.

I see. So which means that you don't have the capacity or, you know, Or you don't have any plan to increase your non-Taiwan, non-China ATM capacity? Any facility building up plan at this moment?

We'll continue to monitor the situation and we'll go where our customer wants us to go. But provided that makes commercial sense for us. So it's going to be a dynamic process. We'll continue to monitor the situation and make the right decision.

The current customer demand is not strong enough for you to make a decision to go aggressive to expand the ATM capacity outside of Taiwan and China.

I think what you're referring to is really the U.S. And yes, I think. There are some inquiries about whether we will be having something sizable in the US. And like I said, we're monitoring the situation to see how we can better address that when the time comes.

I see. I understand that. The next question I'll try to follow up with the seasonality. I'm actually very surprised that you mentioned that the first quarter is going to be pretty... It will follow the seasonality, which is... not the case for most of the foundry at this moment. I mean, we are looking at 15, 20% sequential decline in the first quarter for most of the foundry names. And if there's no waiver, how can you have the similar system like in previous years? So can you tell me where you know, can you tell me that my thought process with this that go wrong?

There is a time like between our funders and production in our, and our production. I think the wafer bank has already been there. And we're looking at the quarter performance based on the forecast that we're getting from our customers. Right now, we do see a normal seasonality pattern in first quarter.

Well, that's a lot better than expectation. One quick follow-up for the LTA. What's the current situation for those LTA you signed like a couple of quarters ago? And you also mentioned a little bit different pricing environment in the fourth quarter. Can you elaborate a bit more?

Well, I think the LTA is signed during the fall. relatively special circumstances. And it's one of the ways for us to secure a better relationship with the customers. I think it did serve its purpose and the LTAs are going into a retirement cycle now. You know, I think coming next year, you know, I think things will start to be normalized in terms of our pricing negotiations. And I think our position does give us a good leverage to have a suitable pricing strategy that works for both ourselves and our customers. And that would be the pricing environment for next year.

next question is from zihong of china renaissance oh hello hey gentlemen yeah two questions for me um the first one is it possible to quantify any additional cost synergy we can expect from the ase spill merger because i can't really mention that the merchant actually make us more resilient in the downturn

Well, of course, the synergy can come from our business negotiations with our customers. It comes from the better usage or better better allocation with our resource in terms of our R&D efforts. In many different areas, we can have synergies created and sharing of best known methods is also one of them. So that's really what Ken was mentioning earlier on in the session. And that through the merger with spill, it does give us a better cost structure and also more higher efficiency when we're facing a challenging environment now.

Or maybe from the uptick intensity perspective, can we expect further improvements?

Well, I think we have been making a lot of improvement in terms of our ALPACs. In third quarter, our ALPACs ratio was 7.6% down from... If we look at the same period last year, it was probably 8.2%. So we're making a lot of progress in operating expenses. And for quarter four, I think the OPEX ratio will remain at the similar level to quarter three. So we will continue to have a tight control over our operating expenses.

Our next question is from Mr. Goku. How do you hold on?

Yeah. Hi. Thanks for taking my questions. And congrats on the resilience on the margins, especially a couple of questions. One, could you talk a little bit about the inventory situation that you're seeing today compared with the last maybe a couple of cycles? what based on the way for banks that you see as well as what you see with customers, it feels like inventory is definitely much more elevated compared to the last few cycles. So just wanted to understand why you feel by first half of this year, we should be first up next year, we should be done with the inventory correction. Or do you think that it could take longer than first half of next year to kind of clear out the inventory?

I think the inventory correction already started in the first half of the year and is continuing. I think it's stretching a little bit longer than what was originally expected. And same as everybody else, we're expecting this to last throughout first half of next year. I think partially it will be consumed. And also some of the inventory will be actually replaced by the new products that will be introduced the next year.

Okay. So on your rough guidance or indication for next year being flattish, what is your expectation of industries down mid-single legit or something like that? Is that how we're thinking about how much ASC will outgrow the industry next year?

No, I don't really have a view except, like I said, the chance of coming down is higher.

Understood. And on pricing, should we expect that we should see pricing increase going back to the maybe mid to high single digit kind of decline next year? Or we think when we talk about the more normalized pricing environment, it will still be better than the mid to high single digit kind of price declines that we were used to in the past.

Well, it's going to be a normalized pricing environment and, you know, there will be price talks throughout the year. But, you know, like I mentioned, our position does give us better pricing capability when we start the negotiation process. And we believe that we will have the capability to come up with a suitable pricing strategy that works for both ourselves and our customers. And Like I said, like we mentioned, we do believe and we remain very confident that the margin that we're going to have will move up from previously between cycles 20% to 25%, now to mid-20% to 30%. So we remain confident that we will have a structural margin improvement.

If you have any question, please raise your hand and please hold two questions at a time. Thank you. Next question is from Sihong of China Renaissance.

Yes, I have a follow-up. Regarding the China ATM operation, can we assume that we are primarily serving the domestic clients in that factory?

Yes, it's more of local customers. And I think the operation there remains to be, is still working quite nicely at this point at a healthy level. And we believe that come next year, it will remain to be a resilient operation of ours.

And the other one, on the dividend one, going forward for the dividend policy, would it be more based on the payout or based on the absolute dollar level?

I think it was... It will more or less pay out.

Oh, okay. That means it's sticking to the ballpark around 50%, right?

I'm sorry?

The ballpark is around 50%, yeah.

I think we have been paying out roughly 60% to 65%.

Okay, all right. Okay, got you.

Next question is from Mr. Goku Hariharan of JP Morgan.

Hi, thanks. One follow-up question from my side. Could we talk a little bit about the demand environment in smartphones? Are we seeing mostly demand weakness in the Android camp, or are we starting to see some demand weakness in the high-end smartphones as well? Is it becoming a little bit more broad-based? And for your auto and industrial demand, do you now factor in any potential correction in that demand as well next year? Or do you think that it will be reasonably resilient through most of next year as well, unlike the rest of the semiconductor industry?

Yeah, I think automotive continues to be the brightest spot at this point. And we do believe that the momentum will continue into next year. In fact, here today, I think our automotive has been growing very fast. We have over 50% growth this year. And from ATM perspective, I think we'll be able to hit the billion-dollar revenue mark. And also for EMS, it will hit the $700 million threshold end up. will continue to be going strong. I think in terms of EMS, the original goal was to reach a billion dollar mark by 2024. I think that's gonna accelerate. We have a very, very good chance in 2023, we'll already reach that goal. Now, in terms of smartphone, I think across the board, I think the Android system continues to be soft. Although in terms of unit growth, in terms of unit volume, it does come down, but one offsetting factor is the rising IC content in it. So it's gonna be softer, but it's not gonna crash.

Okay, thank you very much.

Our next question is from Randy Abrams of Credit Suisse. Randy.

Yeah, thanks for taking the call. Actually, I want to touch just one on the USI, which has had a very strong year. And I think you discussed... pull in and a bit earlier build. Could you give a framework actually for that part of the business for next year, both first half coming off a high base and then full year? And if you see any just SIPP and also traditional EMS, what the outlook is?

Well, We're not going to talk about any customer in particular, but I think overall we remain confident that we will be seeing growth in our EMS business come next year.

Okay. So that should still grow. I mean, your Tuck Auto still has a lot of growth, but overall sounds like better than ICATM from what you're seeing.

EMS, yes. Okay.

Okay. The second question, it relates to the China, not much direct impact. Could you discuss just the behavior, and it might be early, but one is if there's any change in more localization, like where domestic customers prioritizing domestic and flip side international customers, if you've seen any inquiry, that could be an incremental business that might have been using domestic. I'm just curious if you're seeing shifts in either direction there. You mean the local customers? Yeah, like one would be China-based, your China-based customers, if they start prioritizing even a bit more local supply. And then the flip side is international customers, if they're a bit wary and actually move a bit out from domestic OSATs, if there's been any shift.

Well, I think – the customer come to us, regardless if it's Chinese customers or other customers, they come to us for value. It's not coming for, you know,

geopolitical.

This is business. It's not a political decision here. I think right now we're seeing that our Chinese customers are giving us normal forecasts. There's not much movement there because of the tension.

Okay. No, that's good. And it sounds like not much movement internationally either. So because it's kind of targeted on certain parts.

No, I think it's up and down still with a normal industry situation.

Okay, great. No, that's helpful. Thanks a lot.

Thank you.

There is no more questions.

Okay, if there's no more questions, I will end the session. And I think, you know, there's a lot of challenges ahead of us, but we're confident that we can weather this very nicely. And given our leading position, we are very confident that we will continue to have a healthy year in front of us. Thank you very much.