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ASE Know-how Holding Co., Ltd. (NYSE:) disclosed a difficult monetary efficiency within the fourth quarter and full yr of 2023, with a notable decline in revenues and earnings. Nevertheless, the corporate stays optimistic about its future, notably with its plans to capitalize on the rising demand for superior semiconductor packaging pushed by AI expertise.
Key Takeaways
- Consolidated internet revenues fell by 10% for the quarter and 13% for the total yr, with gross and working earnings additionally declining.
- The ATM enterprise noticed revenues lower by 13%, whereas the EMS enterprise skilled an 11% decline.
- Regardless of the downturn, the corporate’s EPS for 2023 was the third highest in its historical past, and its internet debt to fairness ratio improved to 0.38.
- ASE expects a restoration in 2024, projecting income progress consistent with the logic semiconductor market.
- The corporate plans to double its modern superior packaging income subsequent yr and goals to keep up a structural margin vary of mid-20s to 30% by the second half of the yr.
- ASE anticipates stronger momentum within the second half of 2024, with a give attention to rising CapEx for superior packaging and meeting.
- The check enterprise is anticipated to develop, reaching round 17% of total income composition in 2024.
Firm Outlook
- ASE targets a excessive single-digit progress of round 10% for the upcoming yr.
- The corporate is investing in capability and expertise to satisfy the demand in AI expertise and superior packaging.
- ASE foresees enlargement within the AI market past logic and reminiscence and a powerful progress trajectory for his or her automotive enterprise.
- The primary half of 2024 might expertise softer market situations as a result of stock issues.
Bearish Highlights
- The general market downturn has led to decrease economies of scale and impacted financials negatively as a result of a depreciating NT greenback.
- There are stock issues in IoT and analog/mixed-signal sectors which will have an effect on the market within the first half of the yr.
Bullish Highlights
- ASE is collaborating with main foundry suppliers, together with TSMC, to put money into new merchandise and packages for AI-related packaging.
- The corporate is well-positioned to profit from the potential shift from flip chip to fanout package deal on package deal options within the cell sector.
Misses
- The corporate acknowledged the problem of guaranteeing yield in superior packaging however stays assured in its potential to satisfy benchmarks.
Q&A Highlights
- ASE mentioned its aggressive benefits together with full traceability, automation, scale, and know-how in silicon carbide and silicon photonics.
- The corporate emphasised its give attention to effectivity, reliability, information traceability, and design simplification to safe clients.
- ASE addressed competitors from Chinese language OSATs, highlighting its management in superior packaging and talent to handle challenges.
Within the face of a declining market, ASE Know-how Holding Co., Ltd. has managed to keep up a powerful EPS and has laid out a complete plan for restoration and progress within the coming yr. The corporate’s give attention to superior packaging, notably for AI expertise, together with its strategic investments and operational efficiencies, positions it to doubtlessly capitalize on the anticipated market upswing within the latter half of 2024.
InvestingPro Insights
ASE Know-how Holding Co., Ltd. (ASX) has confronted a difficult yr, however the firm’s strategic give attention to superior semiconductor packaging and AI expertise might pave the way in which for a brighter future. As buyers contemplate ASE’s potential, listed below are some insights primarily based on real-time information and InvestingPro Suggestions:
InvestingPro Knowledge signifies that ASE has a market capitalization of $18.36 billion and an adjusted P/E ratio as of This autumn 2023 of 15.31, which suggests a extra favorable valuation in comparison with the unadjusted P/E ratio of 18.52. Regardless of a income decline of 13.26% during the last twelve months, the corporate boasts a big dividend yield of 4.69%, which could possibly be enticing to income-focused buyers.
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Full transcript – Superior Semiconductor Engineering (ASX) This autumn 2023:
Ken Hsiang: Hi there. I’m Ken Hsiang, the Head of Investor Relations for ASE Know-how Holdings. Welcome to our Fourth Quarter and Full Yr 2023 Earnings Launch. Thanks for attending at present. Please confer with our Secure Harbor discover on Web page [Technical Difficulty] to having their voices and questions broadcast by way of participation on this occasion. If members don’t consent, please disconnect presently. I want to remind everybody that the presentation that follows might comprise forward-looking statements. These forward-looking statements are topic to a excessive diploma of danger and our precise outcomes might differ materially. For the needs of this presentation, greenback figures are usually acknowledged in New Taiwan {Dollars}, until in any other case indicated. As a Taiwan-based firm, our monetary data is introduced in accordance with Taiwan IFRS. Outcomes introduced utilizing Taiwan IFRS might differ materially from outcomes utilizing different accounting requirements, together with these introduced by our subsidiary utilizing Chinese language GAAP. I’m joined at present by Joseph Tung, our CFO; and Dr. Tien Wu, our COO. For at present’s presentation, I’ll first be going over the monetary outcomes. Dr. Wu will then give a market replace and the 2024 key factors. Joseph will then give the official firm steering. Each Joseph and Tien will then be obtainable to take your questions throughout the Q&A session that follows. In the course of the Q&A session, every caller can be restricted to 2 questions at a time, however might return to the queue for additional questions. As per our expectations, the general demand surroundings for our providers remained sluggish throughout the fourth quarter. Nevertheless, there have been pockets of stronger performers throughout the units we serve. However by and huge, our clients stay conservative of their ordering patterns. Generally, higher-end modern providers appear to be faring higher than legacy providers, however stronger broad breadth volumes remained elusive. For our ATM enterprise, revenues have been on the upper finish of our expectations. In the course of the quarter, key gear utilization charges have been nonetheless comparatively low, averaging out between the low- and mid-60s. For our EMS enterprise, within the fourth quarter, revenues elevated sequentially, consistent with our expectations. This was pushed by clients’ new units and progress in Computing and Automotive segments. For the yr as a complete, the seasonal peak was a bit later within the yr. With that, please flip to Web page 3, the place you will see that our fourth quarter consolidated outcomes. For the fourth quarter, we recorded absolutely diluted EPS of NTD 2.13 and fundamental EPS of NTD 2.18. Consolidated internet revenues elevated 4% sequentially and declined 10% year-over-year. We had a gross revenue of NTD 25.8 billion with a gross margin of 16%. Our gross margin declined by 0.2 proportion factors sequentially and declined by 3.2 proportion factors year-over-year. The sequential decline in margin is principally as a result of increased EMS enterprise combine and barely decrease ATM enterprise loading throughout the quarter. The annual decline in gross margin is principally the results of decrease loading throughout the present downturn. Our working bills elevated by NTD 0.4 billion sequentially and declined by NTD 0.4 billion yearly. The sequential enhance in working bills are primarily as a result of increased compensation bills, particularly increased bonuses as a result of stronger objective achievement and ESOP bills. The year-over-year decline was primarily attributable to decrease bonus and profit-sharing bills throughout the corporate. Our working expense proportion declined 0.1 proportion factors sequentially and elevated 0.6 proportion factors year-over-year to eight.7%. The working expense proportion adjustments have been primarily associated to decrease working leverage in a downturn surroundings. Working revenue was NTD 11.8 billion, up NTD 0.4 billion sequentially and down NTD 8 billion year-over-year. Working margin stayed flat at 7.4% sequentially and declined 3.7 proportion factors year-over-year. In the course of the quarter, we had a internet nonoperating achieve of NTD 0.6 billion. Our nonoperating achieve for the quarter primarily consists of internet international trade hedging actions, earnings from associates and different nonoperating earnings, offset partly by internet curiosity expense of NTD 1.3 billion. Tax expense for the quarter was NTD 2.5 billion. Our efficient tax fee for the quarter was 19.9%. Web earnings for the quarter was NTD 9.4 billion, representing a rise of NTD 0.6 billion sequentially and a decline of NTD 6.3 billion year-over-year. The NT greenback depreciated 1.5% towards the U.S. greenback sequentially throughout the fourth quarter and 1.8% yearly. From each a sequential and year-over-year perspective, we estimate the NT greenback depreciation had a 0.5 proportion level constructive influence to the corporate’s gross and working margins. On the underside of the web page, we offer key P&L line objects with out the inclusion of PPA-related bills. Consolidated gross revenue, excluding PPA bills, could be NTD 26.7 billion, with a 16.6% gross margin. Working revenue could be NTD 13 billion with an working margin of 8.1%. Web revenue could be NTD 10.5 billion with a internet margin of 6.6%. Fundamental EPS, excluding PPA bills, could be NTD 2.45. Please confer with Web page 4. Right here, you will see that the 2023 consolidated full yr outcomes versus 2022 full yr outcomes. Absolutely diluted EPS for the yr was NTD 7.18 whereas fundamental EPS was NTD 7.39. For 2023, consolidated internet revenues declined 13% as in contrast with 2022. ATM declined 15%, whereas EMS income declined 11% yearly. Gross revenue for the yr was NTD 91.8 billion, declining NTD 43.2 billion year-over-year or by 32%. In 2023, our consolidated gross margin declined 4.3 proportion factors to fifteen.8%, principally on account of the electronics trade downturn for each our ATM and EMS companies. Working bills declined NTD 3.3 billion for the yr and got here in at NTD 51.4 billion. Given the decrease working leverage throughout the downturn, our working expense proportion elevated by 0.6 proportion factors to eight.8% for the yr. Working revenue for the yr was NTD 40.3 billion for the yr, declining NTD 39.8 billion. Working margin for the yr was 6.9%, representing a decline of 5.1 proportion factors from 2022. We recorded a internet nonoperating achieve of NTD 2.3 billion for the yr, together with a internet curiosity expense of NTD 4.7 billion. Many of the nonoperating positive aspects have been related to our international foreign money hedging actions. Complete tax expense was NTD 9 billion. The efficient tax fee for the yr was 21.2%. We imagine our ongoing efficient tax fee for the approaching yr to be about 20.5%. Web earnings declined by 49% to NTD 31.7 billion. On a full yr foundation, we estimate that the depreciating NT greenback had a constructive 1.3 proportion level influence to gross and working margins. Eradicating the impact of PPA depreciation, our gross margin could be 16.4%. Our working margin could be 7.7%. Our fundamental EPS could be NTD 8.46. It is value noting that regardless of the extended correction lasting all through the whole lot of 2023, our NTD 7.18 EPS for 2023 represents the third highest EPS the corporate has traditionally delivered. Solely 2021 and 2022, COVID-driven demand years had increased EPS. On Web page 5 is a graphical presentation of our consolidated monetary efficiency. On Web page 6 is our ATM P&L. The ATM income reported right here comprises revenues eradicated on the holding firm degree associated to intercompany transactions between our ATM and EMS companies. For the fourth quarter 2023, revenues for our ATM enterprise have been at NTD 82 billion, down NTD 1.7 billion from the earlier quarter and down NTD 12.3 billion from the identical interval final yr. This represents a 2% decline sequentially and a 13% decline yearly. Gross revenue for our ATM enterprise was NTD 19.2 billion, up NTD 0.6 billion sequentially and down NTD 7 billion year-over-year. Gross revenue margin for our ATM enterprise was 23.4%, up 1.2 proportion factors sequentially and down 4.4 proportion factors year-over-year. Gross margin was increased than our authentic expectations. The sequential margin enchancment was the results of product combine and the top of summer season utility charges. The annual margin decline is primarily the results of decrease loading throughout the present downturn. In the course of the fourth quarter, working bills have been NTD 10 billion, up NTD 0.2 billion sequentially and down NTD 0.4 billion year-over-year. The sequential enhance in working bills was primarily pushed by increased labor-based bills. The annual working expense decline was pushed primarily by decrease profit-sharing and bonus bills. Our working expense proportion for the quarter was 12.2%, up 0.5 proportion factors sequentially and up 1.2 proportion factors yearly. Sequential working expense proportion elevated on account of increased compensation-related bills. The annual enhance was as a result of decrease working leverage. In the course of the fourth quarter, working revenue was NTD 9.2 billion, representing a rise of NTD 0.4 billion quarter-over-quarter and a decline of NTD 6.6 billion year-over-year. Working margin was 11.2%, enhancing 0.7 proportion factors sequentially and declining 5.5 proportion factors year-over-year. For international trade, we estimate the NT to U.S. greenback trade fee had a constructive 0.7 proportion level influence on our ATM sequential margins and a constructive 0.9 proportion level influence on a year-over-year foundation. With out the influence of PPA-related depreciation and amortization, ATM gross revenue margin could be 24.5% and working revenue margin could be 12.6%. On Web page 7, now we have our ATM full yr P&L. 2023 revenues for our ATM enterprise declined by 15%, with our packaging and check companies down 16% and 11%, respectively. Gross revenue for the yr declined 35% to NTD 68.7 billion. Gross margin was 21.8%, down 6.7 proportion factors, primarily on account of the extended correction. Our working expense proportion elevated 1.1 proportion factors to 11.7%. The rise was primarily the results of decrease economies of scale. Working revenue declined 52% to NTD 31.8 billion, with working margin declining 7.8 proportion factors to 10.1%. Overseas trade, on a full yr foundation, we estimate that the depreciating NT greenback had a 2.4 proportion level influence on margins. With out the influence of PPA bills, gross revenue margin could be 22.9% and working margin could be 11.5%. Actually, on its floor, the total yr comparative outcomes look like considerably unappetizing. However given the breadth and severity of the trade downturn throughout 2023 and the historical past of much more unappetizing outcomes throughout beforehand even lesser downturns, we imagine this annual efficiency on its complete reveals a reset in our ongoing ATM profitability construction. On Web page 8, you may discover a graphical illustration of our ATM P&L. This reveals the lengthy protracted downturn that we’re slowly popping out of. On Web page 9 is our ATM income by 3 C market segments. Our Communications Utility took its seasonally bigger place within the fourth quarter. Our Computing phase dropped from the earlier quarter however nonetheless stays some extent above historic ranges. On Web page 10, you will see that our ATM income by service kind. We now have seen a better income mixture of superior packaging and testing enterprise within the again half of 2023 versus the primary half of the yr. In the course of the coming years, we count on a better progress fee from these 2 segments given the elevated complexity and content material in newer generations of units. On Web page 11, you’ll be able to see the fourth quarter and full yr outcomes of our EMS enterprise. In the course of the quarter, EMS revenues have been NTD 79.2 billion, enhancing NTD 8.2 billion or 12% sequentially and declining NTD 4.8 billion or 6% year-over-year. The sequential income enhance is primarily attributable to a barely later than seasonal peak to our EMS enterprise, whereas the year-over-year income decline is primarily because of the broad-based smooth electronics demand surroundings. Sequentially, our EMS enterprise’ gross margin declined 0.7 proportion factors to eight.4% and whereas our working margin declined 0.4 proportion factors to three.5%. The working margin decline was pushed primarily by product combine. Our EMS fourth quarter working revenue was NTD 2.8 billion, flat sequentially and down NTD 1.2 billion yearly. From a full yr perspective, our EMS enterprise declined NTD 33.7 billion or 11%. Full yr gross and working revenue declined by NTD 5.7 billion and NTD 5 billion, respectively. Full yr gross and working revenue margins declined 0.9% and 1.3 proportion factors, respectively. Usually, the total yr declines in our EMS enterprise are the results of the smooth electronics market, resulting in decrease working leverage. On Web page 12, you will see that a graphical illustration of our EMS income by software. The shifts right here total have been usually as a result of product timing. Relative to earlier years, some merchandise have been earlier, whereas others have been later in accordance with buyer requests. Additional, our computing revenues have been additionally increased, pushed by stronger networking, server and common restocking revenues. On Web page 13, you will see that key line objects from our steadiness sheet. On the finish of the fourth quarter, we had money, money equivalents and present monetary property of NTD 72 billion. Our complete interest-bearing debt was down NTD 27.5 billion to NTD 191.7 billion. Complete unused credit score strains amounted to NTD 373.8 billion. Our EBITDA for the quarter was NTD 28.6 billion, whereas our EBITDA for the yr was NTD 106 billion. Our internet debt to fairness this quarter was all the way down to 0.38. On Web page 11, you will see that our gear capital expenditures. Equipment and gear capital expenditures for the fourth quarter in U.S. {dollars} totaled USD 234 million, of which USD 130 million have been utilized in packaging operations, USD 76 million in testing operations, USD 21 million in EMS operations and USD 7 million in interconnect materials operations and others. Equipment and gear capital expenditures for the total yr of 2023 in U.S. {dollars} totaled USD 914 million, of which USD 460 million have been utilized in packaging operations, USD 314 million in testing operations, USD 114 million in EMS operations and USD 26 million in interconnect materials operations and others. Present quarter EBITDA of USD 0.9 billion continues to outpace our gear capital expenditures of USD 0.2 billion. At this level, I want to hand the presentation off to Dr. Tien Wu? Dr. Wu.
Tien Wu: Hello, everybody. That is Tien Wu. Yr 2024 can be a yr of restoration. In the previous couple of years, there was many adjustments. So, I feel it is acceptable for me to provide you a market replace, take a snapshot of what we see at present and the way ASE is competing on this new surroundings earlier than I’m going to the yr 2024 full yr outlook. Let me speak concerning the semiconductor panorama. As you recognize, the semi group and plenty of analysts has been speaking about NTD 1 trillion trade goal by yr 2030. We imagine that the trade is prone to attain NTD 1 trillion income goal within the subsequent decade. It may be ’30, it may be ’31, ’32, ’33. However with excessive confidence, we predict the income can be NTD 1 trillion mark within the subsequent decade, pushed by AI, robotics, EV and all the new functions. The trade has a transparent understanding about our duty in internet zero, ESG, round financial system in addition to recycling all through the entire provide chain. As a matter of truth, ASE has been placing plenty of endeavor on this space. Business is dealing with challenges, geopolitical tensions, regionalization, market bifurcation. And with all of this new impact, will probably be at a value. Additionally, the decreased scale. These are new variables that the trade have to discover ways to handle. Business can have just a few issues we have to do. First, trade has to suggest extra improvements with increased worth. I feel AI is an ideal instance in that regard. Structural enchancment of effectivity and price. Everybody, the entire provide chain is placing plenty of effort in doing that. Additionally, expertise. We have to align expertise workforce with the brand new complexities of doing enterprise. With that, I want to flip to the subsequent web page, how can we see ASE competing on this new surroundings. So, let me record just a few aggressive benefits and that is primarily based on the suggestions from all of our clients in addition to inner by way of dialogue. The primary aggressive benefit is expertise. And right here, I am splitting the expertise content material into 4 giant sector. Let me speak concerning the Excessive Efficiency Computing or the AI area. In that area, I feel the Taiwan ecosystem with foundry, with design corporations in addition to the entire provide chain turns into very important. And ASE on this regard, we’re within the heart of the Taiwan ecosystem. Additionally, particularly for AI and HPC, we do have the meeting and packaging and testing expertise management. On the SiP, little question, within the final 10 years, ASE has demonstrated clear management in heterogeneous integration in addition to embedded units. Within the optical, we’re slowly revealing our endeavor with all of our key clients in silicon photonics in addition to co-packaged optics. We imagine that would be the subsequent paradigm shift, which is able to mark the brand new progress spur for the entire semiconductor trade, if that turns into a actuality. And the final one is automation. ASE has been engaged on absolutely automated LiDAR manufacturing unit, together with software program growth, information assortment in addition to design ecosystem, together with collaboration with designers in addition to clients. So, we imagine this 4 space will mark a powerful aggressive benefit for ASE on this new surroundings the place the upper worth of innovation turns into a key aggressive requirement. The following one can be scale efficiencies. From the monetary efficiency in upcycle, additionally within the down cycle, we will just about see how can we examine to our friends within the trade on the monetary efficiency as was money move. ASE will proceed to abide for the robust monetary self-discipline and we are going to make all the required investments in keeping with our clients’ necessities in addition to the expertise development within the trade. The following one can be flexibility and agility to deal with enterprise mannequin evolutions. We imagine that within the subsequent 10 years, now we have to work with totally different geography in a distinct enterprise mannequin. For instance, we would select, we would must work with Tier 1 or OEM or system home straight in a distinct sort of enterprise surroundings. I feel ASE within the final 20 years has demonstrated, now we have a transparent flexibility and agility to work with totally different corporations in numerous geographies all through the entire totally different enterprise mannequin and evolution. Lastly, would be the geographical range. I feel ASE in addition to ASE Holdco together with USI, we do have essentially the most diversified geographic presence all through the world. With that benefits and in addition the assets, we should always be capable to deal with all the buyer requirement within the subsequent 10 years, relying on how the political surroundings varies. Please flip to the subsequent web page. I’ll discuss 2024 outlook. First, I wish to speak concerning the income restoration. 2024 can be a yr of restoration. We can be popping out of stock adjustment within the first half. We do count on progress to speed up within the second half. Full yr ATM income ought to develop at an analogous fee with the logic semiconductor market. We count on a better income mixture of superior packaging on expertise management in addition to testing income on the rise in turnkey ratio, similar to what Ken has simply proven you within the 2022 and 2023. We are going to goal increased funding in equipment and constructing and good manufacturing unit in comparison with 2023. We imagine we’re getting into into a brand new industrial upcycle and rising adoption of superior expertise primarily based on our clients’ suggestions. Please flip to the subsequent web page. Let me speak concerning the superior packaging and in addition the AI growth. In 2024, we’re on monitor to double our modern superior packaging income. From current clients, we count on to have extra USD 250 million income in 2024, and we predict the momentum will proceed within the subsequent few years. ASE does have a complete expertise toolbox, together with 3D, 2.5D, Fanout, SiP, co-packed optics, automation, et cetera. Our scale benefits and expertise management will make ASE the popular accomplice for our clients. As it’s obvious at present, now we have primarily new NPI in addition to collaborative mission with many Tier 1 system clients, additionally the design home. ASE is not going to solely profit from the adoption of modern superior packaging but additionally the enlargement of mainstream packaging, which can be utilized to deal with the rising semiconductor demand for all the encircling chips of the booming AI. I would like to show the ground to our CFO, Joseph.
Joseph Tung: Okay. Thanks, Tien and hey, everyone. And to provide the steering for first quarter of 2024. Primarily based on our present enterprise outlook and trade fee assumptions, our steering for the primary quarter of 2024 to be as follows. In NT greenback phrases, our ATM first quarter 2024 income and gross margin ought to be just like the primary quarter of 2023. Once more, in NT greenback phrases, our EMS first quarter 2024 revenues ought to be just like the primary quarter of 2023, and EMS first quarter 2024 working margin ought to method first quarter 2023 working margin. Thanks.
Operator: I would wish to open the ground for questions. [Operator Instructions] We now have a query from Mr. Gokul Hariharan of JPMorgan.
Gokul Hariharan: Joyful New Yr. Might we speak just a little bit extra about how we take into consideration progress this yr? I feel Dr. Wu, you talked about near the logic trade progress. What does that quantity seem like for you? Is it extra like a ten% quantity or greater than that? And possibly give us just a little bit extra coloration on how you consider progress by vertical. Communication remains to be an important, greater than 50% income in your ATM enterprise. So, how do you consider communication versus computing versus the buyer auto phase? That is my first query.
Joseph Tung: As Tien talked about, this 2024 can be a yr of restoration. We expect to see, ATM to see sequential progress on a quarterly foundation all year long. However with the second half having a stronger momentum. And because the total full yr progress, additionally, as Tien talked about, we can be rising at an analogous fee with the logic semi market progress, which is projected by totally different sources for something from 6% to 10% within the trade now.
Gokul Hariharan: Additionally, any steering for margins? Are we anticipating margins to get again to high-20s to 30%? And will you additionally speak just a little bit about your method to the AI-related packaging? A few of your opponents are establishing capability to compete with the main foundry. Is that ASE’s method as effectively when it comes to searching for out these high-end AI accelerator packaging? Or are you sort of partnering with the main foundry when it comes to potential alternatives on this superior packaging enterprise?
Joseph Tung: Nicely, I feel we will definitely enhance our total CapEx for gear for this yr. And given the pipeline that we’re seeing, I feel we’d prone to have 40% to 50% extra gear CapEx budgeted for the yr, though that is nonetheless topic to Board approval. And the majority of the — greater than 65% of the CapEx can be put in meeting and bulk a part of it’s actually for the superior packaging. And if we’re wanting on the breakdown of the CapEx that we’re at present, roughly 67% can be for meeting, 80% for checks and 30% for EMS. And plenty of it — most of it’s actually for the brand new packages or new merchandise that we’ll be bringing out this yr. By way of margin, I feel we’re very, very assured that the second half of the yr, we can be constructing again to our structural margin, inside our structural margin, which is about at a mid-20s to 30%. And we imagine that for the entire yr, we will even have our margin coming again to the structural margin vary.
Tien Wu: I feel there’s a query concerning the collaboration with the main foundry provider for superior packaging in addition to funding possibly within the different a part of the world. So, our place has been clear. We’re working with all the main foundry and now we have made public announcement that, for instance, the ASE and TSMC collaboration has been ongoing for years, and we’ll proceed to work very carefully engaged on all the required superior packaging. The funding and the R&D readiness has at all times been in place, which is one more reason why we will ramp up, for instance, the OS in later a part of final yr in addition to the early a part of this yr, and you will note the nice outcomes are popping out. So the collaboration, the readiness has at all times been right here. Now when it comes to going to totally different elements of the world and making a giant funding that we have to have a greater understanding concerning the product and in addition the expertise requirement. Proper now, we wouldn’t have any plan to go to U.S., for instance, to make modern capability funding. Nevertheless, we can be very cautious carefully working with our buyer and attempt to study the state of affairs. However at present, we’re going to focus in Taiwan first to ensure we will fulfill all the ramp-up expertise variation requirement primarily based on the modern foundry suppliers in addition to our buyer. I feel that would be the first order of enterprise. As we transfer to ‘25, ‘26 and ‘27, relying on the surroundings, together with political as effectively enterprise surroundings, we are going to make the totally different resolution accordingly.
Operator: Subsequent query is from Ms. Laura Chen of Citi.
Laura Chen: Are you able to hear me?
Operator: Sure.
Laura Chen: I even have a query concerning the superior packaging. I feel you talked about about like a further NTD 250 million income contribution for this yr. That is the brand new engagement with the superior packaging. Are you able to elaborate extra for what sort of the applying? Is that together with a number of the bump in enterprise or extra give attention to substrates, that sort of superior packaging?
Tien Wu: The NTD 250 million income, contains all the what we name the superior packaging. For instance, the [indiscernible], should you’re referring to our substrate enterprise, and that features like CoWoS, the TSMC model of the CoWoS and the un-substrate portion, and that’s inclusive. Additionally the ASE has the 6 Pack, the VIPack that features every kind of superior packaging. So this yr, we’re seeing the OS clients. We’re additionally seeing the VIPack clients. After which hopefully, by the second half of this yr, we will begin asserting key buyer ramping-up the opposite superior expertise in quantity.
Laura Chen: And was that additionally the enlargement, what sort of the margin influence we’re on the lookout for?
Joseph Tung: We don’t usually touch upon particular product margin. However as a complete, I feel the general company margin will proceed to enhance as we see quantity come up and in addition by bringing within the new expertise that we’re in our total providing.
Operator: Subsequent query is from Charlie Chan of Morgan Stanley. Charlie?
Charlie Chan: Joyful New Yr. So, I even have a query concerning to superior packaging. That CPO, appears to be very, very future expertise, however can the corporate remark concerning the potential timing, penetration, TAM, particularly how are you going to work out with the important thing foundry occasion at TSMC? As a result of I heard that TSMC might wish to produce their silicon photonics. So, how are you going to collaborate with the foundry companions or different distributors?
Tien Wu: Okay. The silicon photonics is a giant topic. The entire concept is that may characterize one other paradigm shift. And as we enter into silicon photonics, we’ll be opened as much as extra dimensions, extra efficiency, extra flexibility for all the designers. So, it’s good for the entire trade, proper? The timing of silicon photonics, and that has been the massive query. We now have been engaged on this for a lot of, a few years. There are numerous, many individuals engaged on this. So, that is actually a future expertise in addition to an incremental progress driver for the entire trade. By way of the — how can we petition the rolling duty, that’s much less of a priority. For instance, the foundry can have foundry’s function when it comes to making the photonics chips both in a stack format or remoted format. And for ASE, we are going to give attention to co-packaged optics. For instance, if we take the IDM, photonics chips or the foundry photonic chips, how can we bundle that with all the pieces else. So, every sector of the participant can have an excellent duty and function to play in that new area. Now ASE has been speaking concerning the CPO or silicon photonics, primarily as a result of that is actually an vital innovation. The entire trade is specializing in this. ASE at present is working with all the main driver within the trade on this area. I am undecided that solutions your query, however that is what I’ve.
Charlie Chan: Very, very reasonable and certainly coated a lot of my questions. My second a part of the query possibly is on close to time period. So, for the reason that — I assume, late third quarter, we see circled the foundry rush orders. That implies that demand is coming again and in addition individuals like of visibility. Quick-forwarding to 4 months later, I am undecided Tien or Joseph, who wish to reply this query, do you suppose this type of rush order patterns will proceed or really on the sort of adverse facet rush orders now already disappear?
Tien Wu: Rush order, you’ll be able to view it from 2 totally different angle. For instance, should you take a look at the – effectively, give you my perspective first. Business goes by means of a really extended stock correction, proper, after COVID. And so then now we have plenty of wafer financial institution. After which the individuals wanting their stock days, they take a look at the order sample, they’re attempting to make 2 changes on the stock days in addition to the foundry order and the provision chain cycle time pipeline. Now what now we have seen just a few months in the past is, for instance, in China, the high-end mobile phone was promoting very well. And due to this fact, a few of our clients begin having the push order on totally different wafer, totally different units. I feel that’s what you have been referring to. And that is actually good, proper? So the subsequent query is, can this be extended. Our perception is that is the start of the hub to the growth cycle or that is practically – we’re at a tail finish of the stock management. For instance, the primary buyer that began the stock management was again to love January of 2023. And there’s some clients they begin doing stock management at a a lot later of the yr. So, each firm, each sector will undergo a distinct stock adjustment. However I imagine by the third quarter of this yr, they’re just about executed. After which we’re actually going again to the sell-through cycle. There’s plenty of uncertainty on what precisely the sell-through cycle due to excessive inflation, the China financial system, the conflict that is happening. And so sophisticated remark. However the common perception is that this yr, the semiconductor will develop. The logic will develop round excessive single-digit, like 10%. So everyone is working in direction of that objective. All the order sample that we’re seeing at present with each sector in a distinct tempo, totally different tempo, all of them pointed to that route. The easiest way we will choose is in January, February, gives you this place primarily based on the snapshot. And each quarter, we’ll offer you a distinct snapshot. I feel that’s most likely one of the best we will do as a result of there’s actually no proper or incorrect. And either side of the elements might be appropriate, however we imagine that we’re seeing in direction of the tail finish of the stock adjustment. So, the order sample will begin coming in and grow to be extra persistent and constant.
Operator: Subsequent query is from Bruce Lu of Goldman Sachs.
Bruce Lu: Once more, I nonetheless wish to ask about superior packaging. I feel previously, the issue for us when it comes to superior packaging is that there are such a lot of totally different options and each require totally different capability and totally different CapEx. And clearly, we do see a transparent route for the — pushed by AI at this second. So, are you able to inform us that’s that the route for shifting into the precise superior packaging is extra confirmed? Can we see a transparent — our CapEx is in some way centered on that? Can we get an affordable ROIC or ROE for this enterprise shifting ahead? Is that accretive enterprise for us shifting ahead? Mainly, that is the query, which I would ask.
Tien Wu: Okay. It is a loaded questions. Now the — how lengthy would the AI final. We imagine will probably be a very long time. So the — initially it could possibly be 1 or 2 consultant clients. However over time, the opposite gamers will are available in. So, I feel we’re seeing the start or the tip of iceberg, proper? Now, if we imagine that’s the case, then the forefront foundry which says, okay, this can be a capability they’re keen to place in and the opposite capability, the opposite OSAT gamers, if you are able to do it, you’ll are available in to assist us. I feel that was the state of affairs just about described final yr. The corporate has determined we predict now we have the expertise, now we have the preliminary capability. We perceive the funding. We perceive the return profile, so we wish to do that enterprise not simply from the modern foundry buyer, but additionally from all the finish buyer and the potential system buyer, they requested us to do that. Now, we’re doing the OS or we’re doing the VIPack as of now, however as AI grow to be extra developed, in different phrases, as soon as we evolve past the mind, the logic or the reminiscence, you’ll begin including the opposite necessities. And all of this can require an analogous capability to construct that required system over time. So, we predict firm can be extra. The appliance can be extra, the system requirement can be extra however all going again to automation, going again to the understanding of the essential expertise and in addition the corporate has sufficient portfolio and monetary power to shoulder the enterprise mannequin and the legal responsibility. So, that is one space which is kind of definitive for ASE. So, we’re not doing this for 3 to six months, if that solutions your query.
Joseph Tung: I wish to add some extent that the AI is actually at its early stage and we imagine that as they proceed to proliferate, I feel we are going to go to another functions and can create one other run of substitute marketplace for us. So, it isn’t simply the — to us, it isn’t simply the superior packaging that may begin to have very robust progress. But additionally as a expense into different functions, all the opposite chips can be popping out and the general quantity for the additionally excessive finish, however the mainstream packages may even profit from the general AI growth. So that may create one other spherical of quantity progress for us going ahead however not simply on the superior packaging.
Bruce Lu: However the query is small, within the early stage of superior packaging, which took fairly a bit R&D and CapEx, are we seeing that the superior packaging margin or how you’re accretive in 2024 within the early stage of the AI?
Joseph Tung: As I discussed, we do not notably touch upon totally different packages’ revenue margin. However as a complete, I feel so long as expertise proceed to advance, I feel that our margin will mirror that. And as I mentioned, should you take a look at this yr, we are going to proceed to see our margins beginning to enhance as we associate with the expertise development.
Operator: Subsequent query is from Randy Abrams of UBS.
Randy Abrams: Sure. I wished to ask the primary query, should you can elaborate on the expansion profile for this yr. First quarter appears like seasonal or barely decrease than seasonal. For the outlook, it feels like extra assured within the second half, however I am curious for second quarter, do you see we get again to the purpose at the very least look seasonal from the low base. So, we begin getting again to love high-single, low-teens kind of restoration? After which for functions, what I am curious, the auto was very robust by means of the upturn. How is that software weathering the downturn in correction? And do you see the content material progress the place — I am curious how auto is faring by means of all this.
Tien Wu: The Q1 sometimes, should you return to my 20 years with ASE, the Q1 sometimes is 10% to fifteen% down, proper? And the standard quantity that we work with is 12%. So, I feel this yr, if we might be flattish to Q1 of final yr, I feel we’re higher than the standard Q1. After all, our This autumn, it’s a must to take a look at the relative. In order that would be the first remark. After which Q2, we imagine that we return to our typical progress path. So, I feel this yr, we’re a typical yr the place Q1 low, Q2 progress, the second half stronger. I feel we’re that sample now. By way of the automotive, a number of the IoT and the analog and mixed-signal buyer, I feel they’re having plenty of stock issues. So, we’re seeing a sluggish order within the first half in these arenas. And a number of the clients do provide to an automotive. Nevertheless, the ASE automotive enterprise per se is rising, primarily due to the — I feel, the auto line has lots to do with it. And Joseph will remark extra on the auto progress.
Joseph Tung: We did see excellent progress in auto motor a part of the enterprise since 2022, 2023, and we’re anticipating a better progress additionally in 2024. Proper now, I feel the automotive-related enterprise has already — has had a fairly respectable progress. And in 2023, it already represents near 10% of our total enterprise. And we’re seeing that proceed to develop into 2024. And when it comes to the general progress fee, I feel it would outpace the opposite sectors for 2024 as effectively. Though we’re seeing some softer market situations for the primary half of the yr as a result of selectively, there are just a few areas that we’re seeing some stock changes. However total, I feel the general progress momentum will proceed into 2024 when it comes to our automotive enterprise.
Randy Abrams: And there is a fast follow-up on that, after which I will ask the second query. Doing a little IoT analog blended sign as a result of the buyer downturn lasted lots longer. Do you suppose we’re by means of that primarily based on the client suggestions that we must also enhance within the second half or danger simply given the stock and the way lengthy it was robust stays. After which the second query is definitely the EMS enterprise the place it is coming off a sluggish yr and there hasn’t been that a lot — it seems like having buyer innovation on new SiP tasks. How do you see EMS, if it is also simply common surroundings recovering or functions they’re pushing and if there’s — you are seeing new exercise for SiP that might soar begin that half.
Tien Wu: We already mentioned that second half, we imagine that would be the starting of the restoration. All proper, for the primary query. The second query is EMS. And I feel should you hear the EMS incomes announcement, I feel they may even have an analogous progress with ASE this yr. I am undecided find out how to reply the SiP a part of the query as a result of we do not sometimes touch upon the precise SiP or prod our clients.
Joseph Tung: I feel for ‘24, I think in terms of EMS SiP business, it will stay relatively flat from this – from last year because of the different dynamics that’s taking place on this enterprise. Nicely, all in all, I feel we nonetheless stay very, very lively in participating with the totally different merchandise and totally different clients within the SiP area, and we imagine that we are going to see very, very robust momentum, begin to occur in 2025. I feel 2024 is actually the yr that we’re getting into plenty of NPIs, plenty of the brand new engagements in numerous areas, together with automotive, shopper and communication.
Operator: Our subsequent query is from Szeho Ng of China Renaissance.
Szeho Ng: First query concerning Q1 steering, proper? We’re on the lookout for income ATM enterprise to be down double-digit roughly. Can I understand how a lot is that quantity or loading pushed, how a lot is ASP associated?
Tien Wu: ASP is kind of secure proper now. So, I feel the — once we speak concerning the — effectively, to start with, let me simply make clear just a little bit. I feel 2024 is the yr of restoration. Our Q1 is flattish evaluating to final yr. Our Q2 will develop. After I speak concerning the second half stock adjustment, I am primarily referring to many of the clients that now we have. A number of the buyer has already began ordering. A number of the clients, it’s nonetheless ready, though we have no idea for certain, beginning July, all the stock adjustment can be over. However macroscopically, we predict that within the third quarter of this yr, many of the clients will begin the restoration path, all proper? So, I feel that was a clarification. Now when it comes to the ASP or quantity, I feel I’m referring to quantity pushed, assuming the ASP is secure to any extent further, if that solutions your questions.
Szeho Ng: And second query referring to superior packaging portfolio. Is it honest to imagine that proper now, the general portfolio for superior packaging is margin dilutive to the ATM enterprise? Or beneath what circumstances we should always count on the superior packaging to command margins just like the division margin?
Tien Wu: I feel the primary reply is sure. After I discuss NTD 250 million, that is all ATM. By way of margin, I feel Joseph has repeated time and again. We do not remark particularly, however the total margin contribution to the enterprise can be accretive.
Joseph Tung: Sure.
Tien Wu: I feel that you just simply pressured us to say that.
Joseph Tung: Okay. I used to be going to say not dilutive.
Tien Wu: Not dilutive. Sorry, does that reply your query?
Operator: Subsequent query is from Mr. Gokul Hariharan of JPMorgan.
Gokul Hariharan: I had a query on the check facet of the enterprise. How are we seeing the progress in attempting to enhance the bundling ratio for turnkey check? And will we additionally speak just a little bit about your market presence in a few of these superior AI chips, how a lot testing enterprise can we safe? And Dr. Wu, should you might give us any milestones when it comes to how we ought to be your check enterprise given I feel the bundling ratio remains to be fairly low in comparison with what you wish to be within the medium time period.
Joseph Tung: Nicely, when it comes to our check enterprise, now we have been rising that a part of the enterprise percentage-wise when it comes to our total income composition. I feel from ’21 to ’23, I feel now we have been rising that from beneath 15% to now over — near 16% now. And we imagine that ratio will proceed to develop in 2024 to method 17%. And we are going to proceed to make efforts in rising our check enterprise by means of the rising our turnkey ratio with our clients. That features superior packaging at present, which is, at this stage, is a low proportion of testing that now we have been doing for our clients. We imagine that proportion will proceed to rise. And we are going to attempt to succeed in our peak check income proportion of round 18% within the subsequent couple of years.
Gokul Hariharan: My second query is on cell since that’s nonetheless the first income driver. We have been listening to that there are some adjustments taking place within the cell facet with extra clients on the lookout for 2.5D or Fanout package deal on package deal sort of options. There’s additionally some dialogue concerning the greatest flagship cell clients beginning to doubtlessly see or at the very least the foundry a part of the cell packaging stepping out of foundry in direction of OSAT. Are these alternatives which can be prone to profit ASE? How is ASE positioned to profit from these? And will you speak just a little bit about this potential change from flip chip to Fanout package deal on package deal on cell? How useful is that to the OSAT earnings and revenues?
Tien Wu: Nicely, I’m undecided I can reply your entire questions, however let me do that. Not simply the cell, proper? For those who take a look at the Excessive Efficiency Computing and the router, the server, I feel all of them undergo the same development. So initially, they wish to go together with a foundry provider to ensure the turnkey service will assure yield and in addition the just-in-time supply. As time goes on, a portion of the – it may be packaging, it may be testing, and might be un-substrate and they’ll resolve to go to the skin of the foundry service. After which the primary query is, is ASE-ready. I feel ASE has been – that is actually our enterprise. And we’re working with nearly all the clients when it comes to the event simply to ensure apple-to-apple we’re at the very least at par the effectivity price reliability-wise at par with the foundry suppliers, relying on the enterprise mannequin and in addition the amount, supply-demand requirement, and I feel we’re seeing the primary wave of the outsourcing exercise. As soon as the door opens, I feel this development will proceed. As extra individuals coming in, as extra expertise turns into obtainable, as the info factors begin going up, the boldness degree of the provision chain range and the resilience, I feel will probably be a pure pressure to drive that. So on this regard, I feel ASE will profit as a result of that is the enterprise which is incremental and in addition within the core portfolio of our enterprise goals, proper? Now, when it comes to how briskly, how a lot and the margin contribution, we imagine the margin contribution can be accretive. We additionally imagine that as that is coming in, the testing, turnkey turns into a pure extension and the testing can be of upper margin to start with due to the funding and in addition the IP. So, as we method extra of the turnkey as we method extra of the excessive finish, additionally the – there’s a pure margin requirement primarily based on the expertise content material. So, within the increased margin requirement within the increased turnkey ratio. So I feel all of this can be very useful for ASE future. I hope that solutions your query.
Operator: [Operator Instructions] Charlie Chan or Dylan Liu of Morgan Stanley has extra questions.
Dylan Liu: Sure, I am asking — that is Dylan. So, I am asking on behalf of Charlie. So the primary query is, can we see any competitors coming from Chinese language OSATs as a result of we heard a few of our clients are surveying the potential of shifting a number of the capability to Chinese language OSAT? And if that’s the case, how can we deal with that? Will we decrease our worth simply due to the market share? Or we are likely to focus extra on the ASP and shift extra of our focus to superior packaging as such?
Tien Wu: I feel for competitor, it is ongoing for 30, 40 years. And we’re very used to this, proper? I feel clients will at all times survey the worldwide suppliers. The choice level goes to be beneath the brand new geographic regulatory management. For those who’re comfy going to a distinct a part of the area, that would be the first display, the primary filter. I feel for now, now we have much less concern for a few of our key clients going to China due to that cause. However over time, this may change. Then we’re going again to the associated fee, the effectivity in addition to the reliability and in addition the info traceability. So at the very least what — I can’t touch upon a competitor, however what ASE has been doing is we’re attempting to have full traceability on all the pieces we do. We’re having to have 100% absolutely automated. Due to this fact, all the pieces is logging within the information with full transparency to our clients. We’re attempting to enhance our scale by working with main foundry accomplice, we’re attempting to work with all the key Tier 1 system IDM suppliers, clients attempting to extend the info level and our data. And never solely we’re attempting to do manufacturing know-how, we’re attempting to do the design simplification know-how as a result of we’ll enter — we’re attempting to make the extra easy design, extra complicated, that is the place the worth is. And instantly will make a extra complicated costly design to a less expensive, less complicated design. So, solely with all of those constructive cycles, can we safe the important thing buyer. And that is why ASE has been having very excessive traction with all the forefront buyer. So, when it comes to competitors to Japan, Korea, China, together with, it is at all times the identical. You need to use the identical analogy on all the legacy. Over time, individuals are involved concerning the legacy provide and demand. ASE is rising our absolutely automated fab in addition to our design simplification functionality exactly to anticipate that. On high of it, we’re attempting to enhance the silicon carbide. We’re attempting to enhance the silicon photonics, in addition to, or the Excessive Efficiency Computing just like the VIPack. So, all the innovation are supposed to supply extra toolbox to our clients of their future design, complexity as was simplification. I do not suppose any of our Chinese language opponents are having this type of ecosystem and the info and the AI know-how for now, which is why I introduced the ASE aggressive benefit. I feel now we have just a few years of a clear management, we will leverage this window of alternative to ensure our scale and effectivity and know-how can prolong rapidly forward of our opponents.
Dylan Liu: And the second query can be circling again to the superior packaging. So, we have been curious concerning the enterprise mannequin as a result of very first thing is that how will we body our aggressive benefit versus the incumbent, for instance, these IDMs and foundries? And since in our thoughts, we are likely to suppose that extra of a focused market can be high dies coming from totally different foundries and we will work as a collaborator. And if that’s the case, how can we assure the yield? As a result of generally it could possibly be packaging, generally it could possibly be high die. But when ended up, the manufacturing yield is suboptimal, who can be accountable with it.
Tien Wu: I will attempt to provide the simplified model of it. It is a large problem. We struggled with this for a very long time. All proper. The great thing about that is the — all the clients, all the suppliers has been working with 1 or 2 main suppliers for a time frame. So, the info lock is there. They perceive the reminiscence yield, they perceive the logic yield, they perceive the so-called meeting yield total. So, the benchmark could be very clear, all proper? So, the easy reply is such, if ASE can produce the general yield primarily based on the general benchmark, an element to the benchmark than we received this enterprise. If we’re beneath that, both we lose the enterprise or there can be punitive harm which is why you have been referring to. So one of the best ways to have a look at is, can we retain this enterprise going ahead and nonetheless being profitable, all proper? It is too early to inform, however I am telling you, we do have a confidence we’d do — we are going to handle this, proper? By way of the opposite query you requested, just a little bit too sophisticated moving into information. I cannot reply. My apology.
Operator: There isn’t a questions.
Tien Wu: With that, I want to want all of you a Joyful New Yr wherever you’re. And now we have gone by means of fairly an thrilling 2021, 2022. 2023 was just a little little bit of break. I feel 2024, we’ll enter into a brand new period. And I feel I stay up for working with all of you. Thanks. Joseph?
Joseph Tung: Thanks, all. Joyful New Yr. We’ll see you subsequent time.
Tien Wu: Okay. Bye-bye.
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