ASE Technology Holding Co., Ltd. (ASX) Q2 2013 Earnings Report, Transcript and Summary

Welcome to the ASE Q2 2013 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. If you have any objections, you may disconnect at this time. And now, I will hand the meeting over to your host, Mr. Joseph Tung. You may begin.

Good morning, and good evening, everyone. Thank you for attending ASE Q2 2013 Earnings Release Conference Call. We're glad to have our CFO, Mr. Joseph Tung, here to speak with you on our Q2 results, and he will also give you some flavor on the Q3 guidance.

Well, before we start the presentation, please turn to Page 2. On Page 2 is the Safe Harbor notice. I would like to remind everyone on this call that the presentation that follows may contain forward-looking statements. These forward-looking statements are subject to high degree of risks, and our actual results may differ materially from those forward-looking statements. Let's proceed. Q2 is characterized by a strong rebound within our IC ATM smart device-related customers. Nevertheless, we saw weakness in our EMS-related business during the same timeframe. As we anticipated, our Q2 IC ATM results were marginally stronger than our Q4 results in almost every significant aspect. Let's get into the details. Page 3, on a fully consolidated [ph] basis, the company delivered EPS for the quarter of TWD 0.50. During Q2, we saw our IC packaging, testing and direct material businesses rebound, growing 17%, 14% and 12%, respectively. Our IC ATM business increased 16% quarter-over-quarter. We also saw our EMS business decline 13%. Consolidated revenue was TWD 50.8 billion, an increase of 5% from the previous quarter. As a our IC ATM revenues rebounded, consolidated gross margins increased 3.4 percentage points to 20.6% from 17.2% the previous quarter. Operating margins increased 3.1 percentage points to 10.6% from 7.5%. Nonoperating losses were down marginally by TWD 82 million to TWD 362 million. Pretax profit was TWD 5 billion, up 59% from TWD 3.2 billion in the previous quarter. Net income for the second quarter was TWD 3.8 billion, up 71% from TWD 2.2 billion the previous quarter. Net margin increased to 7.5% from 4.6%. EBITDA increased to TWD 12.2 billion from TWD 10 billion last quarter. Page 4. On a consolidated year-over-year basis, total net revenues increased 11%, gross profit grew 18% and operating profit grew 30%. Net income grew 20%. The increases in gross and operating margins were primarily driven by our stronger growth of our assembly and test business as opposed to growth in our lower-margin EMS business. Also, we retained a more cautious approach towards growth during 2013 with tighter CapEx control and hiring discipline. Page 5. Let's look at the results of our IC ATM business. Q2, for IC ATM business, rebounded back strongly from a seasonally down Q1. Our IC ATM revenue increased 16% quarter-over-quarter, slightly ahead of our own expectations, to TWD 36.3 billion. Revenues from the IC packaging, testing and direct materials businesses were 17%, 14% and 12%, respectively. NT dollar depreciation had a 0.8% positive impact on revenue. For Q2, our gross profit increased to TWD 8.7 billion from TWD 6.2 billion while our gross margin increased 4.1 percentage points, also ahead of our expectations. Within cost of goods, margin improvement was primarily the result of lower depreciation, labor and raw material costs. On an absolute basis, depreciation and amortization expenses increased slightly to TWD 5.5 billion in Q2. However, as a percentage of revenue, G&A decreased to 15.2% from 17.4%. This decrease was primarily attributable to higher utilization rates on our equipment with lowering -- with lower ongoing capital equipment investment. Labor cost during the period increased TWD 482 million to TWD 6.2 billion. As percentage of revenue, labor decreased to 17.2% from 18.4%. Labor cost decreased primarily as a result of higher labor efficiency from higher factory utilization. For Q2, raw material costs increased TWD 1.2 billion from TWD 8.9 billion to TWD 10.1 billion. As a percentage of revenues, raw material costs dropped to 27.8% from 28.5%. Operating expenses increased TWD 357 million to TWD 3.9 billion, due largely to higher R&D expenses. But as a percentage of sales, operating expenses declined to 10.8% from 11.4% a quarter ago. Operating profit in Q2 rose to TWD 4.8 billion from TWD 2.7 billion in the previous quarter. Operating margins increased 13.2% from 8.5%. EBITDA in Q2 for the IC ATM business was TWD 11.1 billion. EBITDA margin was 30.6%, improving 3.6 percentage points. Page 6. On a year-over-year basis, our IC ATM business had a 12% revenue growth. Gross profit increased 20% or TWD 1.5 billion to TWD 8.7 billion. Gross margins improved 1.7 percentage points from 22.3% to 24%. Operating profit increased TWD 1.2 billion, a 32% improvement. Operating margins climbed 2 percentage points from 11.2% to 13.2%. Page 7, a more detailed view of our packaging operations. Packaging revenue increased 16.5% quarter-over-quarter in Q2 to a record TWD 29.0 billion. Our packaging gross margin increased 4.2 percentage points to 20.3%. Primarily, improvements in raw materials, labor and depreciation and amortization expenses as a percentage of revenue accounted for the gross margin improvement. Raw material costs increased by TWD 1.4 billion to TWD 10.8 billion. As a percentage of packaging revenue, raw materials declined 0.7 percentage points from 37.8% to 37.1%, primarily as a result of favorable product mix change and lower gold prices. Labor costs for our packaging business increased by only TWD 360 million. However, as a percentage of revenue, labor costs declined by 1.3%, primarily as a result of higher labor efficiency through higher overall factory utilization. Depreciation and amortization costs stayed roughly flat, remaining at TWD 3.7 billion. As a percentage of revenue, D&A dropped 1.8 percentage points to 12.9% from 14.7% last quarter, primarily as a result of factory utilization rates returning to healthier levels. During the quarter, CapEx with -- CapEx for our packaging business amounted to USD 146 million. Within this, USD 20 million was used for wire bond-specific purposes, USD 36 million was used for advanced packaging purposes and the remainder was for common equipment, including SIP. From a capacity overview, during the quarter, we added 171 bonders and retired 165 for a net of 6 bonders. We ended the quarter with a total of 15,565 wire bonders in operation. 8-inch bumping capacity remain unchanged at 95,000 wafers per month, and 12-inch bumping capacity increased 5,000 wafers to 50,000 wafers per month. Page 8, our packaging revenue breakdown. Our advanced packaging product mix grew slightly to 27% of total packaging revenue. Wire bond product mix remained flat with Q1 at 53% of total packaging revenue. As a percentage of wire bond revenue, copper wire bond revenue increased 21% quarter-over-quarter and now represent 63% of total wire bond business. Utilization rates within our advanced packaging and wire bond businesses were, percentage-wise, roughly in the mid-80s. ASP trends for our flip chip and wire bond businesses remain relatively normal during the quarter. At the end of Q2, our copper wire bonder capacity increased to 11,754 bonders, while now 6 -- 76% of our wire bonders are copper wire bonding capable. Page 9, our testing operations. During Q2, our test operation revenues increased by 13.7% sequentially to TWD 6.5 billion. Gross margins for our test business increased 4.3 percentage points from 34.3% to 38.6%. Gross margins increased primarily as a result of labor and depreciation and amortization expenses. Labor was 18.9% of test revenues, down a percentage point from 19.9% last quarter. Depreciation and amortization, as a percentage of revenues, were down 3.1 percentage points to 23.4% of revenues from 26.5% the previous quarter. These improvements were primarily the result of improved factory utilization during Q2. Our testing utilization rate improved to the mid-80s. CapEx for our test business was $74 million in Q2. We added 188 testers and retired 76 testers during the quarter. At the end of Q2, our total tester counts stood at 3,057. Page 10, our material business. In Q2, revenue from our material business grew strongly to TWD 2.4 billion from TWD 1.9 billion. TWD 759 million was from sales to external customers, representing a 12% increase over Q1. Our internal self-sufficiency rate increased from 23% to 31%. Gross margins returned to a healthier range at 14.2% during the second quarter. Page 11, EMS operations. Revenues for our EMS business declined 13.4% during the quarter to TWD 14.2 billion. As we had expected, we did not see a rebound for our EMS business during Q2. In addition to our Wi-Fi module business continuing to underperform, we also saw some additional weakness in our PC-related business. With that said, our overall EMS gross profit margin held relatively flat, decreasing slightly to 11.4% from 11.5%. Page 12, EMS revenue breakdown. Within our EMS business, our Wi-Fi module business continued to decline, now accounting for 24% of total revenues. We believe that as our customer forecasts improve during the second half of 2013, our Wi-Fi module business should start ramping. For the second quarter, our computing product segment now accounts for 29% of total revenues. It is now the product segment leader within our EMS business. Page 13. For our balance sheet this quarter, our cash and cash equivalents and current financial assets grew to TWD 30.3 billion from TWD 27.4 billion the previous quarter. In Q2, our interest-bearing debt increased by TWD 1.2 billion to TWD 83.6 billion. At the end of the quarter, we still have TWD 102.7 billion in unused credit line. Page 14, CapEx. In Q2, our CapEx was USD 236 million, up from USD 116 million in the previous quarter, but down significantly compared to our Q2 2012 amounts. Out of the USD 236 million spent, USD 146 million was for assembly, USD 74 million was for test, USD 9 million was for material and USD 7 million was for EMS business. EBITDA for the second quarter amounted to USD 410 million. Page 15, market segment for IC ATM business. As expected, our IC ATM end market segment effectively returned to Q4 2012 proportions. Our communication segment bounced back and gained a bit of share from our consumer and automotive market segments. The communication segment for the quarter increased to 55% of revenue versus 52% of revenue in the previous quarter. The consumer and automotive segment dropped 34% -- dropped to 34% of our IC ATM revenue. We believe that during stronger-than-expected Q2, given the softer Q1, some of our customers may have built some inventory. We believe that the current environment may be moderating. As such, some customer forecasts may soften after their inventory building run rates have subsided. Page 16, our third quarter guidance. During Q2, we saw our customers ramp up rapidly to prepare for certain end market product launches and in anticipation of market share gains. We believe there to be a significant but manageable amount of inventory created during this timeframe. However, we are seeing signs that the industry is rationalizing. Instead of seeing large-scale overbuild, as might have been the case in the past, we see spontaneous but moderated adjustments in our customer forecasts to keep from significantly overbuilding their inventory. Looking into Q3, orders for our IC ATM business appears to be in the midst of moderation. Instead of a seasonally strong Q3, we're seeing more of a neutral growth environment. As such for IC ATM business, we believe revenue should be flattish to slightly up 1% to 5%. Our EMS business should see some increases in its wireless module business. As such, we believe the EMS revenue -- our EMS revenue should see increases in excess of 25% quarter-over-quarter. For margins, given the moderated growth environment, we see our IC ATM gross margins holding steady or maybe increasing slightly during Q3. However, during Q3, our EMS business, with recovering volumes in its wireless module business, should see gross margins returning to Q4 2012 levels, down 0.6 to 0.9 percentage points. With this, I conclude my presentation, and would like to open the floor to questions.

[Operator Instructions] Our first question comes from Mr. Randy Abrams of Credit Suisse. Randy Abrams - Crédit Suisse AG, Research Division: I have few follow-ups from this afternoon. The first question, just on the inventory adjustments you talked about. Could you talk about in the smartphone market, to the extent you're seeing slowdown or adjustments across high-end smartphone versus like the emerging China channel, or if you're still, in your second half outlook, see any potential for strength or momentum from either of those 2 areas?

Actually, from our perspective, we're not really kind of -- we're not really separating between the 2. I mean, we -- if we were, we might expose certain customer forecasts. We prefer not to comment on that specifically at this point. Randy Abrams - Crédit Suisse AG, Research Division: Okay. All right, fair enough. If I could ask then on the capacity to -- I guess, clarify the CapEx now that you're expecting -- if it's toward the TWD 700 million, and then how the split would be between wire bond flip chip and test as we go through second half? And if you plan to add a number of wire bonders.

Yes. We're still looking to be around TWD 700 million to TWD 750 million, but we might have room to actually decline at this point. Most of the spending should be related to flip chip and advanced packaging. Randy Abrams - Crédit Suisse AG, Research Division: Okay. So it should be like this quarter on wire bonds, like the retirements pretty closely matched up with new wire bond adds. Like how much you need to add on the wire bond side?

Yes. We don't really need to. Our wire bonder capacity, basically, should retain roughly flat. We're not actually interested in increasing wire bond capacity. If anything, we're going to be adding for wire bonder capability, and the numbers should stay roughly flat. Randy Abrams - Crédit Suisse AG, Research Division: Okay. And on the system and package business you talked some this afternoon on, how should we think about the CapEx requirements to build or grow this business?

The SIP -- for our SIP business, the investment would probably be contained in -- if you notice how we categorized our CapEx this time, we had wirebond-specific, we had advanced packaging and then we had common. And within common, we'd have some amount for SIP, because most of the step that we would invest for SIP kind of spans a couple of different types of packaging line. Does that help? Randy Abrams - Crédit Suisse AG, Research Division: Okay. Or just like in -- I mean, is there any material -- I mean, over the next 1 or 2 years, like a material new piece of CapEx beyond what we were thinking from -- with your traditional assembly and test business? But now that you have more of these integrated modules, if there are some new CapEx that might just raise the levels, like to grow this business out.

Actually, we don't -- we really don't have anything of a material nature to announce at this point in relation to CapEx investment related to SIP. I think it would be fair to probably make a more lengthy comment on this when the SIP business becomes more material in our overall business. Is that okay? Randy Abrams - Crédit Suisse AG, Research Division: Okay. And then last question is on OpEx, your plans with a more, I guess, moderate second half. Should we also think -- maybe how we should think about OpEx growth in the next couple of quarters?

Yes. I think from our OpEx, I think we're going to hold it roughly flat to potentially slightly up, depending on how our revenues do.

Our next question comes from Dan Heyler of BOA Merrill Lynch.

I had a few follow-ups from the notes. On the depreciation side, could you give us some more details on how that's going to trend in the third and fourth quarter?

With -- kind of with our overall capital expenditure expectations, I think the depreciation number should hold roughly flat, so far.

Okay. That's for consolidated?

IC ATM, actually, for both.

Right, that's the big one. And then are you adding any testers in the -- do you need to add any testers in the third and fourth quarter?

There's -- there are plans to add some testers, but we're -- I mean, well, we're -- given the current environment, we're keeping our ears up and making sure that we're not adding too much. Sorry. I mean, Q3 tester adds should probably be slightly lower than what we're seeing in Q2. And as usual for us, we don't really add testers in that many in the fourth quarter.

Right, of course. So the margins then for the test, theoretically, should be probably up a bit if you get a little bit of growth in the third quarter?

Yes.

Okay. And then I want to ask on the EMS side. Significant growth there on volumes, but a margin decline. Walk us through a little bit more detail and what -- why that is.

Yes. The -- so for the EMS business, we're actually going to see some margin declines due to the fact that the wireless module business has lower gross margins for that product. And as that product ramps, we're going to see the gross margins go back towards when the wireless module business that -- was actually running at similar levels. So we're not seeing anything dramatically new at this point.

I see. So it's a function of mix. But you're not taking a hit on pricing in that business?

No, but we're not expecting to take any hit on pricing at this point.

Okay, great. And then I wanted to ask a little bit on the investments and -- in 2 areas, MEMS and COAS [ph]. So in terms of MEMS, how much of the CapEx are you spending there? And what revenue contribution could we see in that business, say, second half this year and 2014?

I mean, both of these items are something that we do on a very limited basis, so we don't really have any specific spend patterns for those right now publicly available.

Okay, okay. But these are -- I mean, MEMS, I understand though is -- that you have ratcheted up spending there recently, right? I mean, do you anticipate this to be a pretty big business in, say, 2014?

I mean, we're interested in MEMS, however, we have a lot of other wonderful business that we deal with that requires probably higher amount of spend.

Okay. And then on the copper penetration, I wonder where you think that's going to go the next couple of quarters. It's -- it was up in the second quarter. I'm wondering where that's going to trend by third quarter and fourth quarter.

Hang on, we're flipping through paper here.

No problem.

We're actually -- we believe that copper conversion should continue to progress, but in a limited fashion. So we're not aiming for any rapid levels of growth like -- that we've seen previously, like we've seen in 2012 or 2011.

Okay, great. And then finally, I guess, you've got -- flip chip is clearly the area of growth. There is excess wire bonding capacity. Are you seeing new areas that can actually absorb the wire bonding capacity as flip chip picks up in mobile, or will that be this -- more a function of just cycle and broader macroeconomic conditions?

Actually, we're not seeing a lot of excess wire bonding capacity at this point. I believe that we have our copper wire position. So I believe that copper wire should continue to have some -- a better level of demand with -- relative to overall gold wire.

Yes. I mean, you're running, I guess, about 85 utilization. You've been -- back in the '90s, in the past. I'm just wondering if we could maybe get there at some point.

Generally, we ran at -- I mean, we can get into 90 kind of -- on a real brief period, but it's not healthy for us to run at 90 at a -- I mean, it's -- that would be a pop, if anything.

Our next question comes from Mr. Dave Duley of Steelhead.

Could you just talk about -- you gave us a bunch of reasons, but the key reasons that the gross margins have improved here in your IC ATM business is what again, that -- could you just highlight for that -- that for us?

Hang on. Are you looking at consolidated or IC ATM, Dave?

Just IC ATM.

IC ATM, we're looking at primarily depreciation, labor costs and raw material costs.

And the depreciation levels are going to be flat here going forward because you moderated your CapEx starting earlier this year?

You could say that is somewhat like maintenance-type CapEx at this point. We're still investing in the advanced stuff though.

Yes. And along those lines, you spent about half of your CapEx budget thus far this year, and you just forecasted pretty moderate growth in Q3, and usually, Q4 is flatter, flat, plus or minus. So it doesn't look like there's going to be a lot of growth left in the second half of the year. I'm trying to figure out why you would be spending any money on CapEx, I guess. And if you are going to spend money, what's it going to be on in the third quarter?

Just a note, I didn't comment on Q4.

Okay. No, I -- yes. I'm just kind of assume that's typical year.

Yes. So it would be a fair assumption. We would be looking for opportunities to reduce our CapEx. However, we should maintain our current capacity and also keep investing towards what we expect would be coming up.

And so that would be in the advanced packaging area?

Yes, much more so than in wire bonding.

Okay. And if you had to guess now, what would your CapEx be for the third quarter?

Yes. We're looking at about TWD 200 million or so, give or take.

Okay. And if -- what would the depreciation levels be in this business? Whatever CapEx numbers you do spend this year, what -- when we get to the end of the year, will depreciation level still be flattish, or...

No.

Will they grow or decline, or how is that going to pull through later in the year?

I think depreciation looks to be roughly flattish. So we're not really seeing a big bump in depreciation, unless we see corresponding huge increases in business and -- that needs additional investment to pass. That's not something we're looking at right now.

So we could see record levels of gross margins coming in the IC ATM business over the next few quarters is kind of where I'm going with all these questions.

Record levels of IC ATM business over the next...

Gross margins, excuse me. I think the historical high is something around 25% over the last 4 or 5 years, 25% or so.

And what we're looking for in Q3 is slight increase on what we have right now. I think we're reasonably happy with what we have right now. So maybe we'll be slightly happier next time.

Okay. Then final one for me. When you look at the third quarter revenue guidance of flat to up 1% to 5%, could you talk about which sectors are going to grow and which ones are going to shrink? And there were some earlier questions about inventory. I realize you don't want to talk about one phone type or the other, but could you just talk about overall where you are seeing inventory, where things split that has impacted the growth recently?

We don't have specific information on which products are actually creating inventory. So -- I mean, from our outlook, we're seeing potential declines anywhere, but we have some -- some particular of concern for us might be in computing, which probably you're not expecting that.

Our next question comes from Mr. Szeho Ng of BNP.

With regard to the fundraising plan that you guys just approved, could you talk about the timetable for the fundraising plan?

Yes. We don't have any timetable.

Okay, all right. And then second question, going into the 60 nano or 40 nano impact, do you think flip chip would overtake wire bond be the mainstream solution for the process node?

Yes. We're not -- we don't have a publicly announced plan on expense that -- that's being released in the investors at this point.

Okay, I see. But do have any feeling when the flip chip would start to overtake wire bonding in a meaningful way?

Yes. Let me -- flip chip and wire bonding, I mean, they'll be around for a while. I don't see any of them replacing each other. It's just a matter what technology demands, what type of packaging. So that is -- making a plan for that is probably a little bit irrelevant because it's not us that makes the control -- that controls that.

Okay, all right. But would there be any physical limitation for wire bonding going to certain package?

We've been predicting wire bonding limitations for the past 20 years. I don't know if we should be in -- predicting any more.

Our next question comes from Mr. Steven Pelayo of HSBC.

Okay. Just a few questions here. The third quarter guidance for IC ATM, up 1% to 5%, I'm curious, is that all segments growing, the flip chip grow the most and others are flat to down? Could you talk about the relative strength of each of the kind of product segments?

Hold on for a second. Are you referring to second quarter or third quarter?

Third quarter growth, IC ATM, up 1% to 5%. I'm curious about the relative strength. Is it going to be flip chip mostly? And could some area be down? I mean, help me understand.

Well, I think both -- both flip chip and -- as well as wire bond, will have very similar growth in the low to mid single-digit kind of growth.

Okay. So you don't see any one particular area really relative outperforming tester or flip chip or wire bonding? It's not...

No, not really. I think the computation of our revenue will be very similar to what we're having now.

Okay. And when you look at the -- your Wi-Fi module business in the third quarter, you talked about the second quarter being 24% of revenue. What do you think that ramps up to in the third quarter?

I think it will be above 30%.

Okay, great, in 30%. Could you -- just a little bit about kind of the monthly linearity for both ATM and EMS. I mean, I'm kind of particularly interested in EMS and kind of how steep the run rate goes and then what that may portend for the fourth quarter. Any general thoughts on linearity?

I think ATM-wise, it will be pretty flat month-to-month kind of pattern. But -- as well as the EMS. In terms of EMS, I think the ramp up will be accelerating in August and the September timeframe.

Okay. So I mean -- I know you don't guide the fourth quarter, but it's just interesting to think about. You guys have been tracking, at least, in IC ATMs, compared to like TSMCs revenues relatively closely, they grew 17%, you grew 16% or something like that. And they guided kind of this 3% to 5% in the second quarter. You're guiding 1% to 5%. So it seems very similar, however, they are making a suggestion that the fourth quarter could be down even worse than it was last year, something down in the high-single-digits area.

Yes. I think it will be a different product mix and different customer mix. And so we don't necessarily go hand-in-hand in terms of our revenue pattern. On top of that, I think there will be some new business, new revenues that we're generating, particularly in the quarter -- fourth quarter, i.e., in the area of SIP, S-I-P. We do expect some meaningful numbers to come in, maybe fourth quarter. That will provide another layer of support to our revenue in the quarter.

So that was going to be my next question, so the timing of SIP and the margins of that. You just said significant in the fourth quarter. What does that -- what do you -- what does that mean? Is that 10% of the -- of EMS? What do you think that mean? What is that?

I -- what I -- the phrase I -- the word I used is really meaningful. I didn't say significant. I think it will be still low single digit of our overall revenue in fourth quarter, coming from this particular business. And in terms of return and in terms of profit margin, I think it will be at least at par with whatever we're having now, if not better.

Okay. And I guess your SIP revenue gets spread between kind of ATM and EMS. So help me understand how that mix is spread out.

I think it will really be a collaboration of our different technology and different expertise. And putting the 2 together, we can be a effective competitor in terms of competing for this kind of business. What we have is -- at ASE level, we have the assembly test and also substrates, while at the EMS level, we have to have the system level technology and also a much better experience and know-how in terms of logistic support. I think we're putting the 2 together and then -- to compete for the -- for this type of -- or to develop this type of business.

Do you think that business opportunity is enough to allow -- we see -- I think your EMS business grows in the fourth quarter, but do you think that the ATM business can still grow in the fourth quarter due to the opportunity with SIP?

I'm sorry?

I said, I believe you're EMS business will still grow in the fourth quarter. But I'm curious about IC ATM, in light of the SIP opportunity coming through. Do you think that, that can -- also gives you confidence of growth in the fourth quarter for IC ATM.

That's correct. I think the -- -- that's a collaboration of the 2. So we will each share some -- a part of the revenue.

But that's enough to allow total IC ATM in the fourth quarter to give you the confidence that it will still grow, even though people like TSMC are suggesting declines.

Well, we're not actually commenting on the fourth quarter. We're saying that from the way it's looking, we do feel comfortable that our earlier statement of seeing some sequential growth on a quarterly basis is still likely at this point.

Okay. And my last question, I've asked you, I think, every 90 days or last year or so. You mentioned a few quarters ago that one of the things that was holding back packaging margins was your China operations and getting it utilized and I think getting ramped back up with IDMs and low pin count. So you didn't talk a lot about low pin count in China operations. Is there -- any thoughts there on are they holding back margins still? Are they below kind of packaging averages? Any general thoughts?

In -- I think, in general, it's still lagging behind the corporate average. But then things are turning up quite a bit in -- both in terms of revenue, as well as in a profit margins. I think in the second quarter, our discrete business actually grew about 34% on a sequential basis.

At this time, there are no questions on queue. So I would like to hand the call back to the speakers for any closing remarks.

Okay. If there are no further questions, thank you very much for attending our conference call, and we will see you next quarter. Thank you.

Thank you. That concludes today's conference. You may now disconnect.