Hello. I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our Fourth Quarter and Full Year 2023 Earnings Release. Thank you for attending today. Please refer to our Safe Harbor notice on Page [Technical Difficulty] 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, dollar figures are generally stated in New Taiwan Dollars, unless otherwise indicated. As a Taiwan-based company, our financial information is presented in accordance with Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiary using Chinese GAAP. I am joined today by Joseph Tung, our CFO; and Dr. Tien Wu, our COO. For today's presentation, I will first be going over the financial results. Dr. Wu will then give a market update and the 2024 key points. Joseph will then give the official company guidance. Both Joseph and Tien will then be available to take your questions during the Q&A session that follows. During the Q&A session, each caller will be limited to 2 questions at a time, but may return to the queue for further questions. As per our expectations, the overall demand environment for our services remained sluggish during the fourth quarter. However, there were pockets of stronger performers within the devices we serve. But by and large, our customers remain conservative in their ordering patterns. In general, higher-end leading-edge services seem to be faring better than legacy services, but stronger wide breadth volumes…

Hi, everyone. This is Tien Wu. Year 2024 will be a year of recovery. In the last few years, there has been many changes. So, I think it's appropriate for me to give you a market update, take a snapshot of what we see today and how ASE is competing in this new environment before I go to the year 2024 full year outlook. Let me talk about the semiconductor landscape. As you know, the semi organization and many analysts has been talking about NTD 1 trillion industry target by year 2030. We believe that the industry is likely to reach NTD 1 trillion revenue target in the next decade. It can be '30, it can be '31, '32, '33. But with high confidence, we think the revenue will be NTD 1 trillion mark in the next decade, driven by AI, robotics, EV and all of the new applications. The industry has a clear understanding about our responsibility in net zero, ESG, circular economy as well as recycling throughout the whole supply chain. As a matter of fact, ASE has been putting a lot of endeavor in this area. Industry is facing challenges, geopolitical tensions, regionalization, market bifurcation. And with all of this new effect, it will be at a cost. Also, the reduced scale. Those are new variables that the industry need to learn how to manage. Industry will have a few things we need to do. First, industry has to propose more innovations with higher value. I think AI is a perfect example in that regard. Structural improvement of efficiency and cost. Everyone, the whole supply chain is putting a lot of effort in doing that. Also, talent. We need to align talent workforce with the new complexities of doing business. With that, I would like to turn…

Okay. Thank you, Tien and hello, everybody. And to give you the guidance for first quarter of 2024. Based on our current business outlook and exchange rate assumptions, our guidance for the first quarter of 2024 to be as follows. In NT dollar terms, our ATM first quarter 2024 revenue and gross margin should be similar to the first quarter of 2023. Again, in NT dollar terms, our EMS first quarter 2024 revenues should be similar to the first quarter of 2023, and EMS first quarter 2024 operating margin should approach first quarter 2023 operating margin. Thank you.

I'd like to open the floor for questions. [Operator Instructions] We have a question from Mr. Gokul Hariharan of JPMorgan.

Happy New Year. Could we talk a little bit more about how we think about growth this year? I think Dr. Wu, you mentioned close to the logic industry growth. What does that number look like for you? Is it more like a 10% number or more than that? And maybe give us a little bit more color on how you think about growth by vertical. Communication is still a very important, more than 50% revenue for your ATM business. So, how do you think about communication versus computing versus the consumer auto segment? That's my first question.

As Tien mentioned, this 2024 will be a year of recovery. We are expecting to see, ATM to see sequential growth on a quarterly basis throughout the year. But with the second half having a stronger momentum. And as the overall full year growth, also, as Tien mentioned, we will be growing at a similar rate with the logic semi market growth, which is projected by different sources for anything from 6% to 10% in the industry now.

Also, any guidance for margins? Are we expecting margins to get back to high-20s to 30%? And could you also talk a little bit about your approach to the AI-related packaging? Some of your competitors are setting up capacity to compete with the leading foundry. Is that ASE's approach as well in terms of seeking out these high-end AI accelerator packaging? Or are you kind of partnering with the leading foundry in terms of potential opportunities in this advanced packaging business?

Well, I think we will certainly increase our overall CapEx for equipment for this year. And given the pipeline that we're seeing, I think we would likely to have 40% to 50% more equipment CapEx budgeted for the year, although that's still subject to Board approval. And the bulk of the -- more than 65% of the CapEx will be put in assembly and bulk part of it is really for the advanced packaging. And if we're looking at the breakdown of the CapEx that we are looking at today, roughly 67% will be for assembly, 80% for tests and 30% for EMS. And a lot of it -- most of it is really for the new packages or new products that we'll be bringing out this year. In terms of margin, I think we are very, very confident that the second half of the year, we will be building back to our structural margin, within our structural margin, which is set at a mid-20s to 30%. And we believe that for the whole year, we can also have our margin coming back to the structural margin range.

I think there’s a question about the collaboration with the leading foundry supplier for advanced packaging as well as investment maybe in the other part of the world. So, our position has been clear. We’re working with all of the leading foundry and we have made public announcement that, for example, the ASE and TSMC collaboration has been ongoing for years, and we’ll continue to work very closely working on all of the required advanced packaging. The investment and the R&D readiness has always been in place, which is another reason why we can ramp up, for example, the OS in later part of last year as well as the early part of this year, and you will see the good results are coming out. So the collaboration, the readiness has always been here. Now in terms of going to different parts of the world and making a big investment that we need to have a better understanding about the product and also the technology requirement. Right now, we do not have any plan to go to U.S., for example, to make leading-edge capacity investment. However, we will be very careful closely working with our customer and try to examine the situation. But today, we’re going to focus in Taiwan first to make sure we can fulfill all of the ramp-up technology variation requirement based on the leading-edge foundry suppliers as well as our customer. I think that will be the first order of business. As we move to ‘25, ‘26 and ‘27, depending on the environment, including political as well business environment, we will make the different decision accordingly.

Next question is from Ms. Laura Chen of Citi.

Can you hear me?

Yes.

I also have a question about the advanced packaging. I think you mentioned about like an additional NTD 250 million revenue contribution for this year. That's the new engagement with the advanced packaging. Can you elaborate more for what kind of the application? Is that including some of the bump in business or more focus on substrates, that kind of advanced packaging?

The NTD 250 million revenue, includes all of the what we call the advanced packaging. For example, the [indiscernible], if you're referring to our substrate business, and that includes like CoWoS, the TSMC version of the CoWoS and the un-substrate portion, and that is inclusive. Also the ASE has the 6 Pack, the VIPack that includes all kinds of advanced packaging. So this year, we're seeing the OS customers. We are also seeing the VIPack customers. And then hopefully, by the second half of this year, we can start announcing key customer ramping-up the other advanced technology in volume.

And was that also the expansion, what kind of the margin impact we're looking for?

We don’t normally comment on specific product margin. But as a whole, I think the overall corporate margin will continue to improve as we see volume come up and also by bringing in the new technology that we are in our overall offering.

Next question is from Charlie Chan of Morgan Stanley. Charlie?

Happy New Year. So, I also have a question regarding to advanced packaging. That CPO, seems to be very, very future technology, but can the company comment about the potential timing, penetration, TAM, especially how are you going to work out with the key foundry event at TSMC? Because I heard that TSMC may want to produce their silicon photonics. So, how are you going to collaborate with the foundry partners or other vendors?

Okay. The silicon photonics is a big subject. The whole idea is that will represent another paradigm shift. And as we enter into silicon photonics, we'll be opened up to more dimensions, more performance, more flexibility for all of the designers. So, it is good for the whole industry, right? The timing of silicon photonics, and that has been the big question. We have been working on this for many, many years. There are many, many people working on this. So, this is really a future technology as well as an incremental growth driver for the whole industry. In terms of the -- how do we petition the rolling responsibility, that is less of a concern. For example, the foundry will have foundry's role in terms of making the photonics chips either in a stack format or isolated format. And for ASE, we will focus on co-packaged optics. For example, if we take the IDM, photonics chips or the foundry photonic chips, how do we bundle that with everything else. So, each sector of the player will have a good responsibility and role to play in that new arena. Now ASE has been talking about the CPO or silicon photonics, mainly because this is really an important innovation. The whole industry is focusing on this. ASE today is working with all of the major driver in the industry in this arena. I'm not sure that answers your question, but that's what I have.

Very, very fair and indeed covered lots of my questions. My second part of the question maybe is on near term. So, since the -- I guess, late third quarter, we see circled the foundry rush orders. That means that demand is coming back and also people like of visibility. Fast-forwarding to 4 months later, I'm not sure Tien or Joseph, who want to answer this question, do you think this kind of rush order patterns will continue or actually on the kind of negative side rush orders now already disappear?

Rush order, you can view it from 2 different angle. For example, if you look at the – well, offer you my perspective first. Industry is going through a very prolonged inventory correction, right, after COVID. And so then we have a lot of wafer bank. And then the people looking their inventory days, they look at the order pattern, they’re trying to make 2 adjustments on the inventory days as well as the foundry order and the supply chain cycle time pipeline. Now what we have seen a few months ago is, for example, in China, the high-end cell phone was selling really well. And therefore, some of our customers start having the rush order on different wafer, different devices. I think that’s what you were referring to. And this is really good, right? So the next question is, can this be prolonged. Our belief is this is the beginning of the hub to the boom cycle or this is nearly – we’re at a tail end of the inventory control. For example, the first customer that started the inventory control was back to like January of 2023. And there’s some customers they start doing inventory control at a much later of the year. So, every company, every sector will go through a different inventory adjustment. But I believe by the third quarter of this year, they’re pretty much done. And then we’re really going back to the sell-through cycle. There’s a lot of uncertainty on what exactly the sell-through cycle because of high inflation, the China economy, the war that is going on. And so complicated comment. But the general belief is this year, the semiconductor will grow. The logic will grow around high single-digit, like 10%. So everybody is working towards that goal. All of the order pattern that we’re seeing today with every sector in a different pace, different tempo, they all pointed to that direction. The best way we can judge is in January, February, will give you this position based on the snapshot. And every quarter, we’ll give you a different snapshot. I think that’s probably the best we can do because there’s really no right or wrong. And both sides of the factors can be correct, but we believe that we are seeing towards the tail end of the inventory adjustment. So, the order pattern will start coming in and become more persistent and consistent.

Next question is from Bruce Lu of Goldman Sachs.

Again, I still want to ask about advanced packaging. I think in the past, the difficulty for us in terms of advanced packaging is that there are so many different solutions and each one require different capacity and different CapEx. And obviously, we do see a clear direction for the -- driven by AI at this moment. So, can you tell us that is that the direction for moving into the specific advanced packaging is more confirmed? Do we see a clear -- our CapEx is somehow focused on that? Do we get a reasonable ROIC or ROE for this business moving forward? Is that accretive business for us moving forward? Basically, that's the question, which I'd ask.

Okay. This is a loaded questions. Now the -- how long would the AI last. We believe it will be a long time. So the -- initially it could be 1 or 2 representative customers. But over time, the other players will come in. So, I think we're seeing the beginning or the tip of iceberg, right? Now, if we believe that is the case, then the leading edge foundry which says, okay, this is a capacity they're willing to put in and the other capacity, the other OSAT players, if you can do it, you will come in to help us. I think that was the situation pretty much described last year. The company has decided we think we have the technology, we have the initial capacity. We understand the investment. We understand the return profile, so we want to do this business not just from the leading-edge foundry customer, but also from all of the end customer and the potential system customer, they asked us to do this. Now, we're doing the OS or we're doing the VIPack as of now, but as AI become more evolved, in other words, once we evolve beyond the brain, the logic or the memory, you will start adding the other requirements. And all of this will require a similar capacity to build that required system over time. So, we think company will be more. The application will be more, the system requirement will be more but all going back to automation, going back to the understanding of the basic technology and also the company has enough portfolio and financial strength to shoulder the business model and the liability. So, this is one area which is quite definitive for ASE. So, we're not doing this for 3 to 6 months, if that answers your question.

I want to add a point that the AI is really at its early stage and we believe that as they continue to proliferate, I think we will go to some other applications and will create another run of replacement market for us. So, it's not just the -- to us, it's not just the advanced packaging that will start to have very strong growth. But also as a expense into other applications, all the other chips will be coming out and the overall volume for the also high end, but the mainstream packages will also benefit from the overall AI boom. So that will create another round of volume growth for us going forward but not just on the advanced packaging.

But the question is small, in the early stage of advanced packaging, which took quite a bit R&D and CapEx, are we seeing that the advanced packaging margin or how you are accretive in 2024 in the early stage of the AI?

As I mentioned, we don't particularly comment on different packages' profit margin. But as a whole, I think as long as technology continue to advance, I think that our margin will reflect that. And as I said, if you look at this year, we will continue to see our margins starting to improve as we go along with the technology advancement.

Next question is from Randy Abrams of UBS.

Yes. I wanted to ask the first question, if you can elaborate on the growth profile for this year. First quarter looks like seasonal or slightly lower than seasonal. For the outlook, it sounds like more confident in the second half, but I'm curious for second quarter, do you see we get back to the point at least look seasonal from the low base. So, we start getting back to like high-single, low-teens type of recovery? And then for applications, what I'm curious, the auto was very strong through the upturn. How is that application weathering the downturn in correction? And do you see the content growth where -- I'm curious how auto is faring through all this.

The Q1 typically, if you go back to my 20 years with ASE, the Q1 typically is 10% to 15% down, right? And the typical number that we work with is 12%. So, I think this year, if we can be flattish to Q1 of last year, I think we're better than the typical Q1. Of course, our Q4, you have to look at the relative. So that will be the first comment. And then Q2, we believe that we go back to our typical growth path. So, I think this year, we're looking at a typical year where Q1 low, Q2 growth, the second half stronger. I think we're looking at that pattern now. In terms of the automotive, some of the IoT and the analog and mixed-signal customer, I think they're having a lot of inventory concerns. So, we are seeing a sluggish order in the first half in those arenas. And some of the customers do supply to an automotive. However, the ASE automotive business per se is growing, mainly because of the -- I think, the auto line has a lot to do with it. And Joseph will comment more on the auto growth.

We did see very good growth in auto motor part of the business since 2022, 2023, and we're expecting a higher growth also in 2024. Right now, I think the automotive-related business has already -- has had a quite decent growth. And in 2023, it already represents close to 10% of our overall business. And we're seeing that continue to grow into 2024. And in terms of the overall growth rate, I think it will outpace the other sectors for 2024 as well. Although we are seeing some softer market conditions for the first half of the year because selectively, there are a few areas that we're seeing some inventory adjustments. But overall, I think the overall growth momentum will continue into 2024 in terms of our automotive business.

And there's a quick follow-up on that, and then I'll ask the second question. Doing some IoT analog mixed signal because the consumer downturn lasted a lot longer. Do you think we are through that based on the customer feedback that we should also improve in the second half or risk just given the inventory and how long it was strong stays. And then the second question is actually the EMS business where it's coming off a slow year and there hasn't been that much -- it feels like having customer innovation on new SiP projects. How do you see EMS, if it's also just general environment recovering or applications they're pushing and if there's -- you're seeing new activity for SiP that could jump start that part.

We already said that second half, we believe that will be the beginning of the recovery. All right, for the first question. The second question is EMS. And I think if you hear the EMS earning announcement, I think they will also have a similar growth with ASE this year. I'm not sure how to answer the SiP part of the question because we don't typically comment on the specific SiP or prod our customers.

I think 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 happening in this business. Well, all in all, I think we still remain very, very active in engaging with the different products and different customers in the SiP arena, and we believe that we will see very, very strong momentum, start to happen in 2025. I think 2024 is really the year that we are entering a lot of NPIs, a lot of the new engagements in different areas, including automotive, consumer and communication.

Our next question is from Szeho Ng of China Renaissance.

First question regarding Q1 guidance, right? We are looking for revenue ATM business to be down double-digit roughly. Can I know how much is that volume or loading driven, how much is ASP related?

ASP is quite stable right now. So, I think the -- when we talk about the -- well, first of all, let me just clarify a little bit. I think 2024 is the year of recovery. Our Q1 is flattish comparing to last year. Our Q2 will grow. When I talk about the second half inventory adjustment, I'm mainly referring to most of the customers that we have. Some of the customer has already started ordering. Some of the customers, it is still waiting, although we do not know for sure, starting July, all of the inventory adjustment will be over. But macroscopically, we think that in the third quarter of this year, most of the customers will start the recovery path, all right? So, I think that was a clarification. Now in terms of the ASP or volume, I think I am referring to volume driven, assuming the ASP is stable from now on, if that answers your questions.

And second question relating to advanced packaging portfolio. Is it fair to assume that right now, the overall portfolio for advanced packaging is margin dilutive to the ATM business? Or under what circumstances we should expect the advanced packaging to command margins similar to the division margin?

I think the first answer is yes. When I talk about NTD 250 million, that's all ATM. In terms of margin, I think Joseph has repeated over and over again. We don't comment specifically, but the overall margin contribution to the business will be accretive.

Yes.

I think that you just forced us to say that.

Okay. I was going to say not dilutive.

Not dilutive. Sorry, does that answer your question?

Next question is from Mr. Gokul Hariharan of JPMorgan.

I had a question on the test side of the business. How are we seeing the progress in trying to improve the bundling ratio for turnkey test? And could we also talk a little bit about your market presence in some of these advanced AI chips, how much testing business are we able to secure? And Dr. Wu, if you could give us any milestones in terms of how we should be looking at your test business given I think the bundling ratio is still quite low compared to what you want to be in the medium term.

Well, in terms of our test business, we have been growing that part of the business percentage-wise in terms of our overall revenue composition. I think from '21 to '23, I think we have been growing that from below 15% to now over -- close to 16% now. And we believe that ratio will continue to grow in 2024 to approach 17%. And we will continue to make efforts in growing our test business through the increasing our turnkey ratio with our customers. That includes advanced packaging today, which is, at this stage, is a low percentage of testing that we have been doing for our customers. We believe that percentage will continue to rise. And we will strive to reach our peak test revenue percentage of around 18% in the next couple of years.

My second question is on mobile since that is still the primary revenue driver. We've been hearing that there are some changes happening in the mobile side with more customers looking for 2.5D or Fanout package on package kind of solutions. There's also some discussion about the biggest flagship mobile customers starting to potentially see or at least the foundry part of the mobile packaging stepping out of foundry towards OSAT. Are these opportunities that are likely to benefit ASE? How is ASE positioned to benefit from these? And could you talk a little bit about this potential change from flip chip to Fanout package on package on mobile? How beneficial is that to the OSAT profits and revenues?

Well, I’m not sure I can answer all of your questions, but let me try this. Not just the mobile, right? If you look at the High Performance Computing and the router, the server, I think they all go through the similar trend. So initially, they want to go with a foundry supplier to make sure the turnkey service will guarantee yield and also the just-in-time delivery. As time goes on, a portion of the – it can be packaging, it can be testing, and can be un-substrate and they will decide to go to the outside of the foundry service. And then the first question is, is ASE-ready. I think ASE has been – this is really our business. And we are working with almost all of the customers in terms of the development just to make sure apple-to-apple we’re at least at par the efficiency cost reliability-wise at par with the foundry suppliers, depending on the business model and also the volume, supply-demand requirement, and I think we’re seeing the first wave of the outsourcing activity. Once the door opens, I think this trend will continue. As more people coming in, as more technology becomes available, as the data points start going up, the confidence level of the supply chain diversity and the resilience, I think it will be a natural force to drive that. So in this regard, I think ASE will benefit because this is the business which is incremental and also in the core portfolio of our business objectives, right? Now, in terms of how fast, how much and the margin contribution, we believe the margin contribution will be accretive. We also believe that as this is coming in, the testing, turnkey becomes a natural extension and the testing will be of higher margin to begin with because of the investment and also the IP. So, as we approach more of the turnkey as we approach more of the high end, also the – there’s a natural margin requirement based on the technology content. So, in the higher margin requirement in the higher turnkey ratio. So I think all of this will be very beneficial for ASE future. I hope that answers your question.

[Operator Instructions] Charlie Chan or Dylan Liu of Morgan Stanley has more questions.

Yes, I'm asking -- this is Dylan. So, I'm asking on behalf of Charlie. So the first question is, do we see any competition coming from Chinese OSATs because we heard some of our customers are surveying the possibility of shifting some of the capacity to Chinese OSAT? And if so, how do we tackle that? Will we lower our price just because of the market share? Or we tend to focus more on the ASP and shift more of our focus to advanced packaging as such?

I think for competitor, it's ongoing for 30, 40 years. And we're very used to this, right? I think customers will always survey the worldwide suppliers. The decision point is going to be under the new geographic regulatory control. If you're comfortable going to a different part of the region, that will be the first screen, the first filter. I think for now, we have less concern for some of our key customers going to China because of that reason. But over time, this might change. Then we're going back to the cost, the efficiency as well as the reliability and also the data traceability. So at least what -- I cannot comment on a competitor, but what ASE has been doing is we're trying to have full traceability on everything we do. We're having to have 100% fully automated. Therefore, everything is logging in the data with full transparency to our customers. We're trying to improve our scale by working with leading foundry partner, we're trying to work with all of the key Tier 1 system IDM suppliers, customers trying to increase the data point and our knowledge. And not only we're trying to do manufacturing know-how, we're trying to do the design simplification know-how because we'll enter -- we're trying to make the more simple design, more complex, that's where the value is. And immediately will make a more complex expensive design to a cheaper, simpler design. So, only with all of these positive cycles, can we secure the key customer. And this is why ASE has been having very high traction with all of the leading edge customer. So, in terms of competition to Japan, Korea, China, including, it's always the same. You can use the same analogy on all of the legacy. Over time, people are concerned about the legacy supply and demand. ASE is increasing our fully automated fab as well as our design simplification capability precisely to anticipate that. On top of it, we're trying to improve the silicon carbide. We're trying to improve the silicon photonics, as well as, or the High Performance Computing like the VIPack. So, all of the innovation are meant to offer additional toolbox to our customers in their future design, complexity as was simplification. I don't think any of our Chinese competitors are having this kind of ecosystem and the data and the AI know-how for now, which is why I presented the ASE competitive advantage. I think we have a few years of a clean leadership, we can leverage this window of opportunity to make sure our scale and efficiency and know-how can extend quickly ahead of our competitors.

And the second question is also circling back to the advanced packaging. So, we were curious about the business model because first thing is that how will we frame our competitive advantage versus the incumbent, for example, those IDMs and foundries? And because in our mind, we tend to think that more of a targeted market will be top dies coming from different foundries and we can work as a collaborator. And if so, how do we guarantee the yield? Because sometimes it could be packaging, sometimes it could be top die. But if ended up, the production yield is suboptimal, who will be responsible with it.

I'll try to give you the simplified version of it. It's a big challenge. We struggled with this for a long time. All right. The beauty of this is the -- all of the customers, all of the suppliers has been working with 1 or 2 leading suppliers for a period of time. So, the data lock is there. They understand the memory yield, they understand the logic yield, they understand the so-called assembly yield overall. So, the benchmark is very clear, all right? So, the simple answer is such, if ASE can produce the overall yield based on the overall benchmark, a part to the benchmark than we got this business. If we're below that, either we lose the business or there will be punitive damage which is why you were referring to. So the best way to look at is, can we retain this business going forward and still making money, all right? It's too early to tell, but I'm telling you, we do have a confidence we would do -- we will manage this, right? In terms of the other question you asked, a little bit too complicated getting into data. I will not answer. My apology.

There is no questions.

With that, I would like to wish all of you a Happy New Year wherever you are. And we have gone through quite an exciting 2021, 2022. 2023 was a little bit of break. I think 2024, we'll enter into a new era. And I think I look forward to working with all of you. Thank you. Joseph?

Thank you, all. Happy New Year. We'll see you next time.

Okay. Bye-bye.