Hello. I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our First Quarter 2023 Earnings Release. Thank you for attending our conference call today. Please refer to our safe harbor notice on Page 2. All participants consent to having their voices and questions broadcast via participation in this event. If participants do not consent, please disconnect at this time. I would like to remind everyone that the presentation that follows may contain forward-looking statements. These forward-looking statements are subject to a high degree of risk, and our actual results may differ materially. For the purposes of this presentation, our dollar figures are generally stated in new Taiwan dollars, unless otherwise indicated. As a Taiwan-based company, our financials are presented in accordance with Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiary using Chinese GAAP. I am joined today by Joseph Tung, our CFO. For today's call, I will be going over our financial results and outlook. Joseph will then be available to take your questions during the Q&A session to follow. During our year-end 2022 earnings release, we reported that the company and the overall semiconductor industry was entering a period of inventory digestion. We touched upon the impending soft environment and noted prognosticating outlooks can be incredibly difficult, especially when trying to spot the end of an inventory correction. Our business during the first quarter ran expectedly soft, given that we expected many customers were going to be drawing down product inventories. For the large part, our customers generally met their near-term plans. However, towards the end of the first quarter, when many customers reviewed their channel inventory relative to their expectations, they realized their inventory depletion was happening slower than anticipated. Apparently, end markets had not performed as they expected, whether it be poor Lunar New Year sell-through or a missing corporate IT refresh, sluggishness and excess inventory persisted. For our ATM factories, during the quarter, key equipment utilization rates were hovering slightly above 60%. And given these levels are near-term record lows, our factories focused on how to lower ongoing expenses. Working hours and bonuses were trimmed, raw materials pricing was scrubbed with our vendors, projects were reviewed and reprioritized, all in the name of costing down. However, the soft loading environment did allow us to continue automating factory lines, scaling up new product introductions and completing R&D projects. Our EMS business entered into its seasonally soft period. The front half of the year generally acts as a preparation and buildup for the back half mass production builds. Our EMS business actually came in slightly better than our guidance last quarter. But as you will see, the overall macro environment did appear to have an impact, albeit somewhat smaller than the impact to our ATM business. With that, please turn to Page 3, where you will find our first quarter consolidated results. For the first quarter, we recorded fully diluted EPS of TWD1.30 and basic EPS of TWD1.36. Consolidated net revenues declined 26% sequentially and 9% year-over-year. We had a gross profit of TWD19.3 billion with a gross margin of 14.8%. Our gross margin declined 4.4 percentage points sequentially and 4.9 percentage points year-over-year. The margin declines are principally the result of inventory digestion and a weak macro environment. Our operating expenses declined TWD2.7 billion sequentially and TWD0.7 billion annually. The declines were primarily attributable to lower profit sharing expenses across the company. Our operating expense percentage increased 0.8 percentage points sequentially and 0.3 percentage points year-over-year to 8.9%. The operating expense percentage increases were primarily related to lower revenues during the quarter. Operating profit was TWD7.7 billion, down TWD12.1 billion sequentially and TWD8.4 billion year-over-year. Operating margin was 5.9%, declining 5.2 percentage points sequentially and 5.3 percentage points year-over-year. During the quarter, we had a net non-operating gain of TWD0.2 billion. This amount includes net interest expense of TWD1.1 billion. Tax expense for the quarter was TWD1.8 billion. The effective tax rate for the quarter was 22.6%. The rate variance during the quarter was largely due to incremental controlled foreign company tax expenses. We believe that our annual tax rate will be between 20.5% to 21%. Net income for the quarter was TWD5.8 billion, representing a decline of TWD9.9 billion sequentially and TWD7.1 billion year-over-year. The NT dollar appreciated 3.05% against the U.S. dollar during the first quarter. From a sequential perspective, we estimate the NT dollar appreciation had a 0.8 percentage point negative impact to the company's gross and operating margins. From a year-over-year perspective, we estimate that the depreciating NT dollar had a 2.63 percentage point positive impact to gross and operating margins. As a rule of thumb, for every percent the NT dollar appreciates, we see a corresponding 0.29 percentage point impact to our holding company gross margin. On the bottom of the page, we provide key P&L line items without the inclusion of PPA-related expenses. Consolidated gross profit, excluding PPA expenses, would be TWD20.3 billion with a 15.5% gross margin. Operating profit would be TWD8.9 billion with an operating margin of 6.8%. Net profit would be TWD7 billion with a net margin of 5.3%. Basic EPS, excluding PPA expenses, would be TWD1.63. On Page 4 is a graphical presentation of our consolidated financial performance. You can see the impact of the current weak environment here. Unusually soft loading even for a correction environment are leading to lower revenues and a low utilization rate environment impacting our ATM and EMS businesses. On Page 5 is our ATM P&L. It is worth noting here that the ATM revenue reported here contains revenue eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses. For the first quarter 2023, revenues for our ATM business were TWD73.3 billion, down TWD21 billion from the previous quarter and TWD10.7 billion from the same period last year. This represents a 22% decline sequentially and a 13% decline year-over-year. This decline though steep, was in line with our outlook. Gross profit for our ATM business was TWD14.7 billion, down TWD11.5 billion sequentially and TWD8.4 billion year-over-year. Gross profit margin for our ATM business was 20.1%, down 7.7 percentage points sequentially and 7.4 percentage points year-over-year. The overall margin declines are the result of lower loading due to customer inventory digestion and the weak macro environment. During the first quarter, operating expenses were TWD8.3 billion, down TWD2.1 billion sequentially and TWD0.7 billion year-over-year. The declines in operating expenses were primarily driven by lower labor costs due to lower profit sharing and bonus accrual. Despite having significantly lower absolute operating expenses, their declines did not keep up with the pace that revenues declined. Our operating expense percentage for the quarter was 11.4%, up 0.4 percentage points sequentially and 0.6 percentage points year-over-year. During the first quarter, operating profit was TWD6.4 billion, representing a decline of TWD9.4 billion quarter-over-quarter and TWD7.6 billion year-over-year. Operating margin was 8.7%, declining 8 percentage points sequentially and year-over-year. For foreign exchange, we estimate that the NT to U.S. dollar exchange rate had a 1.52 percentage point impact on our ATM sequential margins and a 4.55 percentage point impact on a year-over-year basis. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 21.3% and operating profit margin would be 10.3%. On Page 6, you'll find a graphical representation of our ATM P&L. You'll note here the impact of a semi-fixed cost base with a low correction level loading. On Page 7 is our ATM revenue by market segment. Even though the current softer loading environment is fairly broad-based, we do see the communications market segment inventory digestion to be more pronounced than other market segments. On Page 8, you will find our ATM revenue by service type. There isn't a significant change here, but the advanced packaging side of the business is somewhat more impacted. On Page 9, you can see the first quarter results of our EMS business and a graphical representation of its market segment allocation. During the quarter, demand was impacted by an overall weaker SiP demand environment, along with our typical seasonality. During the first quarter, EMS revenues were TWD57.7 billion, declining TWD26.2 billion or 31% sequentially and TWD3.4 billion or 6% year-over-year. Our EMS business' gross margin declined 1.4 percentage points, while our operating margin sequentially declined 2.4 percentage points. These sequential declines were primarily driven by seasonally soft loading and, to a smaller extent, a soft electronics demand environment. Our EMS first quarter operating profit was TWD1.3 billion, down TWD2.7 billion sequentially and TWD0.9 billion annually. Given the overall quarter decline significantly as compared to last quarter, the percentage share information here may be somewhat biased. For our EMS market segment, our Consumer and Communication segments declined off of their seasonal peaks into their typical trough periods, while our Computing segment was also impacted by inventory corrections. Our Industrial and Automotive segments were more resilient and flattish on an absolute dollar perspective. But from a percentage of business perspective, the relative percentage share increased sharply. It is worth noting here that from a year-over-year perspective, our Automotive segment grew close to 30% year-over-year. On Page 10, you will find key line items from our balance sheet. At the end of the quarter, we had cash, cash equivalents and current financial assets of TWD68.4 billion. Our total interest-bearing debt was down TWD12 billion to TWD190.3 billion. Total unused credit lines amounted to TWD337.2 billion. Our EBITDA for the quarter was TWD23.8 billion. Net debt to equity was 42% at the end of the quarter. On Page 11, you will find our equipment capital expenditures. Machinery and equipment capital expenditures for the first quarter in U.S. dollars totaled $231 million, of which $101 million were used in packaging operations, $90 million in testing operations, $32 million in EMS operations and $8 million in interconnect material operations and others. Given the overall slowdown within the industry, we are taking incremental action to push out more of our originally planned capital expenditures during the year. However, we will continue to spend on implementing incremental automation capabilities, including additional investments in our lights out factories. Current EBITDA was USD0.9 billion relative to our capital expenditures of $0.2 billion. For our outlook, we will first address our EMS business. Our EMS business will continue its typically soft season during the first half of the year. However, based on continued relative strength within its Automotive business, paired with some order improvement in our Consumer and Computing segments, we are looking for a slight pickup in business during the second quarter relative to the first. Similarly, margins should move off our expected trough and improve roughly 50 basis points. From a longer perspective, we continue to expect a strong ramp during the third quarter with the peak during the fourth quarter, primarily driven by new product launches. Continuing our earlier comments about our ATM business. At the end of the first quarter, what became more apparent was that the expected improvement in the macroeconomic environment did not materialize. Instead, world governments' continued aggressive policy trying to curb hyperinflation. Unintentionally, this even led to separate banking crises in the U.S. and surprisingly, in Switzerland. Meanwhile, more and more consumers and businesses around the world are grappling with spreading higher energy prices that initially stemmed from supply shocks related to the Russia-Ukraine war. And rather than seeing an overall post-COVID recovery and a return of electronic spending during and post the Lunar New Year, we, along with our customers, saw consumers instead catching up on spending on other items like services, travel and leisure. It should be noted that our customer sell-through of their devices are generally not visible to us. And usually, inventory draw and replenishment are in sync. With this current inventory digestion period, customers are selling inventory without the action of replenishing inventory, which gives us even less visibility. With wafer banks fully loaded, we basically can only wait for our customers' signal to restart production. And given the lack of recovery, a broad set of customers have communicated to us that their restocking will most likely happen later than anticipated. What was originally scheduled to ramp during the May, June timeframe now has been pushed back into the third quarter. On a somewhat more positive note, we do see some level of rush orders sporadically happening across our ATM factories. We remain optimistic and expect that rush orders should continue to rise during the second quarter as various product restocking and new product launches start to happen. However, with a large amount of orders being pushed out for the second quarter as a whole, we expect continued sluggishness and a suboptimal loading environment. As a result, we effectively see revenues much the same as the first quarter. From our cost perspective, we are actively pursuing various avenues to trim costs, including expanding our automation efforts. However, given the higher utility rates instituted by the Taiwan government effective April 1, increasing electricity rates by 17% and the higher summer rates in the back half of the second quarter, our utility costs will rise sequentially. We currently see the rate increase and the start of the summer rate season is expected to have a 0.5 percentage point negative impact to our gross margin when compared to the first quarter. However, we are hopeful that a number of cost savings efforts will bear fruit during the quarter, and we will be able to offset most, if not all, of the impact of the utility rate increases. Such offset is not guaranteed, but we are targeting to keep our gross margin at a similar level with the first quarter. And if we step back and look at the bigger picture at this point. Despite all the distracting noise related to this correction, we believe we are in the process of proving that we have a fundamentally improved business. We've already seen higher margins through the cycle peak. Now, we are seeing structurally higher trough margins going through the cycle bottom. We are seeing pricing resiliency and the minimization of irrational competition. We also see our scale of manufacturing continue to give us competitive advantages in the form of lower manufacturing costs, thereby maintaining customer resilience. We basically see an industry possessing a wider moat with ASE outpacing its competition. We would like to summarize our outlook for the second quarter as follows: for our ATM business in NT dollar terms, our ATM second quarter 2023 revenues and gross margin should be similar with the revenues and gross margin of the first quarter 2023. For our EMS business in NT dollar terms, our EMS second quarter 2023 revenues should increase mid-single-digit percentage-wise quarter-over-quarter. Our EMS second quarter 2023 operating margin should improve by 0.5 percentage points versus the first quarter 2023. This concludes our prepared remarks. I'd like to open the floor for Q&A.

Our first question is from Mr. Randy Abrams of Credit Suisse.

Okay. Yes. Thank you. I wanted to ask the first question. If you could talk a little more about the outlook. First, for rush orders, if you could talk about the areas you're seeing rush orders? And then for the area of resilience, if you could go through the view, Automotive, if you see auto, and I think you mentioned Industrial, if you see those areas holding up? And the second part of that first question is for the spillover. How much do you see the weakness spilling into third quarter? Do you think we're back to normal seasonal third quarter? And what do you view as a reasonable normal for third quarter? So just curious that as well. Thank you.

We've been experiencing sporadic rush orders in various areas, particularly in the Consumer sector. We believe that some rush orders will also come in the second quarter, but predicting their volume and magnitude is challenging at this time. Overall, market softness appears to be continuing into the second quarter. However, we anticipate a rebound in the third quarter due to new product launches and restocking efforts by customers, as mentioned by Ken. This should lead to an uptick in the third quarter. For the entire year, the situation is softer than we initially expected. At the beginning of the first quarter, we projected a flat year or a high single-digit decline in our overall ATM revenue. Now, we believe the full-year outlook should reflect a high single to low teen percentage decline. In the Automotive sector, we've made significant progress expanding our business from both an ATM and EMS perspective, and that momentum is ongoing. Automotive continues to show more resilience compared to other sectors, and we are expecting double-digit growth this year. We will keep striving to penetrate this market further by automating our factory and expanding our product and service offerings.

Okay. And second question, just on the cost structure, actually, good progress to bring it down the OpEx, especially ATM. It sounds like most of it was the bonus accrual. From this level, though, because you mentioned that ongoing cost reductions, how should we see the OpEx trending? Is there anything you've taken out beyond the bonus expense that brings it to a...

I think we're facing quite a challenging environment regarding costs. We're experiencing higher material costs that continue to increase, along with rising utility expenses and higher net interest costs due to the rate hike. While this is quite challenging, we have been actively implementing various cost reduction programs across our factories. We are confident that we can maintain our operating expense ratio for both ATM and EMS businesses at the same level as last year.

Our next question is from Mr. Gokul Hariharan of JPMorgan.

Thank you for taking my questions. Could you elaborate on the areas where you are observing slower-than-expected growth? Previously, we anticipated double-digit growth in Q2. Is the slowdown primarily in Communication, or is it more widespread? Additionally, since the weakness has been persistent, could you share your thoughts on pricing? What should we expect for CapEx this year? It seems like CapEx has already decreased significantly in Q1, so could you provide an outlook for CapEx for the rest of the year?

We had anticipated a more favorable scenario in the Communication sector, especially since most of our Taiwanese customers began reducing their inventory earlier. However, the overall macroeconomic conditions did not see improvement, and demand remains weak. This softness is expected to carry into the second quarter, though we hope for a turnaround in the third quarter. Currently, we are experiencing low price elasticity, meaning that lowering prices does not necessarily lead to increased volume. We believe our pricing remains resilient, especially as we are the preferred vendor for our customers, allowing us to better protect our prices. We will continue to refine our pricing strategy to satisfy both our customers and our objectives while aiming to safeguard our margins and improve returns.

Got it. And could you also talk a little bit about the CapEx outlook for the year? And also, there were certain customers and funding capacity that you had some loading guarantees and loading arrangement agreements. How have those progressed given that the overall utilization, like Ken mentioned, is closer to the 60% mark? Are customers still kind of retaining those? Or you already renegotiated most of those? And if they are renegotiated, how do the terms look like today that maybe a year back?

I believe the LTAs have fulfilled their purposes and are being phased out as they reach their expiration date. As I mentioned earlier, we will continue to look for a pricing structure that satisfies both our customers and our own requirements. Regarding capital expenditures, we previously indicated that our total CapEx for the year would be a few hundred million TWD lower than last year. However, given the ongoing softness in the market, we are reducing that CapEx budget by a few hundred million more for the year. Additionally, the distribution of CapEx will differ from our earlier expectations. Currently, we anticipate that assembly will comprise about 53% of the overall expenditures, while test spending will decrease to about 25% this year, down from 34% last year. For materials, we will maintain a spending range of 3% to 4%. In contrast, we are increasing our CapEx for EMS due to new projects, especially in the automotive sector, which will account for approximately 15% to 16% of our total expenditures.

We have a question from Mr. Rick Hsu of Daiwa Securities.

Hi. Joseph, can you hear me?

Yes, I can hear you now.

Okay. Sorry for that. Technical issue here. Just want to double check on the housekeeping questions about your utilization rate of 60% roughly, that's for the Q1 across the board of your packaging and testing, right?

Utilization rates are expected to remain consistent into the second quarter. However, we anticipate a significant improvement in the third quarter, with utilization potentially reaching around 80% in the latter half of the year.

Okay. Great. Thank you so much. That's pretty helpful. And the second question is about your profitability, especially your gross margin. Would that still be above the pre-COVID-19 level? When you guys move into second half, when all the operations improve and the utilization rates go to the optimal level, is that still effective?

I think our goal is still to maintain our gross profit margin within the new structural range of mid-20% to 30%. I believe we still have a chance to achieve that. However, if the overall revenue decline exceeds approximately 10%, we might need to adjust our target down by another 1% to 2%.

Okay, fair enough. All right. That's all I have. Thank you so much again.

No problem.

We have a question from Laura Chen of Citigroup. Next question is from Brad Lin of BOA.

Hi. Thank you for answering my questions. I have two inquiries. The first is regarding testing. Our CapEx allocation for testing has decreased to approximately 25%. In a previous discussion, we expressed our intention for the testing business to be a key driver moving forward. Could you clarify what obstacles we faced in this area and what has influenced our targets for the testing business? That's my first question. Thank you.

Yes. I think our drive into test business is continuing, although there will be periodic modifications or revisions in our CapEx plan based on the current capacity, as well as the incoming demand for our services. So, there will be periodic or adjustments in terms of CapEx. But the overall goal remains the same. We'll continue to build that part of the business. And we still believe that the potential of the test business is greater than assembly. And our target remains that we want to bring our test business to its historical peak of about 18% of our overall ATM business.

Got it. Thank you very much for the clarification. And my second question will be on the ABF substrate. So last time we mentioned that the ABF supply improved, but not completely loosened. And would you please tell us that what will it be like for the second half of the year with the potential demand rebound? Thank you.

I think most of the items have returned to a normal lead time, and we are not experiencing further constraints related to ABF at this time. Looking ahead to the second half, I believe that ABF will not continue to be a constraint for us.

Our next question is from Laura Chen of Citigroup.

Can you hear me?

Yes.

My line just dropped previously. I got a question on the automotive revenue. I'm just wondering, do you have any breakdown between the ATM and also the EMS business of your automotive sales? And also, do you see any potential softness would happen in the second half, since some of the foundry makers they cited earlier, like automotive orders seems to be slowing down into the second half and also the IDMs, their inventory level and also lead time since also kind of slower, right? I'm just wondering your view on the automotive business so far seems to be resilient at the moment. But do you see any potential softness into the second half?

For last year, our total automotive revenue exceeded TWD1.6 billion, with nearly TWD1 billion coming from ATM and around TWD700 million from EMS. We anticipate steady growth in this sector throughout the year, aiming for double-digit growth in both EMS and ATM. Regarding the overall outlook for our automotive business, despite some noise in forecasts and market projections, our perspective remains strong. We attribute this resilience not only to organic growth but also to our increasing market share in this area. While there may be some uncertainty in the second half of the year, we believe that our combination of organic growth and market share expansion positions us well for the future of our automotive business.

Okay. Thank you. And my second question is also about the ATM business. We know that, given the weakness, we probably will slow down the CapEx expansion in this space. But on the other hand, we are seeing like a high-computing PC or AI, the trend seems to be more structured. So from ASE Group perspective, just wondering that what's your position now? And any chance you may also break into these, like AI chip or a high-computing PC, maybe find some way to cooperate with the foundry makers or to pursue your own solution? So can you elaborate more on your strategy and your business plan on this space?

I believe that AI chips hold great potential for us, though we are still in the early stages, making it challenging to assess the impact accurately. Overall, I see strong business opportunities for us in both advanced packaging and testing, as well as in traditional packaging and testing for peripheral chips, which are within our strengths. Looking ahead, there are promising opportunities. With regard to ultra-advanced packaging, new product technologies often involve a wafer process, suggesting that foundries will spearhead development in the initial stages. We will need to wait for broader adoption of these applications before we can fully engage. Once volume production becomes substantial, there will likely be a natural collaboration between us and the foundries. I view this as a positive opportunity, particularly as we experience a natural shift of technology from foundries to OSAT players like ourselves. Given our position as the largest and most technologically advanced OSAT provider, we stand to gain significantly from this sector.

Our next question is from Sunny Lin of UBS.

Could you hear me?

Yes.

Thank you very much. Thank you for taking my questions. So, my first question is on second half. Just want to better understand the trajectory of your recovery. So, I think, Joseph, earlier you mentioned for your IC ATM utilization rate, they get back to 80% or higher in late this year. And so I understand it's still a bit early, but based on your current communication with the customers, would you expect a similar recovery pace for Q3 and Q4? Or do you think potentially it will be very back-end loaded, meaning Q4, the recovery will be a lot more significant?

I think the third quarter will show the highest sequential growth rate. Going into the fourth quarter, we still anticipate quarterly growth, although it will be at a lower level. Overall, as I mentioned, due to the weaker-than-expected second quarter, we are now adopting a more cautious outlook for the entire year. We're shifting our expectations from a flat to a high single-digit decline in ATM revenue to a decline in the high single digits to mid-teens for the year, leaning towards the low teens.

Got it. Thank you. That's very helpful. So just to follow up. For second half, any particular areas that you're seeing better strength?

I think it should be a broad-based recovery. I think a lot of the new products in all segments should be brought out. And I think the customers will resume to a restocking type of mode to meet these new product launches.

Next question is from Szeho Ng of China Renaissance.

Hi Joseph, two questions from my side. The first one, within the ATM business, what are the major applications that are driving the automotive momentum?

The automotive sector is a key area within the ATM portfolio. This includes various components such as IDMs, MCUs, sensors, infotainment processors, and telematics, which have a wide range of applications. For EMS, a significant portion is focused on power modules and power management products, as well as telematics and infotainment.

I see. So basically, it's on the wire bond applications, right, for those products?

Yes. What?

Mostly on wire bond, right, for those products?

Right, right, at this point. And so it is migrating into flip chip as well.

I see. All right. Yes. Second question on the financial side, on the gearing ratio. Right now, the company has been driving down the gearing ratio to a quite healthy level. So is this something that we are comfortable? Or do we want to bring it down further?

We are comfortable with the current level, but the interest burden on us is increasing significantly due to the rate hikes. Given the circumstances, we will do our best to reduce our interest-bearing debt level to save on interest.

Our next question is from Bruce Lu of Goldman Sachs.

Hello. Thank you for taking my questions. Can you hear me?

Yes.

I want to follow up on several questions, but I'll focus on the ARM-based CPU where you have a larger market share. Are you seeing any increase in dollar content for this business, such as improved packaging ASP, longer testing times, or additional level testing opportunities?

As I mentioned, we're still in the early stages. We don't have a specific figure in mind, but it's more complex and technologically advanced. Therefore, I believe the overall value should be higher than that of the other chips involved. Additionally, it's not only about the most advanced chips; there will also be peripheral chips emerging that utilize mature packaging, which presents another promising opportunity for us.

Right. Do you see emerging SLT business? Is that an ROE or accretive business for ASE?

I need to get back to you on this. I'm not that familiar with it.

Okay. Then I want to switch to another question regarding whether you are considering any type of capacity expansion in the United States, especially in light of the government's tear-and-stack approach.

Well, we're not ruling out anything. I think we're evaluating different options, trying to find a suitable option for us, not just in the US, but also in the other part of the world. As you know, we do have worldwide footprints and we are expanding in Singapore and Malaysia and in Korea as well in terms of ATM. And we are expanding from EMS perspective, expanding in Vietnam, Poland, some other areas. So, we'll continue to monitor the situation and trying to find a suitable option for us to meet our customer's request and also to move to meet the overall kind of environment, geopolitical environment type of requirements.

Our next question is from Charlie Chan, Morgan Stanley.

Hello, Joseph and Ken, and also Iris, good afternoon. First of all, I have some follow-ups to the previous questions. Regarding advanced packaging, would the company consider making a wafer purchase for the processor? Can I ask a follow-up question?

Yes. I think there will be some kind of alliances with the wafer producers, and we already have the wafer process here.

Okay. But this is still in early stage, as you just mentioned?

Yes.

Got it. The next follow-up is to Sunny's question about utilization returning to 80%. Do you mean that by the end of this year it will reach 80% or that you'll see it at the beginning of the second half? Yes, because based on the utilization calculation, moving from 60% to 80% represents about a 30% sequential growth. Can you clarify?

Yes. I think what we're seeing is, at some point, we will reach 80%. I think that's based on the forecast that we're looking at. But it's too early to say when exactly that will happen and how long it will last. So, I think we still need to monitor the situation a bit more.

Okay. Yes. Thanks. Thanks for the clarification. And lastly, kind of pricing and also your structural margin improvement. So this question could be a little bit more complex. So in terms of pricing, I understand that lower prices don't really drive the end demand, but your key customers are quite suffering, right, meaning they are cutting price with their competitors, their margin squeezed. And also our understanding is that some of your Chinese competitors, they are indeed cutting price for some mature wire bond business, right? So how do you address all those kind of pressures from your major customers and also your competitors?

I am trying to find the right word, bifurcation. It seems that due to the supply chain issues, the price competition from Chinese OSATs has decreased. As a result, we are not currently feeling much pressure from our Chinese competitors. However, when it comes to our customers, the value added from our back-end services is significantly less than that from the front end. Therefore, I believe that most of the pricing pressure will be primarily at the fab level within our company. Given our scale, technological leadership, and the high level of dependence from our customers, we still have a favorable pricing leverage compared to our competitors. Consequently, we believe that our pricing remains resilient. We will need to develop an appropriate pricing strategy that meets our customers' needs while also preserving the strategic relationships we have with them.

Sure. Yes. Thanks for that. And last one. Attached to your comments about your pricing strategy, I'm wondering when you talk about or Ken talk about higher trough margin versus previous cycle, do you refer to the ATM business only or ATM and EMS? And also, do you think if there is industry-wide, the trough margin will be higher? Or is it just more about ASE?

From the perspective of ATM, we currently hold a significantly stronger position compared to our competitors. Our scale and the level of customer reliance on us, coupled with the cost savings achieved following the SPIL merger, enhance our overall margin prospects. Consequently, we are adjusting our structural margin range from a historical 20% to 25% to a new range of mid-20s to 30%. Despite navigating this trial cycle, we believe we can maintain this margin range throughout the year, even though we are facing increased uncertainties in a more challenging overall environment, including higher utility and financial costs. The challenges have intensified, but we are confident that our position provides us with a buffer to sustain and improve our margins structurally.

It seems like there are no more questions.

Okay. So thank you very much for attending this conference call. And I think the whole year, it remains to be challenging. But we believe we will continue to be the leader of the industry and we will be the last to fall and first to rise. And we remain confident weathering through this out, this down cycle lastly. And we'll continue to make the necessary investments to meet the future demand going forward. Thank you very much.