Hello. I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our Third Quarter 2024 Earnings Release. Thank you for attending our second consecutive Typhoon holiday earnings release. 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, dollar figures are generally stated in New Taiwan 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’m joined today by Joseph Tung, our CFO. For today’s presentation, I will be going over the financial results and company outlook. Joseph will then be available to take your questions during the Q&A session that follows. We are altering our Q&A format slightly. During the Q&A session, I will be moderating, receiving and clarifying each question and repeating your questions to Joseph. With that, let’s get started. The third quarter ATM seasonality came in slightly better than originally anticipated. The pickups were mostly driven by strength in leading-edge advanced packaging and the seasonal ramps of some communications devices. Our overall equipment utilization was between 65% to 70%. For our EMS business, in the third quarter, demand for our services was also slightly ahead of our initial expectations. However, the higher demand was most likely attributable to an earlier seasonality. Please turn to Page 3, where you will find our third quarter consolidated results. For the third quarter, we recorded fully diluted EPS of TWD2.17 and basic EPS of TWD2.24. Consolidated net revenues increased 14% sequentially and 4% year-over-year. We had a gross profit of TWD26.4 billion with a gross margin of 16.5%. Our gross margin improved by 0.1 percentage points sequentially and 0.3 percentage points year-over-year. The sequential improvement in margin is principally due to improved operating leverage offset by higher EMS product mix. Our operating expenses increased by TWD0.9 billion sequentially, and by TWD1.4 billion annually. The sequential increase in operating expenses is primarily due to higher labor, bonus-related expenses and other administrative expenses. The year-over-year increase in operating expenses is primarily attributable to continued R&D staff-up and other labor-related costs. Our operating expense percentage came down by 0.7 percentage points to 9.3% sequentially and increased by 0.5 percentage points year-over-year. The sequential decline in operating expenses is attributable to higher operating leverage due to higher loading levels. The annual increase was also related to higher R&D staff-up for both ATM and EMS. Overseas expansion and higher incentive stock options and bonus expenses. Operating profit was TWD11.5 billion, up TWD2.5 billion sequentially and TWD0.1 billion year-over-year. Operating margin increased 0.8 percentage points sequentially and declined 0.2 percentage points year-over-year. During the quarter, we had a net non-operating gain of TWD0.8 billion. Our non-operating gain for the quarter primarily consists of net foreign exchange hedging activities, profits from associates and other non-operating income, offset in part by net interest expense of TWD1.3 billion. Tax expense for the quarter was TWD2.1 billion, our effective tax rate for the quarter was 16%. The effective tax rate during the quarter was lower primarily because of tax impacts of foreign currency fluctuations. We continue to expect an ongoing annual effective tax rate of approximately 20.5%. Net income for the quarter was TWD9.7 billion, representing an increase of TWD1.9 billion sequentially and TWD0.9 billion year-over-year. The NT dollar was relatively steady during the third quarter, depreciating 0.3% against the U.S. dollar sequentially, while depreciating 2.7% annually. From a sequential perspective, we estimate the NT dollar depreciation on less than a 0.1 percentage point positive impact to the company’s gross and operating margins. While from an annual perspective, we estimate the NT dollar depreciation had a 0.7 percentage point positive impact to the company’s gross and operating margins. 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 TWD27.4 billion, with 17.1% gross margin. Operating profit would be TWD12.7 billion with an operating margin of 7.9%. Net profit would be TWD10.8 billion with a net margin of 6.8%. Basic EPS, excluding PPA expenses, would be TWD2.51. On Page 4 is a graphical presentation of our consolidated financial performance. Since the start of 2023, you will see here a trough-ish but gradually improving environment for both our ATM and EMS businesses. On a year-over-year basis, gross margins have been gradually improving. On the operating margin front, as was stated earlier, operating expenses are increasing for expected ramps in leading-edge advanced packaging products and, to a lesser extent, offshore site expansion costs from our EMS businesses. On Page 5 is our ATM P&L. The ATM revenue reported here contains revenues eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses. For the third quarter of 2024, revenues for our ATM business were TWD85.8 billion, up TWD8 billion from the previous quarter and up TWD2.1 billion from the same period last year. This represents a 10% increase sequentially and a 3% increase annually. Gross profit for our ATM business was TWD19.8 billion, up TWD2.6 billion sequentially and up TWD1.2 billion year-over-year. Gross profit margin for our ATM business was 23.1%, up 1 percentage point sequentially and up 0.9 percentage points year-over-year. The sequential margin improvement was primarily related to higher equipment utilization, offset in part by higher raw material product mix and higher utility costs. We expect the higher raw material product mix environment to extend into the fourth quarter. The annual margin improvement is primarily the result of favorable foreign exchange and product mix. During the third quarter, operating expenses were TWD10.6 billion, up TWD0.6 billion sequentially, and TWD0.8 billion year-over-year. The sequential increase in operating expenses was primarily driven by higher labor-related expenses much of which is related to the staffing for leading-edge advanced packaging services. The annual operating expense increase was driven primarily by the continued scale-up of R&D labor and other labor-related expenses. Our operating expense percentage for the quarter was 12.3%, declining 0.5 percentage points sequentially but up 0.6 percentage points annually. Sequentially, our lower operating expense percentage was driven by higher loading and thus, higher operating leverage. While the annual increase was primarily due to labor ramp-ups preparing for higher leading-edge advanced packaging revenues. During the third quarter, operating profit was TWD9.2 billion, representing an increase of TWD2 billion quarter-over-quarter and TWD0.4 billion year-over-year. Operating margin was 10.8%, increasing 1.5 percentage points sequentially and 0.3 percentage points year-over-year. For foreign exchange, we estimate the NT to U.S. dollar exchange rate had a positive 0.1 percentage point impact on our ATM sequential margins and a positive 1.3 percentage point impact on a year-over-year basis. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 24.1% and operating profit margin would be 12.1%. On Page 6, you’ll find a graphical representation of our ATM P&L. As you can see here, we’ve generally seen a very gradual recovery when looking at revenues and margins from a year-over-year basis. On Page 7 is our ATM revenue by the 3C market segments. You can see here a slight blip in regards to communications product seasonality. Otherwise, not much has changed during the current quarter. Our leading-edge advanced packaging services are in both our computing and communications segments. On Page 8, you’ll find our ATM revenue by service type. Here, you can see that our business, at least during the softer environment, is shifting towards more advanced services. We believe our strategy is involved with growing our test business are paying off. As a percentage of ATM business, our test business is just under 16.5% total. And though it may not be immediately visible here, our test business is actually significantly outgrowing our assembly business this year. Current year-to-date growth is 6% relative to 1% for our assembly business. We see growth momentum for our test business. Looking into the fourth quarter from a business outlook perspective, we can separate our business into three separate service categories: leading-edge products, typically seasonal products, and everything else. Leading-edge is going gangbusters, whether it’s AI, networking or other products in the pipeline, the need for our advanced interconnect technologies and all its forms looks extremely promising. Seasonal products, such as communications and handset-related products are going through their paces. Not really great, not really bad and some devices doing better than others. It’s kind of really neither here nor there. For everything else, there just isn’t a lot of demand or optimism. Recoveries related to general demand for this year have not really happened. The fourth quarter pickup is not as strong as we would like it to be. But at least, we still see a pickup, albeit slight. From the expense perspective, there are three items impacting our expenses for the fourth quarter. One, typhoon costs, even though our factories are still running today, Typhoon holiday labor counts as overtime hours for much of our direct labor; two, utility costs, base utility rates were increased by Tai Power, the higher base rate went into effect mid-October coinciding with the end of summer rates; and three, a stronger NT dollar environment. With these impacts in place, we will attempt to keep our ATM fourth quarter margins flattish. The environment for our EMS business appears to be a bit more challenging. As was mentioned in our second quarter results, our EMS business appears to have an earlier manufacturing cycle or shifted seasonality. This combined with lackluster general demand is creating a declining fourth quarter outlook.
I think we are maintaining our view for this year. We continue to be ahead of our target of doubling our revenue from leading-edge, both for packaging as well as test revenue. And going forward, I think we continue to see very, very strong demand coming in as we are scrambling to increase our capacity; we do see a very healthy pickup next year in terms of leading-edge. I think TSMC’s aggressive expansion of their back end or leading-edge back-end capacity is really a testament of a very, very strong demand coming in the next few years and being the chosen partner of our customers as well as the foundry partner, I think we will definitely share that huge potential in front of us. Well, I think the – in terms of magnitude, there will be – I think more will be on us, on substrate as we are seeing the situation now. But the situation can be very, very dynamic. It depends on ourselves, our customers and also our foundry partners, the progress in terms of developing these products or capacity. So we’ll make the necessary adjustment as we go along. I think the overall market this year is still not recovering very well. And I think the next – going into next year, I think in terms of general market, it’s still going to be a lukewarm year. I think the only bright spot at this point is really the leading-edge and our AI HPC-related type of business. At this point, I think the situation is really very unclear. So what we are doing is really focusing on what we are seeing in our own business and where those businesses are coming from and what are the mentality or momentum of each different categories. I think our testing portion of the overall leading-edge revenue for this year will be relatively smaller. Next year, I think advanced testing will – as Ken pointed out earlier on, we are seeing our investment in tests are starting to pay off, and we believe that the percentage will continue to rise into next year.
