Hello. I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our Third Quarter 2020 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 of this event.

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 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. I am joined today by Dr.

Tien Wu, ASE Holdings COO and Joseph Tung ASE Holdings CFO. For today's call, I will be going over our financial results, Tien will be providing a market overview, and Joseph will provide a recap and our guidance. We will have a Q&A session following the prepared remarks.

As with the rest of 2020, the third quarter has proven that there is never a dull moment, especially in the electronics industry. The third quarter was remarkably eventful for us. Typical seasonality ran through August with run rates reaching historical highs.

However, in September, the Bureau of Industry and Security, Export Administration Regulation, EAR for short, went into effect. As a result, for our ATM business, we commence to replace capacities left open by exiting business. This process occurred much more quickly than anticipated, as our overall loading levels snapped back to full utilization.

During the quarter, we took two charges related to the EAR. One in cost of goods related to unused inventory and one in non-operation for interface boards used specifically for EAR impacted customers. We also experienced near term highs in the value of the NT dollar relative to the U.S. dollar.

Meanwhile, our EMS business ramped up a bit later in the year in line with a deferred seasonal pattern. We don't believe that EMS business has yet peaked for this manufacturing season. In total, we ended the quarter strong with strength across our core SiP, advanced packaging and wire bond products.

Please turn to Page 3, where you will find our third quarter consolidated results at the Holding Company level. In this section, we will generally defer business explanations to our ATM and EMS P&L discussions. Intercompany transactions between our ATM and EMS businesses have been eliminated during consolidation.

For the third quarter, we recorded fully diluted EPS of $1.54 and basic EPS of $1.57. This means that on a year-to-date perspective, we have fully diluted EPS of $4.01 and basic EPS of $4.12 exceeding full-year 2019 EPS already.

Consolidated net revenue was $123.2 billion, representing a 15% increase quarter-over-quarter and a 5% increase year-over-year. We had a gross profit of $19.7 billion with a gross margin of 16%. Our gross margins declined by 1.5 percentage points quarter-over-quarter and 0.3 percentage points, year-over-year.

The sequential margin decline is primarily the result of EAR impact, a stronger NT dollar environment and higher EMS business mix. The year-over-year decline is primarily the result of EAR impact and the strong NT dollar.

Our operating expenses increased by $0.2 billion during the third quarter to $10.6 billion as the result of higher operating expenses in our EMS business unit offset in part by lower operating expenses in our ATM business unit.

Despite the increase, our operating expense percentage declined, 1.1 percentage point sequentially and 0.5 percentage points year-over-year to 8.6%. This amount is currently trending below our 2018 operating expense percentage. Operating profit was $9.1 billion, up $0.7 billion sequentially, and year-over-year.

Sequentially, operating margins declined 0.4 percentage points to 7.4% while increasing 0.3 percentage points, year-over-year. During the quarter, we had a net non-operating loss of $0.1 billion. This amount primarily consists of net interest expense of $0.7 billion and an EAR-related tooling impairment of $0.7 billion.

This amount was offset in part by net foreign exchange investment and sale of equipment gains. Tax expense for the quarter was $1.8 billion. The effective tax rate for the third quarter was 20%. Net income for the quarter was $6.7 billion, representing a decline of $0.2 billion sequentially, and an improvement of $1 billion year-over-year.

We believe it is important to note the operating margin impact of the strengthening NT dollar and the EAR-related write down. Removing the inventory charge while using the second quarter exchange rate, we estimate an operating margin of 8.6%. And similarly, using the third quarter 2019 exchange rate, we estimate an operating margin of 9.7%.

Without inclusion of the EAR related inventory and equipment write down totaling $1.6 billion, we would have basic EPS of $1.84 during the quarter. On the bottom of the page, we have again provided key P&L line items, without the inclusion of PPA-related expenses.

Consolidated gross profit excluding PPA expenses would be $20.6 billion with a 16.7% gross margin. Operating profit would be $10.3 billion, with an operating margin of 8.3%. Net profit would be $7.9 billion with net margin of 6.4%. Basic EPS excluding PPA expenses would be $1.84. On Page 4 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. The third quarter for ATM business was incredibly busy. Usually that's good. We do a lot of work, and we get a lot of revenue for it.

We had a different kind of busy this quarter, in which we were busy stopping EAR devices, re-tooling factory lines and restarting replacement devices. This happened at a frenzied pace. As a result, despite the EAR disruption, we still saw measured growth.

That's actually a significant achievement given the size of the business lost, more about that later from Dr. Wu. After the third quarter finished, our ATM business outperformed our initial expectations rather significantly.

In retrospect, we are somewhat surprised at the efficiency of the supply chain and the pace at which our capacity refill has happened. The refill was not the linear recovery we had initially anticipated. Instead, business knocked back with new products rushing to replace vacated products.

During the quarter, our ATM business continued seeing a strengthening NT dollar environment in which the NT dollar appreciated 1.6%. Given that our orders are generally denominated in U.S. dollars while our factory costs are mostly denominated NT dollars, a strengthening NT dollar brings a higher cost structure for us.

If the NT dollar stays strong for longer term, we believe that we may be able to adjust pricing to compensate and purchase relatively cheaper U.S. denominated machinery and equipment. Shorter term movements are more difficult to position.

For the third quarter 2020, revenues for ATM business were $71.8 billion, up $2.3 billion from the previous quarter and up $3.9 billion from the same period last year. This represents a 3% increase sequentially and a 6% increase year-over-year.

Our ATM revenues came in somewhat ahead of our expectations due to stronger snapback of revenue post-EAR impact. Gross profit for ATM business was $14.5 billion, down $0.5 billion sequentially, and down $0.2 billion year-over-year.

The sequential and year-over-year gross profit decline was primarily related to a one-time inventory write-off of EAR related customer substrate of $0.9 billion and a stronger NT dollar. Gross profit margin for our ATM business was 20.2%, down 1.5 percentage points sequentially, and year-over-year.

Margin decline was primarily attributable to EAR, and NT dollar impact. During the third quarter, operating expenses were $7.7 billion, down $0.1 billion sequentially and $0.6 billion year-over-year. The sequential and year-over-year declines were driven by lower administrative costs.

Our operating expense percentage was 10.8%, down 0.5 percentage points sequentially, and 1.4 percentage points year-over-year. During the third quarter, operating profit was $6.8 billion, representing a decline of $0.4 billion quarter-over-quarter and an improvement of $0.4 billion year-over-year.

Operating margin was 9.5% declining 0.9 percentage points sequentially, and improving 0.1 percentage point year-over-year. For gross and operating margins, the one-time EAR inventory write-off had a 1.2 percentage point impact.

We estimate that the strengthening NT dollar also had a 0.8 percentage point impact to gross margin sequentially, and a 2.7 percentage point impact year-over-year. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 21.5% and operating profit margin would be 11.1%.

On Page 5, you'll find a graphical presentation of our ATM P&L. On Page 6, is our ATM revenue by market segment, not much has changed here. On Page 7, you will find our ATM revenue by service type. As stated earlier, capacities snapped back to running near full, outside of certain capacities requiring longer NPI time, and those NPIs are in process.

From this chart, you can see here that our wire bonding business is performing particularly well. We believe that our wire bonding business is seeing a resurgence of demand, more about this from Dr. Wu, later. On Page 8, you can see the results of our EMS business and its associated revenue by application.

For EMS business, the third quarter usually represents the peak quarter in terms of seasonality. However, we anticipated a somewhat delayed manufacturing cycle. With that in consideration demand for our EMS business was stronger than anticipated, driven by strong SiP demand.

During the third quarter, we had revenues of $53.1 billion increasing 34% sequentially, and 5% year-over-year. EMS revenues increased quarter-over-quarter primarily because of our seasonal business ramp. EMS revenues increased year-over-year primarily as a result of stronger demand for SiP products offset by a somewhat later seasonal products cycle.

Our EMS gross profit was $5.1 billion, improving $1.4 billion sequentially, and $0.7 billion year-over-year. The sequential and year-over-year gross profit improvements were driven primarily by stronger customer demand for SiP related products.

Gross profit margin for the EMS business came in at 9.7%, an improvement of 0.3 percentage point sequentially and 0.8 percentage points year-over-year. The margin improvement is primarily the result of product mix changes.

Our EMS business units' third quarter operating expenses were $2.8 billion, increasing $0.3 billion sequentially and $0.4 billion year-over-year. Operating expenses increased primarily as a result of increased employee profit sharing.

Operating expense percentage was 5.3%, dropping one percentage point as compared with 6.3% last quarter, and increasing 0.5 percentage points, year-over-year. Our EMS operating profit for the quarter was $2.3 billion, representing a $1.1 billion improvement sequentially, and a $0.2 billion improvement year-over-year.

The sequential operating profit improvement was primarily due to increased seasonal demand. Our EMS operating margin was 4.4%, which is a 1.3 percentage point improvement sequentially and is 0.3 percentage point improvement year-over-year.

On the chart on the bottom half of the page, you'll find a graphical representation of our EMS revenue by application. Our consumer segment picked up seasonally and this season we expect to add an incremental SiP product. We would expect that this segment continues to pick up into the fourth quarter.

It is again worth noting that our EMS business unit runs under the name Universal Scientific Industrial and is traded as an A share on the Shanghai Stock Exchange under the ticker number 601231. We currently own 75% of the company, which translates roughly to 5.9 billion U.S. dollars.

In regards to our regulatory filings to complete our acquisition of Asteelflash, the current COVID-19 resurgence in Europe is impacting the duration of our regulatory reviews. As of yesterday, France announced its second country wide lockdown. As a result, we currently expect the completion of our combination with Asteelflash to be somewhat delayed.

We now expect for the regulatory process to complete before yearend. On Page 9, 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 $61.8 billion. Our interest-bearing debt increased $7.1 billion to $224.6 billion.

Total unused credit lines amounted to $255.6 billion. Our EBITDA for the quarter was $23.2 billion. We continue to target a net debt-to-equity ratio of 60% to 65% by the end of 2021. On Page 10, you will find our equipment capital expenditures. Machinery and equipment capital expenditures for the third quarter in U.S.

dollars totaled $415 million, of which $288 million were used in packaging operations, $73 million in testing operations, $52 million in EMS operations, and $2 million in interconnect materials, operations and others. 2020 is providing us an unusual situation.

We understand that there is an expectation of perfect fungibility where replacement business is entirely the same package types or customer platforms and requires no incremental tooling. And in such a perfect scenario, incremental capital investment becomes completely unnecessary when replacement business comes onboard.

Unfortunately, this perfect scenario almost never happens. One customer may have used a fan out process when another one uses bumping and flip chip. Customers may even use the same model tester with different instruments or configurations.

As a result, in many cases, we have to make smaller investments on tooling or instruments to load previously purchased larger investments. In addition to facilitating the refill, we're seeing a significant pickup in our demand in wire bond related capacities.

As a result, we do see the need to invest in our wire bond lines, Tien will speak shortly on this also, On Page 11, we have a brief year to-date recap. All information here is presented on year-to-date terms. Holding Company revenue grew 15% year-over-year on U.S. dollar terms. ATM revenues grew 19% year-over-year on U.S.

dollar terms, with gross margins improving 1.9 percentage points. Removing the impact of currency and EAR related expenses, gross margins improved 4.2 percentage points. EMS revenues grew 12% year-over-year in U.S. dollar terms. Year-to-date EPS is $4.12. For an update of the overall market environment, I'll now turn the microphone over to Dr. Tien Wu..

Hi, this is Tien Wu. I would like to offer you a business environment. If you look at Page 12, the assembly capacities are tight. In particular, wire bond capacity is extremely tight. The tightening - the tightness situation, we expect that to last at least down to Q2 of next year.

In this particular environment, because we're seeing the tightness in wire bond as well as in all other assembly capacities, we believe the ASP environment will be friendly in 2021. In fact, we will start seeing the margin improvement starting Q4 this year.

But we do expect the ASP environment to be more friendly in 2021 comparing to the previous years. Let me talk about the sectors from our perspective. In the communication sector we have 5G driving a portion of the growth. We also have a lot of WiFi sticks standards driving the multiple upgrade cycles in communication, as well as in automotive.

We are seeing a slowdown in automotive in Q1 and Q2. In Q3, we're seeing a remarkable recovery and strength in automotive sector. We believe this will be reflected in Q4 as well as next year. Computing and consumer demand have been strong and they will remain strong for Q4. We also believe that computing and the consumer demands will be strong for 2021.

A lot of investors are asking us about the COVID-19 effect. And I would like to share our perspective with you. The COVID-19 has created new values for our technology products.

Namely the technology products, our view to be an alternative to reduce medical risk, which I will elaborate a little bit more, also facilitating social connectivity in addition to the traditional value of digital efficiencies.

What I was referring to is because of work-from-home, because of learn-from-home, people are buying IT product to minimize and reduce the medical exposure and the medical risk because of COVID-19. Because of COVID-19 the social connectivity will be augmented by the IT products.

So in this scenario, we're seeing two fundamental changes in consumer behavior. First, more people tend to buy IT products. Second, people are willing to pay higher price to buy IT product with performance.

It is in this regard, we believe, we are seen during the COVID-19 days, why the IT products in almost all sectors are showing particular strength, especially the communication products.

So in that regard, with the 5G, with the WiFi, with all the upgrade cycles, which will permeate through the cell phone, the automotive, as well as PC, Bluetooth and all of the IoTs, we believe there are fundamental changes in the way people are willing to spend money to buy IT products.

Also, in the product mix, we're clearly seeing the product mix as well as product complexity increasing. In particular, in the wire bond, the number of stacked die that we're doing now is more than before. The die product we're doing for RF, for Analog and we're seeing more multiple dies require wire bonds which we have not seen before.

So, in this particular cycle, it's not just the volume it's also the number of dies, the number of wires, as well as the complexity. On top of that because this product, some are going to medical devices and automotive, the kind of quality requirements is also different from the consumer.

That is why for quality wire bond service, we can command a premium in this year and I believe in 2021 as well as years going forward. Let me comment about the OSAT overall CapEx expenditure.

If you go back to 2018, 2019, as well the 2020 number which we do not have the complete view, you will see that the overall OSAT industry, we believe have been under invested. In that particular scenario, ASE has been spending CapEx in 2018 and 2019 as well as in 2020.

Going forward, we will accelerate spending in Q4 such that we can put more capacity in place in anticipating as well as to fulfill the commitment based on our customer's demand. Going into 2021, we will be moderating on the CapEx, which Joseph our CFO will talk a little bit more.

Based on the new design wins as well as all of the long-term contracts and forecast, as of today, we believe we will have a strong 2021 and we are quite optimistic about that. Once again, which I'll be happy to talk to you about our growth as well as market share gain.

In our calculation, if we exclude the EAR impact, we believe ASE is gaining shares in all sectors in all package types. Please turn to the next page, Page 13. Ken already talked about the painful experience and the sudden nature of the EAR action. The EAR effect on ATM revenue in Q1 and Q2, were about 20% comparing to our overall ATM run rate.

In Q3, it was down to about 13%. In Q4 it will be zero. Greater than 75% of the lost revenue and the lost capacity have impacted sales which Ken already talked about. But many other customers, with the help through all of our partners throughout the supply chain and customers, the remaining 25% will be backfilled by end Q1 2021.

So as of today, we're confident that our year-over-year growth in 2021 still be positive. In other words, all of the tooling, all of the asset disposition, have been completed either in Q3 or the latest will be completed by Q4 of this year. Ken already talked about it.

We had a one-time write off, which was included in the Q3 number that we just reported. With all of the additional work, in Q4 or Q1 of next year, we will not incur any additional charges. With that, I will turn the floor to our CFO, Joseph Tung..

Okay, good afternoon, everybody. And this is Joseph. Before I get into the further comments on the financials, I would like to give a very brief comment on quarter three. Certainly we have successfully managed through a very chaotic third quarter and came out with a much stronger than expected quarterly results.

It was with close cooperation among different operating units that we can now substantially reduce the negative impact of the EAR restriction and quickly regain our momentum, going forward.

Now with that, I want to take a few minutes to update on the progress we are making on some of the financial targets we set out to achieve at the beginning of the year. First our OpEx ratio, our target is to go back to 2018 level of 9.4%. In quarter three, it had come down to 8.6% from 9.7% a quarter ago, way below the target level.

Now with continuous effort going into Q4, I strongly believe that we will reach - we will not only reach our target, we're or more likely to exceed that. Second, on OPM or operating margin, we stated we shall see 2% improvement in the year.

And I believe we are ahead, if we take out the negative impacts from NT dollar appreciation and EAR induced inventory right down. Although it is difficult to quantify the overall improvement of operating margin came from synergy.

A part of the overall operating margin improvement came from synergy created between ASE and SPIL through increasing coordination. Going forward, we'll further deepen and broaden such coordination on various part of our operation, including capacity alignment, business development, procurement and R&D.

Thirdly on CapEx, after heavy investment in the past years to support our strong business momentum going forward, our CapEx in 2021 should start to moderate. At this point, I believe 2021 CapEx amount should fall between 2018 and 2019 level, while more leaning toward 2018 level.

With the improved probability and reducing CapEx our cash flow position in 2021 will see good improvement. Therefore, it will allow us to increase our cash dividend payout to no less than $3 per share while still reaching our deleveraging target of 60% to 65% net debt-to-equity ratio by end of 2021.

Okay, now with that, let me give you our fourth quarter guidance. Based on our current business outlook and exchange rate assumptions, management projects overall performance for the first quarter of 2020 to be as follows. In NT dollar terms ATM fourth quarter 2020 business should be similar with first half 2020 level.

ATM fourth quarter 2020 gross margin should be similar with first half 2020 level. Our EMS in NT dollar terms, fourth quarter revenue, the business sequential growth rate should be similar with the average of second and third quarter 2020 levels.

While EMS fourth quarter 2020 operating margin should be slightly better than the average second and third quarter 2020 levels. It is a bit complicated, but I'm sure everybody will figure that out. Thank you very much. Now I'd like to open the floor to Q&A..

Question-and:.

Yes, thank you. Ladies and gentlemen, we are now in Q&A session. [Operator Instructions]. Thank you. The first round of question is Gokul Hariharan, JPMorgan. Go ahead, please..

Yeah, hi. Congrats on managing through the situation in Q3, and the good results. A quick question on IC ATM. Could we talk a little bit about - we talked about some price adjustments potentially and could we talk a little bit more in detail about what are the discussions you're having with customers.

And given that this year, currency has clearly affected margins, and taken away a fair bit of the margin improvement, could be talking about the conversations that you're having with customers on potential price adjustments on the currency side? That is my first question.

Second is, we do hear that there is some degree of capacity shift happening towards non-China OSATs.

What does ASE see in terms of your customer base both for advanced packaging as well wire bond? And how should we think about capacity build for ASE, give you also sold a small fab in China by announcing meaningful investments in Kaohsiung? Thank you..

So answer your first question the - we will not comment on any specific customer engagement. However, in the overall scenario, the wire bond gap, as of today is anywhere between 30% to 40%. It is not a 3% to 4% gap, the gap is quite substantial. ASE today, we have the largest installment base for wire bond as well as the best efficiency and quality.

A lot of customers, they are either - they're moving business from somewhere else or just they are based on organic growth or the new product ramp, the demand is very, very strong.

The kind of conversation that we're having is, for example, there is a lead frame and a substrate costs increase and the gold price and there's a gold price [indiscernible]. And whenever there is a expedite delivery, that cost will be reflected. Particularly we are engaging with multiple customers in a much longer service contract.

For example, we will talk six months, one year and in some cases, we're talking about two years take or pay. In other words, all the capacity we have put in place since 2018 has been put to use. Right now we're cautious in terms of adding capacity because we understand the tightening situation. There we need to be a little bit more cautious.

But all of the capacity right now we're adding do have long term service contract behind it. And we believe now either with the pace that we're adding, the industry - the industry supply - Excuse me, I'm sorry.

I'm sorry, are you asking a question or are you making comment?.

No, no, I'm on mute..

I don't think that was Gokul, that was the operator.

Operator, can you put yourself on mute?.

Yes, I'm sorry. I apologize for the interruption..

Okay, right. So in that particular scenario, we believe the assembly equipment lead time right now is quite long. And I don't believe, we are over building capacity in any stretch of the imagination which is why I need to comment the tightness situation will last at least out to Q2 of next year, right? So that answered the first question.

For the second question, I can't really comment which one of our customers could be moving from China. I believe they are moving and movement on both sides. Obviously, we do have customers who intended to have more of the supply chain be out there in China. We do have seen those cases but I believe we also have other cases..

Thanks, Dr. Wu.

Just one confirmation to 30% to 40% is the supply to demand gap in wire bonding, right?.

As of today, that is correct. But I am making a comment on behalf of ASE..

Understood, thank you very much and I will go back to the queue. Thank you..

Next one to ask question is Bruce from Goldman Sachs. Go ahead, please..

Hi. So my question is for mainly for Ken. I think that from our perspective, we are happy to see that the managements are commenting on some of the dollar content growth for the packaging.

Can you elaborate more, because what we saw here is that, for example, like 5G smartphone chip, we see a lot of dollar content growth from the wafer side, from the production side.

But for the packaging and testing, maybe a little bit different for testing, but entire dollar content for the packaging is not growing, or it's growing a lot slower than the wafer at the foundry side.

So can you comment a little bit more about like, what would - what kind of dollar content growth for packaging is moving forward, as the industry basis?.

That really is a very difficult question. Because I think in general, people are complaining that the packaging is becoming a higher percentage of cost within the total. I believe the - if you comment based on the automotive, we've already seen more semiconductor in the latest in the 5G phones.

You've seen the AIP, you have seen the front-end module, you have seen the PA and you're also seeing more semiconductor content. But in terms of the packaging versus the overall increase in semiconductor content, my perspective is the - you will see that percentage going up.

I don't believe the packaging costs should be going up as fast as foundry because the foundry, the investment versus return, there must be - the business model are completely different.

But I do believe because of complexity and the nature of the heterogeneous integration, you will see the packaging content when you normalize things, I do believe that trend is going up..

Yeah, but well it is difficult for us to see that from the revenue growth side. Because, for example, the smartphone chip is so clear for the wafer side but it's not clear at all for the packaging side.

So it's difficult for us, can you give us certain like qualitative analysis for that?.

I don't have the number, my apology..

No worries. So the next question - I'm sorry..

Yeah, go ahead..

Okay, so the next question is that one of your supply chains got like some serious fire a couple of days ago.

What kind of impact to your business because one of their key customers is your key customer as well? So what kind of business impact you included in your forecast for the fourth quarter?.

Well, thank you for asking that question. We will not comment on the particular incidents because they're still going through the clarification. So we're waiting for a further report.

But having said that, we do have multiple important customers who are affected by this particular fire but just like all of the supply chain scenario, where you have a position, chances are it is easier for us to go through the supply chain and get replacement as well as get parity.

During the last two days we have collaborated with all of our customers so I can tell you with confidence in Q4, our revenue has already been factored and the impact is less than 1%. So that has already been factored in. Today, we're working on the alternative supply for all of the key customer in the - of our global the substrate suppliers.

We believe the situation is complicated, but like everything in the past, this is not the first time we encounter supply chain disruptions. We had much worse scenario and we handled that pretty well. In this route, I hope the - our particular partner in Taiwan can recover soon. But as of today, the situation is manageable..

Okay, can I squeeze one more question, which is for the ASP. Management was talking about our ASP will be friendly in 2021.

Does that friendly situation only happen to the wire bound or it happened in flip chip, testing or overall and what about the SiP pricing environment?.

All right, the - I guess the best way to answer is the - it's more friendly wire bound. [cross-talk] other products are also friendly, compared to last year. All right, my apologies, that's pretty much all I can tell you..

How about SiP?.

SiP? Same because chances are when you have like an allocation in a particular package type, it basically cascades it down to all other products..

Okay, thank you. I'll go back to the queue..

Now the line is open to Szeho Ng, China Renaissance.

Go ahead, please?.

Oh, hi. Good afternoon, gentlemen. My first question is regarding the CapEx. You mentioned there next year's CapEx will be going back to the 2018 level. That would represent a quite a sharp drop compared with this year's level.

So I just wonder which areas are you holding back the investments for next year?.

Well, I already made a comment. If look at the ASE in 2018, we start the major investment ramp. Now we got the - we got a supercycle. In 2018, we invested. 2019, where everybody backed off, I forgot the number but I think our numbers were $1.4 billion, $1.5 billion..

Right..

We ratchet up. And if you go back to the 2019 total, all of the other '19 OSAT combined we spent $700 million more or less. I think ASE spent $400 million or $500 million more. As a result of that in 2020, even in the early days when people are not exactly sure, we just got another supercycle.

That's why Q1, Q2, Q3, we managed to spend good amount dollar. But I'm not sure we have reported a number but the - we did. But in Q4, we will continue to spend. Now after the three years of super cycle. We believe we have all of the technology; we have the all of the basic elements in place.

Of course, what we can do is, we can continue to expand in 2021 and beyond.

But another alternative is now just look at all of the capacity base of what we have and then look at from a synergy perspective, look from a customer base perspective and how do we optimize and maximize the capacity that we already put in place? Also, mind you, over the last three years, a lot of the CapEx are going into the automation.

So as of today, ASE has 18 LiDAR factories, and we're trying to explore and trying to expand the efficiency advantage of those LiDAR factories. So between all of these things, our current view is we should probably, more moderate, well we're not really reducing CapEx we're reducing CapEx back to the normal level.

But we're not doing the supercycle anymore, so if that helps you. But, of course, a business environment can change. If our customers are demanding that we need to do more, then we do more, right? This is just based on and we also believe, our OSAT competitor will probably realize this. Again, and they might spend more in 2021 going forward.

So it really depends on how other - I mean you just do a contrarian approach. When people are not investing, we invest. We just want to stay ahead of the curve. But if they don't invest then we'll continue to invest..

Okay, got you. And -.

I think a little bit as about the moderating CapEx in 2021 is that, we are actually upping our CapEx this year, going into Q4 because of the overall retooling and realignment. And also, we're trying to fill up the gap that's - that exists today on wire bonding. So the overall CapEx for this year is actually it's going to exceed our original target..

Okay, got you.

And second question, and when we go to the heterogeneous packaging level, so what role are we going to play in this area?.

I apologize, you're asking about testing, can you repeat the first part because it wasn't very clear..

I'm talking about the advanced assembly, let's say in the heterogeneous packaging.

What roles are replaying when we approach with heterogeneous packaging industry or the packaging?.

All right. We talked about the heterogeneous innovations is such a generic term everyone uses it, right? For the packaging industry, what we're referring to is the - is silicon passes, sensors, optical audio, all kinds of intrinsic, different components and functionality. And we will call that the heterogeneous integration.

Now, if you really look at all of the SiP products that we're building, whether it's in optical space, in the audio space or consumer space, we tend to have a very diversified functionality and integrate it through packaging. So this is slightly different from the - the SOC approach, or where you put memory chips and logic chips and pack it together.

That's also HIR but it is slightly different because the chips are chips. It is large chips, small chips, and different functionality of chips, but there is two chips. And the chips, the mechanical, physical behavior will be very, very similar, which is why it is expensive, but it's easier to do integration.

For the packaging, you really have to think about generically, intrinsically different material size, different physical, different mechanical material characteristic, and we put that together. I think that's what packaging HIR was referring to..

Okay, all right. Got, you. And my last question may be on the financial part, and what is the company's gross margin sensitivity to the FX? Any ballpark indication will be helpful..

Well, for each percentage point appreciation of NT dollar that will have a have - on ATM side will have a 50 basis point impact on our gross margin but on the - at the holding level such an impact will be 30 basis points..

Okay. All right. Okay, thank you very much Joseph. Yeah. Thank you..

Thank you..

Next one to ask question is Roland Shu from Citigroup. Go ahead, please..

Hi, good afternoon. I think my first question is, you talked about for your EAR all the impact, 75% of the demand have been backfilled and the 25% will be a backfill in first quarter next year.

So the question is, what kind of the demands have been - the delay are backfilled to first quarter the next year? And the how confident you are for this demand will backfilled in first quarter next year? Thank you..

Okay, the - we're seeing strength from all sectors, which I have reported. A given the nature of the capacity that became available right after the September 15, we are entertaining a lot of the customers from communication sectors. Now, we have also done retooling.

For example, the - a lot of the bumping facility capacity can be retooled to serve customers in other sectors. The 75% has already been backfilled. We have a very high confidence. The remaining 25% will be backfill by end Q1 of next year because we are currently in a capacity constraint.

It's a matter of how fast can we retool, how fast can we do the tap hacks, upgrade the card, there is a lot of details that we're doing there. So the - I think we have been extremely busy for the last few months just trying to work with all of our customers, but the customer demands are strong.

And all of them have given us very strong indication either by contract or by a firm commitment that this will be the case..

Understood, thank you. So these are the main constraints by the capacity. I think my second question is similar to this. When I look at your 4Q guidance, especially for IC ATM, and I combined your 4Q IC ATM revenue with 3Q together. And the second half total IC ATM revenue increased about low-single digit percentage points, year-over-year.

If we compare with a TSMC and UMC, I think TSMC it's second half revenue is growing by 17% year-over-year, and for UMC, it's second half the revenue is growing by 13% year-over-year. But for your revenue, IC ATM revenue only go up by low single digit percentage points.

So is this because of the capacity constraint? Or is this because of the competition or you have other reasons and you have this a lower growth in second half this year?.

The capacity and well let me answer it this way, the - I talked about the EAR impact. The run rate Q1, Q2 was 20%. In Q3, it dropped to 13%, in Q4 it dropped to zero. So literally in Q4, we have 13% run rate taken out. And we're trying to - we're trying to compensate that revenue by changing the capacity in real-time.

And that has been a challenge for the operation unit. And customer qualification given the complexity and also the quality requirements, that also requires the timing. So overall, if you look at the full-year performance, and the - I think we are reasonable compared to the OSAT industry.

If you take the EAR effect out, I think our revenue was higher than all of the other competitor, especially the way we count the SiP revenue, we will count the assembly portion of the SiP revenue where the higher material content of the SiP revenue, we will include that in the USI unit.

So when you combine all of the effect then you understand the - from the assembly perspective, we are gaining shares and we're not lagging behind. The EAR does cause a one-time headache, but we're behind that right now. Now, when you are comparing to TSMC and UMC I don't think that is an apple-to-apple comparison.

Technology content is different, the investment is different, so I will not compare directly between the foundry and the OSAT..

But I think in the past, those highly correlate - correlation of foundry and the OSAT business or revenue, especially for UMC I think for the most of the product in test need to go to the OSAT also the [uptake] in assembly and testing.

So I think for UMC's number, I think probably this actually is relevant?.

Okay, the - let's repeat again, excluding the EAR, the second half of '20 we're up 20% in U.S. dollar terms..

Okay..

And I am not exactly sure of the UMC number but you should - you can make that comparison..

Yeah, I think that's more of apples-to-apples comparison between us and UMC..

Understood.

Okay, may I ask, how about utilization in 3Q and the 4Q for all product lines?.

In Q3, in terms of assembly or in terms of capacity, we are about 80% plus and in terms of testing it was around 80%. Yeah..

How about a Q4?.

And turning into Q4, I think capacity wise, we will remain at 80% plus. Well test will come down a bit from - to about 70% to 75%..

What's the reason for test revenue or utilization to go down because we have a multi-interest or?.

I think part of the - part of the EAR impact is that the EAR impacted customer has a higher turkey ratio..

Understood. Okay. Okay, thank you. My last question is on, one of your key customers had been delayed launching its smartphone by several weeks.

So how do we look at your EMS seasonality in first quarter next year now?.

EMS Q1..

I think overall, I think Ken mentioned that, there's a kind of a delay in terms of getting - for EMS to get to its peak quarter. And so with that as a backdrop, I think quarter four, we will see a very strong quarter in the EMS. And quarter one, of course there will be a seasonal decline, which is the normal pattern.

But all in all, it still going to be a very, relatively speaking a very strong first quarter comparing to previous years..

But not because of the seasonality, you say that will be similar as the previous years.

Is that right?.

No, I think the quarter one is coming off is very - normally strong for fourth quarter. The seasonal movement will be very similar to previous years..

Are you speaking about EMS or is that?.

Yeah, yeah, I am talking about EMS specifically. Yeah..

That's all we have there..

Okay, so similar.

Okay?.

It will be a similar of type of movement but coming off a very strong, abnormally strong fourth quarter..

Okay, thank you. Yeah, thank you very much..

Just to add onto that, there are, it's also a little bit early on EMS side for the first quarter. So at least from the ATM side, we do see, probably an improved environment better than typical seasonality, but for the first quarter on EMS, we don't have as much visibility on that, that's right..

Okay, thank you. That's all my questions. Thank you..

Next one to ask questions is Randy Abrams, Crédit Suisse. Please ask your question..

Okay, and thank you. Good afternoon. Actually, maybe one quick follow up on that point. You mentioned the new consumer SiP project. I'm just curious when we should factor that in because you just mentioned seasonal decline.

But is that product coming in early on? And if it is material enough when it comes in it could allow you incremental boost beyond seasonality?.

I think we are - we're having a very strong year for SiP both in terms of overall volume as well as attending new projects. I think we set out to say we have a target of any new project incremental revenue to be $100 million dollar a year. It seems that we will more than triple that.

That target this year and momentum continues to be strong, we will continue to gain or engage in some of the new projects going forward. And although we are not giving any numerical numbers at this point, well I think in the sense of overall momentum, it remains to be strong..

Okay, great.

And I guess there's been a lot of questions coming on competition mid-term, but your initial view pipeline, if you still see expansion, and like that target $100 million, I guess, at this stage, how you see project momentum and also second source risk on existing pipeline into next year?.

And I think we will always have when a product becomes more volume oriented, naturally, the customer will like to have a second source. And the - I think that's just the nature of the electronic industry. So if I can give you two indicators, first, on the major customer that we started SiP with.

We have been growing our SiP overall revenue with that particular customer and the results albeit now we aren't reporting that we had given. The second indicator is how fast can we enable other customers with a meaningful revenue. And we have been struggling with this since day one.

And today we are reporting, we have 15 projects, eight customers, other than the major one with revenue in the range of 300 million U.S. dollars. We're looking at $100 million last year, and we would like to exceed $200 million this year. I think we're slightly ahead of the target.

Now going forward in 2021 and beyond, how can we enable more customers? How do we grow revenue? That remains to be a challenge. But in that front, we continue to explore as SiP new projects, the new ideas with all customers including the original one..

Okay. I mean that's great but to clarify, so a $100 million last year. So you added $200 million this year to get over $300 billion? I just wanted to clarify if I see that..

That's right..

Okay, got it..

That is it..

Okay. And the second question, I want to ask a little more on the wire bonding, because you're such a large industry but it goes 30% to 40% short. I guess gets back into the question of how you're assessing the overbooking, because demand may, I guess, on applications doesn't seem to be growing that fast so to open that up that much of a shortage.

But if you could give a sense how much wire bonders you're adding? And maybe if because wire bonding is so broad based, are there a few major applications within that that's already contributing to this shortage right now?.

Well if you understand the law, this is the nature of the industry. When people understand there's a capacity constraint, everybody will come in and try to secure their share. So if you're asking me, all of the - the total demand versus the capacity we have to install in place, we have a 30% gap.

How much of that is overbooking? I can't really answer that question. But I'm telling you, I'm pretty sure when the customer are pushing us for the capacity commitment, there's naturally overbooking or exaggeration built in. Having said that, the kind of phone calls that we're getting right now are not about overbooking and not about forecast upside.

In multiple situations, we're talking about line down situations. So we understand the line down and our job is to make sure there's absolutely no line down situation otherwise the impact is much greater.

So you take that portion out, then you look at the real demand cycle, based on all of end market, sell through of product based on the historical, all of the adjustments and that would take another portion out with all of the excess that we've gone through we believe the wire bond shortage is real. What is the 30%? I do not know.

But based on today, the gap is indeed 30%. And that will lead to a more friendly environment when people talk about ASP. And that's real.

But how fast can we compensate the gap, whether it's 30% 40%, or 20%, or 15%? And that needs to wait until at least Q2 of next year, because the capacity delivery based on tooling, and all of the other line balance, that's how long it will take to get to a meaningful level. That meaningful level in my view is not 30%, 40% gap.

However, it will take a physical amount of time to get to a line balance situation where we can see the things a little more clear. But right now it's clearly everyone's fighting for capacity..

Okay. And the follow up to that, I think you got a next year range.

Maybe I missed it but do you have the range like where fourth quarter is like to get to the full year, this year? And if you have the bonders you expect add at this stage?.

Can you say it again? I'm sorry, I lost you..

Oh, yeah, I was - I was curious, the fourth quarter of this year CapEx because you mentioned you're pulling in spend, so where you'll end up this year on CapEx? And then how many bonders do you plan to add?.

Our overall CapEx last year was close to about $1.6 billion and that I think this year it will be roughly $200 million or above it..

Okay. Okay, and if then I just want to ask one other question on the balance sheet. I think you talked about meeting target, raising dividends, is there within that a monetization? I think a couple calls ago you talked about monetizing balance sheet.

So I'm curious if you have any efforts, where that's part of or any other type of fundraising you need to do?.

We're not - we don't have any plans for any further fundraising. But in terms of, it really depends on the cash flow situation that will - I believe that it will greatly improve last - next year. But having said that, monetizing some of our assets is still one of the options that we have if we need to go to that route..

Okay, great. Okay, great and thanks a lot..

Thank you..

Next in line is Rick Hsu from Daiwa Securities..

Yeah. Hi, good afternoon, guys. This is Rick, thank you for taking my questions. So the first question is on the wire bonding demand and which you guys say is very strong.

Can you elaborate that a little bit more the demand drivers in terms of what kind of key product in applications that are driving your ready strong demand for wire bonding?.

Well we are seeing the wire bond strength for almost all sectors. And I will give you a few examples. For example on the WiFi. We used to deal with like single-chip WiFi or two chips WiFi and right now they're becoming in the three or four chips.

And I guess the notion is now when there's a new WiFi standard, like WiFi 6 or 6A or 6A plus, the easiest way is just add another die and that will inevitably require adding more wires, all right? Now in the industry, the - when gold becomes very expensive you use copper wire even though everybody claimed they can do copper wire bonds.

So we want to do stacked die, fine pitch, 1000 wire range, the short wire loop, it becomes a quality issue how many people can really do this.

The automotive guys, the - in the RF Analog space, when the WiFi infotainment goes into the automotive, we're going to the autonomous driving, the quality requirements based on traceability also becomes different. So how many lines that has been or mostly qualify using copper wire to do multiple stacked die. And that becomes an issue.

When I was referring to a 30%, 40% gap, I was only talking about ASE and I was not referring to the industry, because some of the devices, they obviously based on customer input, ASE is the preferred supplier, mainly because we have the base, we can ramp up more readily. We also have the original IP on the copper wire bonding.

And we also have the first of its kind, which is a wire bond LiDAR factory where we can do fully traceable, data oriented in terms of reporting, also the algorithm analysis. So, the automotive and medical customers tend to favor this type of wire bonds.

Given the complexity and also the quality requirements, and also the sudden increase in 5G upgrade cycle and WiFi upgrade cycles, that's where we're seeing this demand increase. And I'm pretty sure there's double booking somewhere along the line. But the end result is the - we're having a lot of demand in wire bonds, which we have not seen before.

And I think it's mainly because of product upgrades, as well as the automotive going into the autonomous driving range. So I think there's a lot of newness in demand. I also commented on the COVID-19. I really believe there's a behavior change, because of COVID-19. People are no longer look at IT product only as a digital efficiency.

Because if you can buy a better TV, a better WiFi system, now you tend to stay home a little bit more. And when you stay home, you reduce the risk for any COVID-19 or any kind of virus attack. Now from that regard, people's willingness to buy IT product at a premium, it is different. Also the age tends to expand.

And I've heard the in a very, very old people and very young people are buying premium IT products. And those are the behavior that we have not seen before. And I think this behavior because of COVID-19 is going to be here for a while. But even with COVID-19 subsiding, I think this behavior change will last much longer..

All right. Okay and yeah, that's a very helpful and very comprehensive answers. Thank you so much. And the second question that goes through your - I think your revenue guidance, ATM revenue guidance for Q4.

If I do the math correctly, I think your Q4 ATM revenue would be down by around a mid-single digit quarter-on-quarter, right? So if I look at the revenue guidance from the founders who already reported TSMC, and UMC combined, they are talking about still “growth.” So I wonder whether this disconnect between the front-end and back-end that you saw is mainly because the customers try to build more with a bank, than die bank.

And if that's the case, if the inventory risk hit the industry, you guys will be safer relative to the foundry guys. I mean this is my second question..

I will not comment on that. But what I'm telling you is, in Q3 my EAR affects the revenue 13%, in Q4 the 13% is gone..

Right..

So we are recovering based on 13% minus, work our way back. So there is real growth, if you exclude the EAR. Unfortunately, we have to talk about this for the last time, right? But Q1 we will not talk about this anymore, right? Now with that, I think we're comparable..

Okay, they also I think on the margin side, in Q4, after the EAR issue is behind us, I think that we will see further margin improvement in Q4..

Right, thank you very much..

Yeah..

And I think that would be a pleasant surprise. And I think the ASP environment partially will be reflecting Q4 and also the write off will be completed. So the - we're so optimistic about the resetting in Q4 because honestly, the first nine months of this year has been very, very painful for all of us..

Okay. All right, thank you so much again. And this is all I have. Thank you..

Next, we have question of Sebastian Hou, CLSA..

Thank you, gentlemen, for taking my questions. My first question is on the - on the pricing outlook, sorry not pricing outlook, it's actually the pricing, friendly pricing environment for wire bonding.

I'm curious about how much of this is simply due to the under-supply situation? How much of that is to reflect the higher material costs that you have mentioned earlier?.

But in the discussion, you have to cover both. And I won't be able to give you a percentage, the material costs versus the assembly value add. I can only tell you, they're both. And by the way, each customer is different. And the if you recall, I think was 2017 or '18, now we call it a recalibration of our portfolio.

Some of the SiP was not generating the kind of return and we sort of dropped that. I think in a wire bond, we're also actually going through similar exercise too. But anyway, based on the capacity that we have, and the customer engagement plan, as well as the return profile, this is a great opportunity for us to look at it.

What type of business we want to have a longer engagement plan and what type of distance we do not want to have a long-term engagement plan? But that overall effect, we will see better influence for as we are going through Q1, Q2 next year. But this is the exercise that we're going through..

Okay.

So by transferring some of the costs, higher cost to customers, well some of the under-supply benefit on that pricing note negotiation, so net-net, the margin will be will be at accretive to from Q4 onwards, is that right?.

That's correct..

Okay..

And hopefully we can give you a better percentage in the Q4 guidance in terms of the quantitative. Well, what is that percentage at..

Okay, okay. Thank you.

Follow on that is to, when is - if you remember what can you remind us when's the last time wire bonding had such a big under supply gap?.

Year 2000..

Okay.

The Y2K?.

Yes..

Okay. All right..

But this time it's worse than 2000..

Right, but how do you? How would you compare, I think the different background, the story that is so different but how would you compare in terms of customer mix applications and customer's overbooking behaviors are also part of this? And how do you think about how long this will last based on your best estimate?.

All right, it's interesting that you're asking this question. I'm not sure how much time do you have for me to answer. But in the year 2000, you have to remember that was a very strong IBM captive environment. ASE revenue at that time was less than 2 billion U.S dollars. Our installment base was much smaller compared to today's environment.

In 2020 the outsourcing percentage has greatly increased in the last 20 years. ASE's ATM position improved from $2 billion to $9 billion plus. Our installment base right now are wire bound. In the outsourcing market, I believe its way over 50%.

On the global basis, also a percentage, so when I talk about the supply demand imbalance in year 2000 versus today it is quite a different scenario. But in year 2000, ASE is short by 30% that means something, today if I'm short by 30% that means something else.

I'm not exactly sure, how is the other OSAT capacity constraint, I don't believe they're short as much as I did. Chances are the, I always get - I always get the fully loaded first. Over the last few years, even when business is going up and down, right, my loading situation has always been quite full.

In this kind of under capacity situation, the other guys will get filled but long-term competitiveness, you got to go back to product complexity, quality, and also the liability you can accommodate with respect to all of your end customers. So I do believe all of this business terms will come into play.

People want to look at somebody who's highly reliable, who's got R&D pipeline, who has also got the investment appetite, should they need it, to ramp up new products. So for the wire bound, I do believe there is an upward cycle because of the 5G, because of WiFi, because of the electric car. And now we're seeing a lot of the Analog Devices.

As a matter of fact, if you look at the 8-inch wafer demand is going through the route. And the fact that people are talking about ASP adjustment on the inch. And you will understand that I mean, there's something fundamentally different this route..

Got it. And that's - a very insightful sharing on that.

But on the supply side, do you see any constraints on the capacity? I think the 8-inch wafer, they have their supply concern, given the secondhand equipment availability, but what about the wire bondings? Do we have the similar constraint or that's not a significant issue?.

Well the wire bonder is only one component of the wire bonder line, you also have other instrument. That's why when you talk about line balance, that's why I said that it will at least take six months to getting this capacity to a level where people become more comfortable and talk more rationally.

And the - I will not go into detail of what the wire bond line consists of and a lot of vendors will be involved. But the industry throughput in terms of ramping up this kind of equipment, are very slow. But that becomes the bottleneck. So in a way it is actually helping all of us to regulate the water level.

We're not adding capacity in such an accelerated base. I think intrinsically, the industry has to build in a buffer, the regulator in the whole supply chain sanity. I think ASE is playing a portion. Unfortunately we are in a bottleneck and the wire bond capacity is also part of the bottleneck. But in a way I think this is really helping everybody.

And with substrate is another bottleneck. So there are actually multiple bottlenecks right now for the back-end. So we'll see let's see how this is - this is heading to..

Got it. Thank you. The last questions for me is just a very small question on CapEx side. I remember at the beginning of the year; I think the compound expansion and CapEx focus was heavily geared toward the testing side. So going into next year, and given that our testing utilization rate is affected more by the EAR affected customers.

So can we, it's fair to assume that in next year, the mix will gear towards assembly?.

Now I think it's too early to say because of that we are we are working very hard to convert those testers for the other customers right now. Just give us another quarter..

Okay, it's fair..

Next one to ask question is Gokul Hariharan, JPMorgan..

Yeah. And thanks for taking my follow up. Just to follow on Seb's question on the testing side. I think previously, you had indicated that your long-term goal is to increase the turkey test ratio from one sixth, or one fifth to one sixth, right now to one third.

Obviously, the EAR affected customer was one of the biggest turnkey customers, so could you talk a little bit more in terms of what are the efforts ongoing to kind of increase the or expand the list of customers who are using turkey test at ASE? And could you also talk a little bit about what are you - what is the initial feedback from those customers and any change in that plan in terms of getting to that one third turn key test ratio? And Dr.

Wu if you could also say what is the timeline by which you get to --get let's say, one third of test revenues for your total ATM business?.

You know, the testing remains to be a major initiative at a group level. So we understand that there is a setback. And we accept that, very painful but we have very little choice. However, that doesn't alter the strategy that we want to increase our turnkey percentage, as well as our test percentage, as part of our overall revenue portfolio.

So because of the assembly capacity is short right now, it helps us to offer us a better leverage. So when we talk to our assembly customer, we naturally will like to propose, we also perform testing for them. The EAR is giving us a short-term setback.

And we have to go through different test platform or even in the existing test platform, we have to do a lot of operation.

Then we need that some time, but it remains to be our major initiative to increase our test revenue and turnkey ratio, right?.

Any timeline on when you would reach that target? Is like a five-year target, a three-year target?.

Look, that was never really a target, that was just kind of a normal turnkey test occupies one third and packaging occupies two thirds, that's just a theoretical concept..

Okay. Thank you..

You're giving me a good hint. Well, I'm going to go back to the top of my team now and we need to have a target, yes..

That's right. Thank you..

Next on, we have Bruce from Goldman Sachs..

I want to switch gear for the question for the advanced packaging. So if you look at your advanced packaging, the revenue growth is somehow similar to the corporate average. On the other hand, TSMC is reporting that their packaging business is growing by 30 plus percent this year. So obviously they are gaining market share.

So what do you think about your future growth outlook for your advanced packaging? What kind of growth rate can we expect then?.

Okay, first of all the - I'm really happy that TSMC is growing and I'm happy TSMC is growing their packaging part of business, all right? I think the first and the most important - the clarification I would like to make is, now we have to understand what OSAT market really is. In order to do OSAT service, now we have to qualify for three situations.

My apology for this elongated answer, because I really need to speak this out. Many people ask me the same question I just wanted to clarify this with all of you. If this is a captive market, it is not OSAT. If central memory is captive, that is not part of our - our service role available market.

Intel microprocessor is a captive market; therefore, we never attack the Intel microprocessor business per se. TSMC packaging part of the business focus on leading edge lithography completely captured, that is not part of the OSAT market.

Yes, it is a packaging assembly revenue, but that will be in the same category as central memory as well as Intel microprocessor. Now the overall packaging revenue which I will give you and more clarifications, more update next year, continues to grow. As semiconductor grows, as we already said, the packaging and test value will continue to grow.

However, the attrition and the division between the IBM captive vertical versus OSAT, fragmented, outsource, service payer based on merit compete. They have value efficiency. That has never changed. But having said this, now, another way that you would do is the packaging revenue and test revenue, we're talking about the value-added service.

You really have to look at the overall revenue content.

How much of that is silicon based? How much that is memory? How much does everything else? They you trying to dissect that and understand what is the particular assembly value-add versus test value-add versus material contribution versus silicon contribution versus interposer versus all of the detail.

Then you will understand that some of the business, not only we cannot do, it is just out of our business model, this is not part of the OSAT engagement that we will do..

Can I be clear about this, that when we used to talk about the OSAT market sometimes there technology also would do the second wave of business so when the technologies mature, OSAT can do the business, but Ken was mentioning that, at a certain like node, they will be at a captive market by the foundry.

Can you tell us where is the borderline for that? Or would know from which you know we can expect that will be the captive market for foundry?.

You know, we had the same conversation about Intel microprocessor. I mean, as long as I remember I had this conversation for 30 years, we all had a similar conversation about the central memory.

When do you think memory central memory will go to OSAT? And when do you think Intel microprocessors will go to OSAT? But finally, we're talking about Intel might outsource their advanced wafer, either in graphics, chat or whatever to the foundry. And that will become now captive.

I do not know the line the division, I don't think we have a clear view about in which node, which lithography that would become the OSAT market, either when that becomes the OSAT market. You still need to look at the value-added content versus material content.

But you still have to look at it, all of the value-added content and the material content, whether the foundry could do it cheaper or OSAT could do it cheaper.

So once you understand all this not fundamental pieces, then we can decide which business is suitable for OSAT, which business suited for IBM, which business is more suitable for foundry for captive markets? To me, it's a very interesting conversation.

We can talk for hours about all of this details but I really get confused because everybody asks me the same question and I couldn't understand where the question is coming from..

I think the question and answer very complicated. That's why people are asking every time. So I mean, maybe you could make [diverse]. We can come up with somehow the quantitative the addressable market at least for the coming like two years, which is easier for the investor to understand..

Okay, so I am happy about it. Yeah, we should prepare something. Okay. Thank you..

Thank you..

Okay, I think we're at the end of the conference call. Let me up some up what we have of this call. I think, first of all, we had a good third quarter. And we are seeing improved situation getting into Q4. Now that EAR is largely behind us, business continues to be strong and we are in a pricing friendly environment.

Over the past few years, we have been making a pretty heavy CapEx investment. That puts us in a better position to capture whatever growth opportunity going forward. We're seeing synergy being created as reflected in our improving margin and lowering OpEx ratio.

We remain optimistic, business prospects for 2021 and we will see improving cash flow and our financial standing going forward. Thank you very much. And that concludes the conference call today. Thank you.