In U.S. dollar terms, our ATM fourth quarter 2021 business level should be similar to our third quarter 2021 business level. Our ATM fourth quarter 2021 gross margin should be similar to our third quarter 2021 gross margin. For our EMS business in U.S.

dollar terms, our EMS fourth quarter 2021 business level should come close to our fourth quarter 2020 levels. Our EMS fourth quarter 2021 operating margin should come close to our third quarter 2021 operating margin. This concludes our prepared remarks. I'd like to open the floor for Q&A.

If you have a question, please raise your hand in the WebEx interface in front of you. Thank you..

[Operator Instructions]. We have a question from Mr. Gokul Hariharan of JPMorgan. We have another question from Mr. Szeho Ng of China Renaissance..

Hello. Hi.

Can you hear me?.

Yes..

My first question is regarding the China power rationing. I'm not sure if there's any impact to your Q4 business guidance..

Szeho, are you asking about the power rationing?.

Yes, the power shortage in China.

Any impacts to the business outlook in Q4?.

It has very, very limited impact on us. I think the shortage through some of the logistics arrangements that we can have and also the support of the local government, I think, the impact, there could be some minor disruptions on the operation, but the impact is very, very amicable. It's almost negligible..

Okay. Good. And my second question, given the fact that a lot of your customers are already on the long-term agreement arrangement.

I just want to know if there's a -- if the arrangement is more like a take-or-pay arrangement or there will be some flexibility of every scheduling in times when the wafer availabilities or some components are in shortage..

Well, I think the long-term agreement is really for the customers to -- it's a product of they're seeking for supply security, particularly when we are having a capacity shortage as well as material and also wafer shortages. I think the -- a lot of customers are a bit concerned with the current situation, and they want to have a more stable supply.

And I think that's really the reason why we have such long-term agreements. And it does create some stability for both our customers as well as for us..

That is true.

But what about if they are not able to get the wafers then, would you impose penalty if they are not able to load up our capacity or you will basically allow them to reschedule and lower the capacity at a later time?.

This is really the arrangement to have a better visibility or stability for our customers in terms of supply. I think there's no way it's being regarded as a tool for penalizing our customers because of the difficulty that they're facing..

Sure, sure. Okay. All right. And my last question regarding the CapEx spending this year, is it all right to have a breakdown by location, very rough breakdown would be fine..

Okay. In terms of....

Let's say, how much in Taiwan, how much in China, Korea, for example. Yes..

In geographical breakdown?.

Right, right, right. Yes..

I would say about 85% is still in Taiwan and, well, 15% in China and other places..

Next question is from Mr. Randy Abrams of Crédit Suisse. Next question is from Mr. Rick Hsu of Daiwa..

Okay. Yes, I just want to make sure because there seems to be some system issue. Okay. So my first question, again, is a housekeeping.

What's your utilization rate across the board wirebond testing and free ship in Q3 and in Q4, please?.

Overall, I think packaging-wise, we are still running at full capacity basically above 85%. And that will continue into Q4. And the test is, as we mentioned, above 80% and also continuing into Q4..

Okay. Great. The second question is, it appears to be some disconnect between the sell-in and sell-through demand, meaning that when we look at the sell-in, right, they order from customers and still very, very full and also some customers still fighting for capacity, not only at your end, but also in the foundry space.

So still very strong sell-in demand. However, sell-through, I think you guys must have heard some noises recently from Android smartphone sell-through, not so good. And EV, also weak. Chromebook is coming down.

So I'm just wondering, how do you guys see this mismatch between the sell-in and sell-through? And do you worry about any snowball effect going forward into Q1 next year for the inventory correction risk?.

No, I think the -- what we're seeing here or what we're hearing is that there are some appeared demand softness in some segments, but all these are very, very localized and is subject to only maybe a small portion of the overall.

I think the -- in general, the whole industry is still going through a rapid growth period because we're seeing rising IC content. We are seeing many more new applications coming on stream, including AI, 5G, IoT, EV, autonomous driving and so on and so forth.

So the unit continues to grow because of the pricing as the content as well as the new application coming on stream. So one, in particular, we're not seeing an overall widespread correction. In fact, we're still going through -- trying to catch up with the demand.

As Ken mentioned earlier on, there's still a lot of pent-up demand that's going through, and we're still catching up kind of mode. So I don't think there's really a disconnect.

It's just that because of the shortages in terms of wafer, in substrate, in all kinds of disruptions, in terms of operation around the globe, because of the pandemic, I think the -- right now, the supply is still kind of short, and we're still chasing to add capacity to meet our customers' demand..

Okay. Great. Yes, that's good news to hear. But my last question is about your pricing power or your friendly pricing.

Can you talk about this? Do you still see friendly pricing trend going forward into Q4 and Q1 this year?.

Yes. I think for -- right now, the pricing environment is still friendly, and we think it was -- when going to next year as well. I think what we meant by pricing-friendly is really the price level of the oil price environment that can help us better protect our margin and also even to improve our return going forward..

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

Okay. First of all, many of your peers and customers have talked about inventory mismatch in the supply chain where you have more inventory of some components and very less inventory or something in most of the supply chains.

Is it consistent with what you're seeing? And in your experience, how do you think the situation resolves itself if we think about the next 3- to 6-month kind of time frame? Because it feels like, right now, it's not an outright shortage for every component, but it feels like -- some are in abundant supply, but some are in severe short supply.

So I just wanted to hear your take. That's my first question..

Yes. There's still a lot of mismatches going on at this point. And that's part of the reasons why we're seeing the -- our EMS business is not growing as we were expecting.

And this situation will continue because in various areas, there's still shortages in terms of wafers, in terms of some of the packaging equipment or even test equipments that we're trying to add. Material is also one concerned areas.

And if you look at the overall supply situation, the capacity increase for the year, at least for the OSAT part of it, I think the CapEx to sales ratio continued to be maintained at about below 20% level. And that means maybe adding 10%, 15% of our capacity to meet the growing demand.

And this has been -- the additional capacity has really been outstripped by the growing demand at this point. And adding capacity is not an easy thing, and this mismatch is going to be -- is going to last for quite some time. We don't see real solutions within the next 6 to 9 months or even a year period..

Okay. I think last time we talked about 2021 growth being 2x of logic semis, and it seems like we are pretty much on track to that.

Are we going to keep that kind of momentum going into next year also? Or do you think that there will be a little bit more of a normalization in terms of growth as we look at next year?.

Yes. I think 2x logic semi growth is still our goal, and we are very confident that we will continue to reach that goal because the overall demand is strong. And on top of the unit growth that we mentioned in the industry, we're also seeing increasing outsourcing. We're expecting to continue to gain market share.

A lot of this really push for growth coming into next year. So we're very, very confident that we will continue to reach that goal..

Understood. Let's say, we -- hypothetically at least, we get a downturn at some point and utilization rates go back to be 70%, 75% from the high 80% that we have for many of the parts of the supply chain.

What would happen to -- like how do you think the long-term loading agreements and price increases behave? Are there any kind of riders in your contracts with your customers where there could be some of these price increases that you have seen get rolled back.

I just wanted to understand how -- I think how the next downturn will look like and how different it is going to be from previous downturn?.

Well, of course, the long-term agreement, what it means is really a more predictable volume as well as our pricing for a longer-term period. It does create another layer of buffer for both of our customers as well as us.

But then I don't see we're expecting any major downturn coming anytime soon because the -- like I said, the new application is still at their early stage, and then we're seeing tremendous opportunities in terms of unit growth. Plus, our leading position today, we will get there. The -- not only the outsourcing trend is continuing or accelerating.

We will get the lion's share of that. And also, given our position, we would believe that we will continue to gain market share. So all that creates a very strong support to our continuing growth..

Got it. Last question from my side. I mean, how should we think about CapEx for next -- it looks like CapEx is likely to go down next year. Now your EBITDA has also improved quite a bit over the last several quarters.

Any indications on how you're going to be using that increased EBITDA? Are we going to see a significant increase in dividends? Or is it primarily for debt repayment? I just wanted to understand both on the CapEx side and use of EBITDA as we go into next year?.

Well, I think it's a little bit too early to talk about our CapEx for next year, but I can say that we will continue to make the necessary investments into -- at the appropriate capacity to meet our customer needs. At this point, it is also true that our cash flow situation continues to improve, and we're expecting further improvement into next year.

At this point, we are -- we don't have a fixed trend on how do we want to utilize that cash flow, but it really depends on the opportunity. When it prevails, we will make the year sort of usage of this cash..

We have a question from Mr. Randy Abrams of Crédit Suisse..

Okay. Yes, I wanted to ask a couple of clarifications, two remarks. You mentioned for fourth quarter that you're still -- or I should say, overall, you mentioned you're still trying to catch up to demand for IC ATM that you're guiding fourth quarter flat.

So is that a function of your supply constraints being able to ship more? Or is it a mismatch on where you have capacity? I know it's been a strong year to date. But if you're catching up to demand wise, it wouldn't be growing further into fourth quarter..

I think the -- first of all, I think the fourth quarter is really a typical quarter for us. And just also coming off a very stronger-than-expected third quarter. So I don't see -- we're not seeing anything of normal at this point. And yes, the shortage does create some problem for us, for us to continue to bring more shipments out.

So I think it's a combination of coming off a stronger-than-expected third quarter as well as continue to have some material or even wafer shortages that we're seeing..

And to follow up on the CapEx question, should we think of it this year -- I think you still talked about a bit of moderation, like still healthy growth cycle, but moderation.

Is that the view we should think on the overall spending though, that this was probably a high point for what you need to put in or add in some moderation? And then would there be a shift where it's been a huge catch-up? And I think your bonders have been up about 20%, so like a shift in mix towards advanced packaging and test or do you think pretty similar?.

Yes. I think for next year, I think the -- more of the way will be put on advance packaging as well as test. I think we'll continue to see making progress in terms of raising our turnkey ratio. So we're seeing a pretty good potential for us to grow our test business going forward.

Advanced, even starting from the third quarter, we're seeing advanced packaging to start picking up their pace comparing to wirebonding, although both we're still seeing growth. So next year, I think more will be spent. This year, we kind of doubled our CapEx for wirebonding.

And next year, I think the pattern will be shifting somewhat to more to advanced packaging as well as test..

And I'm not sure if I missed it. With the spending level be, I guess, direction, it feels like after growing a good bit this year.

Maybe the -- it feels like maybe down a bit next year?.

I think it's -- we're still in the budgeting cycle, and we're seeing -- we're looking at how the business will come in, and we'll try to come up with the suitable CapEx budget for the year. Right now, I think it's kind of too early to say how much down or how much up we'll have on CapEx for next year.

One thing is for sure that we will continue to invest. And I think there's still a lot of other pent-up demand for us to catch up with..

And to follow up, two parts.

One, you mentioned share gains, is there a certain part is a view generally across the business? Or is there a certain area you're seeing particular market share strength?.

I think the -- given the position that we're in, I think the -- and the outsourcing is -- we're seeing outsourcing picking up, and the reason why it's picking up is because a lot of the -- there are some market share changes or our business model changes among our customers.

So some of the new products that's coming out will be outsourced rather than being done in-house. And we will get the lion's shares of that. And from that point on, I think we will continue to gain market share..

Okay.

I guess, in terms of -- I'm just trying to think of the products, like for -- like is there a way to think -- are these like more compute, like high-performance compute area?.

I think it's all across the board. I think in terms of automotive, I think we're making very, very strong progress, and we'll continue to gain share on that front for communication and for high-performance computing.

I think the -- when the industry go into more advanced nodes, I think we will be able to grab most of the business opportunities coming out..

For automotive, your sales up. I think you said 68%. What's your take in terms of -- for your business catching up on supply because there's been downstream limiting quite a bit of vehicle production or even to the point there might be a slowdown.

There's a good content story, but how do you feel in terms of catching up or how you see continued growth out of automotive?.

I think the industry is really scrambled to increase the, I believe, wafer supply for automotive. And on our end, we are very, very aggressive in terms of further automating our factories to which are more suitable for automotive parts.

And I think from both directions, I think the target was a very, very good opportunity to continue to expand our automotive part of the business..

Great.

And just a couple, the demand softness in some segments, are there particular areas you're seeing a bit of that softness show up?.

Well, I think everybody is talking about the PC, talking about the Android-based cellphones. The sell-through in China is not as strong as we're expecting. But I think, overall, in terms of units, both cell phone and PC are still growing. I mean, it's not that it's collapsing now. So we're seeing that continuing at a healthy level.

And also, even with these products, that seem to have some weakness of demand. Bear in mind, the IC content of these devices continue to grow. So this will still be a very strong demand segment for us..

Okay. And the last question, just on the EMS business with the pushouts and a lot of the manufacturing, I see constraints. Should that be the expectation? You mentioned IC ATM above seasonal.

Is there -- are you seeing that potential shift where some production pushes out to first quarter?.

Do you mean for us, for the ATM?.

Yes, for your EMS business..

Yes, there is some push out to the first quarter, and so we're expecting a better than seasonal quarter for EMS as well..

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

So my question is about the share gain, right? I mean, apparently, starting from June, there was some lockdown for South Asia biggest facility, in particular in Malaysia. Does the company see kind of order transfer from customers there? And now it seems like in Malaysia, the fab is recovering.

Do you think that you can retain those transferred orders?.

All our factories are running pretty full. So it's a bit difficult to move the volume around for us. Yes, there was a bit of a disruption in the Southeast Asia size of ours, but I think the situation is under control now. And I think they're back to normal. I think the overall impact is quite small for us..

Okay. And then now we start to hear, as you said, the substrate is kind of a big constraint.

And it seems like ASE also have your own substrate supply, right? So how soon do you think those lead frame supply can stabilize and catch up the customers' demand?.

You are referring to lead frame?.

Lead frame or substrates..

What we have is substrates, and it does create a good buffer for us to manage our overall substrate supply. Right now, we're at about some -- like 20% of our internal use is being supplied by ourselves. And we are -- I think the factories are -- substrate factories are running very full at this time.

And they are also scrambled to add capacity to help solve the situation for us..

Okay. And so the frame, you need to source from third party, right? And several IC, IDM they continue to refer to that [indiscernible] in a bigger shortage right now. So any color on that? I mean the different supply whether they can catch up the demand..

I hear here and there from some of our sites that there seems to be a little bit -- the difference of IC seems to be a little bit choppy. But I think, overall, the situation is still being managed quite well. I think -- I don't think there's any big progress in terms of lead frame supply..

Okay. Okay. And lastly, I know the company maintained CapEx in work under installation, right, but I'm not sure why. But previously, there was some industry cater about wider on the pushback. And if you look at -- not your major supplier, right, but the Asia Pacific, their PB ratio dropped to 0.9 for the third quarter.

It seems like a booking for wirebond is coming down.

Can you help us to understand what was going on here? Do you really need to push out somehow work under?.

I think we are on track with our foundry installation for the year. I think what we mentioned earlier on is that we expect to have some delivery by October, and we are getting there. We're on track on that. And we believe that will be continuous -- we'll continue to make investments. But on the boundary itself, it's more -- it's balanced now.

It's more balanced now. There's the -- the line balancing equipment is still lagging. And in fourth quarter, we will continue to add those capacity or line balancing purposes.

Next year, there's still quite a bit of demand that we -- quite a bit of requirement that we will have for wirebonding, particularly when we're seeing that wirebonding business will continue to grow in the -- particularly in the automotive segment. So there's going to be further demand from us..

Great. And yes, so it would be super helpful if you can provide that were on the lead time as it did over the past 3 quarters for those to get a sense..

Lead time, I think it's maybe 3 to 6 months..

Okay. Yes, it seems there's a tight sway. Okay, okay.

How about those flip-chip equipment? Do you feel like it's still very, very difficult to get flip-chip related capacity? Or is it quite available, meaning the first year for cases?.

I think the overall situation is that the equipment lead time is still long because there's still a lot of mismatches in the whole value chain. So it's kind of difficult to predict how long this lead time will -- how long lead time situation will resolve itself, how long it will take..

[Operator Instructions]. We have a question from Mr. Bruce Lu of Goldman Sachs. [Technical Difficulty]. .

I think we're having some technical issues with this..

Bruce, can you hear me? Please unmute your microphone from your side. We have questions from Mr. Jeff Ohlweiler. Mr. Jeff Ohlweiler, please unmute your microphone..

I think we're having some technical challenges with the conferencing system. Apologies on that. I think we -- for lack of any way to get these questions, and I think we're going to have to conclude the call at this time. All right. Thank you very much for attending, and we will -- we look forward to talking to you soon. Thank you..