for our ATM business on a pro forma basis in U.S. dollar terms, our ATM second quarter 2022 business level should be slightly above fourth quarter 2021 levels. On a pro forma basis, our ATM second quarter 2022 gross margin should be slightly above our first quarter 2022 gross margin. For our EMS business, in U.S.

dollar terms, our EMS second quarter 2022 business level should be similar with first quarter 2022 levels. Our EMS second quarter 2022 operating margin should be slightly lower than first quarter 2022 levels. With that, we can start the Q&A section at this time..

[Operator Instructions]. Our first question is from Mr. Randy Abrams of Credit Suisse..

Okay. Yes. Good result and outlook considering all the COVID disruptions. First question, it sounds like the EMS business tracking better than you were expecting a few months ago, just given macro has changed a bit. And I believe USI also on their call talked about a bit better outlook.

Could you give the view for growth this year for that business? And maybe discuss a bit more on where you're seeing the strength or upside in EMS..

I think the overall EMS business of ours has continued to remain strong, although there will be some foreseeable disruptions particularly coming into second quarter and may last to end of second quarter or even into, to some degree, the third quarter. But all in all, I think the overall momentum remains to be strong.

We continue to make inroads in terms of expanding our said projects with new customers. The traditional EMS business, we continue to see strong momentum, particularly in the automotive sector. All in, I think the overall business environment, all the business momentum continues to be strong for the year, same as our ATM business..

Right. Is it in the same automotive? How much of a driver? I know I see ATM, I think, last quarter, 40% growth this year.

Is it starting to move the needle for EMS or still fairly small?.

Yes. I think the growth for this year in terms of automotive will be even stronger than last year. And I think the U.S. has already put out a target of reaching about $1 billion revenue by 2024, which is actually a year earlier than our previous target.

So I think they're seeing very strong momentum in that area, particularly with the addition of Asteelflash who has a fairly large and growing exposures in the automotive sector that the -- putting the 2 together really makes the momentum much stronger now..

Okay. And I wanted to ask two offsets on the margin. What is the cost? Is there a way to think how much that cost is? You mentioned probably 1 to 2 quarters higher costs.

Like how much impact is -- and is that a gross or at the operating margin level? And on the plus side for the NT dollar, when you mentioned the gross margin slightly above first quarter, is that factoring a certain currency assumption?.

Yes. I think we put all the considerations into it. And I think, first of all, we are coming off a very, very strong first quarter, and the margin was much higher than we originally expected.

So going into second quarter, because of the -- a lot of the disruptions that we are seeing, we will rather be more cautious or more conservative in terms of projecting our margin situation.

The additional costs coming from this COVID disruption comes from many directions, including the additional costs that we need to spend on protecting our employees. Some logistics costs will be increasing. Some material costs will be increasing. So there's a lot of factors that are kind of putting a lot of pressure on the cost side.

So I think we'll be very, very naive if we don't put those consideration into our margin expectations for the quarter..

Okay. And I'm curious on the environment. Earlier this week, TI took quite a big haircut of $500 million from guidance where it looks like slowing shipments due to all the factory disruptions.

But from your side, are you seeing any cause where customers are reflecting the downstream disruption or particularly a bit of a demand disruption? So is that -- have you seen much impact to our customers continuing to keep relatively steady flows through some of the issues?.

Well, I think the overall order looks very healthy. But then the -- there's a lot of different situations that may -- has a negative impact on the actual delivery of the parts or the material that was needed for the production. So I think selective customers may have the different views on how things are going with them.

But as a whole, particularly the EMS, particularly in China area, we are seeing some logistics difficulties in terms of moving our products out and moving the materials in. So there are a lot of, I think, obstacles that we need to go through.

So far, we have been managing this quite well, and therefore, it's not -- we haven't seen that much of an impact on the overall. Whatever impact there is in terms of the revenue side, we do feel confident that we can recuperate in the later part of the year..

Great. And my final question on CapEx, the last few quarters running about $425 million to $440 million. Are you now -- I think the original guidance was it'll be up a bit like $2 billion plus. I guess if you have an update how your CapEx view, and there has been a lot of front end....

Randy?.

Can you hear me?.

Yes.

Randy?.

Yes?.

We're going to let the next analyst to ask questions..

Well, let me answer this question. I think for the whole year, our CapEx remain at what we've been saying before, it's about $2 billion level. But the composition of it will be somewhat different from the last year. I think this year, I think we will increase the percentage of our test investment.

I think the overall breakdown will shift to about 51% for assembly, 34% for test, 11% for EMS and then another 3% for material..

Our next question is from Mr. Gokul Hariharan..

Could you talk a little bit more in detail about where -- which are the kind of customers who started to see some weakness, just some more detail on the dynamics you're seeing like some segments you're starting to see some weakness. You're able to fill up some of that capacity with other segments.

Is it more happening in your wirebond business? Is it happening more in the flip chip and bumping areas? And could you also kind of talk a little bit about -- I mean, you reiterated you are double the logic semi growth, and it seems like first half is tracking quite well.

Do you feel that there is a potential risk coming in second half as a result of kind of some of the end market weakness that you're seeing? Or do you think that there is enough of an order book that can cover for any kind of weakness in the consumer segments in second half?.

Well, I think everybody knows that we're seeing some softness in the Android area. So cell phone or some of the consumer products seems to be relatively weaker than the other sectors. I think the -- from our standpoint, I think the overall situation still remains very healthy.

I think the -- in terms of high-performance computing, in terms of networking and automotive, we still see very, very strong momentum. And I think, overall, even at the weaker sectors, I think because of the increasing application and also IC contents that will provide a layer of support to the overall growth in unit growth.

Also, I think one of the driver for us is the increasing outsourcing trend particularly from the IDM and particularly in the automotive area. So putting all things together, I think the -- we still see very healthy unit growth for the year for us.

And also in -- I think, as Ken mentioned earlier on in this uncertain period of time, I think most of the customers will seek for security. And a company like us that has more secure capacity and also much better sourcing power, I think that we will become the customer's first choice.

And that, all things put together, should give us very strong confidence in a growth year for this year. And also, as we mentioned, although we are a little bit conservative about second quarter margin, all in all, we will continue to see sequential growth in our margin.

And in the first quarter, we already surpassed our historical peak of 27% gross margins. And we will see that trend continue. And we will have a new peak for the -- in terms of gross margin for the year..

Understood. So just a follow-up on that. on automotive, could you talk a little bit about how much is automotive now as a percentage of ATM? I know that your kind of combined consumer industry, automotive and others is 30-plus percent.

But what is automotive alone? And how do you see that evolve in the next 4, 5 years, given that a lot of tailwinds are coming in terms of outsourcing, dollar content growth, et cetera.

Is it something like 25% of revenues could be coming from automotive in the next 3, 4 years?.

Yes. I think the overall momentum is still very strong at this point. I think last year was about 6%. And we're seeing that to grow to over 7% for this year in terms of our ATM automotive business. And we'll be reaching a $1 billion mark for this year. The same kind of momentum for EMS.

I think for EMS, we had about 50% growth, and that growth rate will further expand this year. And as a whole, I think -- for EMS, it will also reach about 7% of the overall revenue in automotive.

And longer term, I think we will continue -- with the automation, further automation of our factories, I think there will be more and more automotive business coming in. I think the name of the game in terms of automotive is not on the legacy of the existing products. But the new application or new chips that are coming out.

First of all, this will be the new business that we will get. And second is that these are the businesses that the IDM will be outsourcing.

And when these automotive chips was higher reliability requirement, I think the customers will go to the Tier 1 supplier like us who has the capacity and new technology and also the quality to secure that part of the production of it..

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

Yes. This is Rick.

Can you guys hear me?.

Yes..

Okay. Right. So I guess the first question is still the housekeeping for Joseph.

What's your cost of the utilization rates across the packaging, testing and bumping for Q1 and also for the coming quarter?.

I think bumping is full. And as a whole, in terms of packaging, it's 80% to 85% and will continue to be so in the second quarter. Test is staying above 80%. It will continue to be 80% above in second quarter as well..

Okay. And another question is about your full year guidance for the year 2022. I remember 1 quarter ago, you guys talked about the global semi ex memory growth was about 5% to 10% this year. And ASE was going to double that growth.

Is this asset position still held?.

Absolutely. I think the -- we're still seeing 2x logic semi growth for the year. So if we're looking at 5% to 10% growth, that means 10% to 20% growth for us, if not higher. Because I think in this more uncertain environment, I think the market share expansion will be more likely for us..

We have a question from Mr. Bruce Lu of Goldman Sachs..

Can you hear me?.

Yes..

Okay. I mean let me follow up with Rick's question. I mean TSMC just revised up the 5 years semi ex memory growth from 4% to high single digit for the next 5 years.

So does that imply that ASE will also grow double than semi ex growth, which is 8% for the next 5 years as well?.

Well, certainly, yes, I guess the short answer is..

All right. I'm very happy to hear that answer, okay? The second question I want to ask is that Joseph just mentioned that even with all the uncertainty, the gross margin for ATM business will still grow -- expand for 2022.

Can I ask what's your assumption for the currency for this year? And what's your like-to-like basis? You have other incremental costs from that [indiscernible] for the COVID, increase in material cost, what is your assumption for that? I mean the bottom line I'm asking is what's the like-to-like basis in terms of the margin expansion for 2022?.

Well, I think we will certainly be above 28% for -- in terms of ATM gross profit margin. Of course, the currency helps. But to what degree, it depends on the movement of the currency somewhere. Right now, we're just using the existing exchange rate as our basic assumption.

[indiscernible] favorable currency of course, the margin should be higher than what I just mentioned. But as I said, there's a lot more logistics-related costs that we need to bear because of the COVID situation, also the geopolitical kind of events that are happening today.

That has a lot of impact on the logistics, on the material supply, part supply, on the health monitoring and health protection type of investments that we need to make. So I think the overall -- and also the -- in terms of energy cost, that will also have an impact.

So we are, at this point, being a bit conservative, although we're very confident that we'll continue to see margin expansion. But at this point, we're looking at -- we're setting our goal at a lower than -- lower level than we would like to have because if we put all these different....

Let me make it clear. I mean you have all the dynamic cost pressures.

So do you believe that your position is stronger now when you see the inflated cost either from like order confirmation or raw material cost, you're able to pass it to your customer, which is the main reason why you maintain the profitability target or you've got that [indiscernible], which regardless the potential raw material hike, you can also swallow it.

Which one will be?.

Well, I think both. I think in terms of our scale, in terms of our leadership, in terms of customers who prefer to go for security capacity and technology. I think that give us a very good protection over our margin and pricing. But at the same time, there's a lot of macro events that will have an impact on the overall how you run business.

It's not necessarily on the -- to pricing of materials or parts, but also a lot of the logistic and all around the costs that we need to bear. That includes labor as well. So there's a lot of uncertainties here. So it's very difficult to quantify how much of the impact on these macro events we have on the cost side.

But judging from our own operation situation, I think we are still confident that we will have margin expansion, maybe not necessarily to the level that we would like to have. But then we need to start somewhere, right? And so we're setting that this quarter, we will be closing in on 28. And for the whole year, we say we want to be above that level..

Understand.

Just double check that the gross margin sensitivity for the ATM alone to the currency, what is that?.

I'm sorry?.

The currency sensitivity for the ATM margin because you have the negative....

1% is about 40 basis points. 1% of movement will have a 40 basis point impact..

[Operator Instructions]. We have an online question from Laura Chen. I'm going to read her question.

Can you elaborate more on your automotive business? What's the revenue contribution and growth in 2021 and outlook for this year? Do you see any potential weakness in auto business due to current China lockdown and demand uncertainties in Europe? Also on Advanced Packaging, what kind of application you are seeing strongest growth?.

In terms of Advanced Packaging, I think we're both -- we're seeing flip chip as well as SiP both showing pretty strong momentum. And I think in terms of overall packaging -- Advanced Packaging, including flip chip and SiP, definitely have the highest growth rate for the year.

In terms of automotive, I think the, as I mentioned earlier on, we are targeting to reach about $1 billion revenue or 7% -- over 7% of our overall ATM business for the year. That is posting a very strong growth from last year as well.

And we do expect this strong momentum to continue in the foreseeable future given that, as I mentioned, I think the new name of game is not really on the legacy or the existing products in terms of giving that part of the business. It's really the new application or new chips that are coming on-stream to creating a new business for us.

And also, these new business roughly are mostly being outsourced by the IDM. We used to do it on the automotive parts themselves. So putting these 2 together really creates a very good business potential for us.

Plus when as I said, the -- in terms of automotive parts, the durability or the reliability is the most important consideration when we -- when customers go out for a supplier.

And with the quality or the technology that we have or the level of automation that we have in our factory, I think we are the most preferred supplier for this type of new chips that are coming on-stream in terms of automotive. So we do expect a very strong momentum going forward..

Next question is from Mr. Gokul Hariharan..

I had 1 follow-up, which is -- I think previously, you had said that you're expecting ATM sequential momentum to continue through the course of the year. Every quarter will be growing sequentially.

Is that still your expectation right now given some of these changes in the demand?.

Yes. From the forecast that we're getting, customer remains fairly stable and very strong. So we do expect -- we continue to expect that we will have sequential growth in our business and also on the margin..

Understood. And just to elaborate on the question from Bruce. Are you -- I mean in Q2 looks like you have some cost pressures coming through.

Are you able to dynamically pass these on to your customers in Q2 itself? Or are there some delays in terms of some of these cost parts? I think over the last 18 to 24 months, we have definitely seen a fair bit of cost pass-throughs and price increases given the customer -- given the high demand and supply tightness.

But are we still seeing those happen or kind of not that much anymore in terms of room to increase price?.

Well, I think we continue to see very friendly pricing environment. And if you compare it to our peers, I think we have the most secure position in that front in terms of protecting our margin as well as our pricing.

In terms of the -- because of the macro events that are happening, that may have some impact on the overall cost structure -- cost environment, some of it you can pass it on, some of it you cannot. It depends on the different nature of that cost increases or whatever.

So yes, I think in a longer-term sense, we do have the best production in our pricing structure. It's a very, very dynamic situation now. I think we will not hesitate to pass these cost hikes to our customers if we can. But at the same time, we do have the customer relationship to consider. And these relationships are long-term relationships.

So you don't want to be seen as a very, very opportunistic supplier, which will have a longer-term damage on your overall customer relationship. I think that's -- there's a fine line that how we manage this cost situation and also how to manage our relationship with our customers..

Next question is from Mr. Frank Lee of HSBC..

Can you hear me?.

Yes..

Okay. I just wanted to ask, I guess, a question about the Advanced Packaging, the flip chip.

The major demand drivers, are there any that you can highlight to besides what we're seeing on 5G handset? Is that still the major driver?.

Actually, we're seeing handset as well as automotive, it's going into flip chip as well. And networking, HPC, these are all major users of our flip chip..

Okay. Okay. Great. And then also the -- if I look at the breakdown for your EMS, the consumer did drop a bit, and you said it's seasonality. But I guess if we look at the first quarter of 2021, it seemed to be a much higher consumer mix than the first quarter this year.

So I'm just trying to get a sense of how much of a seasonality there was in terms of the difference in terms of the weakness?.

Well, I think the part of the reason is that the other areas, all these other sectors this year has a stronger momentum than last year. So that kind of dilute the communication part of it a little bit.

In fact, even in terms of consumer -- I'm sorry, you were talking about consumer?.

Yes..

So the consumer part of it did get a little bit diluted by the other sector's growth..

Okay. So you're seeing just better growth in other EMS sectors..

Right. Actually consumer this year is performing actually better than what we were expecting because of the -- some shift in our market share..

We have another question from Mr. Randy Abrams of Crédit Suisse again..

Yes. I want to ask on one other piece of market share. After selling the China footprint, your exposure in factory is actually lower IC ATM.

Is there -- because of disruption with competitors having more capacity in China, is that just too short in transitory? Or is there a potential to pick up a bit of market share or take on some allocation if there's technically more disruption in some of the China footprint..

I'm sorry, I didn't quite get your question.

Can you repeat that again?.

Yes. If you're seeing any benefit or transfer of orders? I mean you mentioned customers in times of uncertainty.

So if you're gaining any market share either near term or could be a midterm help with a bit less footprint now in China, like if they continue this hard zero COVID policy?.

I think from -- although I don't think it's published already. But from our market intelligence, we do see weaker performances in terms of our China peers in the quarter. I think the lockdown or the overall geopolitical situation is somehow -- I think the China peers are taking -- it does have some impact on the China peers.

So in that sense, we are seeing some of the business moving toward us out of China..

And when you mentioned geopolitical, is that the international customers? Just trying to keep overseas source for export..

I think both. I think the internationals are -- they rather come to us and moving in a big way to China. That's first. And then also because of the overall situation or the lockdown situation in China, the Chinese customers are also going through some difficulties in giving out their orders..

Okay. Great. And for the mature business, most of the emphasis is on advanced.

For wirebonding, is it the assumption you still stay at a full level or that's an area you get a bit of underutilization? And are you still at the point you still need to add a moderate amount of binders this year?.

Well, as a whole, I think our wirebond is still being maintained at a very high loading level. But I think in the China operation, where we still have our [indiscernible] factory, because of the pandemic situation, it did have some impact on the wirebonding utilization. But that's a very small percentage to our overall....

Okay. And the last question I had just on we're seeing the fabless, I mean, they're having a higher target inventory level, and it's been building up a number of them.

Do you see that as an overhang? Or is it your view it's more wafer bank, like not necessarily packaged ship inventory? Or I guess do you see any overhang from the build up of inventory if that slows or reverses?.

Well, I think during this uncertain time, I think it's natural that the inventory -- this inventory will increase. I think we'll have -- I think it's a normal phenomenon that we're seeing inventory level being higher than before.

In terms of our own business, we are seeing wafer banks holding up as the customers are -- they want to secure their capacity and in terms of some of the Advanced Packaging, because the substrates -- it's a gating factor here. It's a bottleneck. So the -- we can only do so much to serve -- to try to serve all the demand that we're getting now..

Okay.

And if your -- it sounds like your view is substrate still multiyear issue or any change in that looking at midterm to resolve that?.

The substrate situation, I don't think it's going to be soft in any time soon. I think it's going to take some -- quite a bit of time I think 2, 3 years before we start seeing things easing up..

We have no more questions on the call. [Operator Instructions]. We have another question from Randy..

Sorry, I didn't. I'm okay..

Okay. Thank you very much, and to summarize, we came up with a very strong first quarter, things looking -- continue to look very healthy for us throughout the year. We'll continue to have sequential growth in both revenue and margin. We are facing some challenges in the short term, but we're managing well at this point. So thank you very much.

I'll see you next quarter..