Hello, I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our Third Quarter 2023 Earnings Release. Thank you for attending our conference call today. Please refer to our safe harbor notice on Page 2. All participants consent to having their voices and questions broadcast via participation in this event.

If participants do not consent, please disconnect at this time. I would like to remind everyone that the presentation that follows may contain forward-looking statements. These forward-looking statements are subject to a high degree of risk and our actual results may differ materially.

For the purposes of this presentation, dollar figures are generally stated in new Taiwan dollars, unless otherwise indicated. As a Taiwan-based company, our financials are presented in accordance with Taiwan IFRS.

Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiary using Chinese GAAP. I am joined today by Joseph Tung, our CFO. For today's session, I will be giving the prepared remarks.

Joseph will then be available to take your questions during the Q&A session that follows. The overall environment for our businesses during the third quarter was relatively soft from an historical perspective.

Devices related to new communications products introduced during the quarter generated a small pickup in demand, but, by and large, the post COVID inventory digestion and sub-optimal demand environment continued. For the third quarter, both our ATM and EMS businesses saw mild seasonal upticks.

Our ATM businesses results were on the higher side of our expectations. We believe this was primarily attributable to higher than expected unplanned orders and the soft loading environment. Our customers have become more cautious when booking regular production forecasts on the expectation that there would be more capacity available when needed.

We do, to a certain extent, try to apply an unplanned order rate to our outlooks, but for the third quarter unplanned orders were a bit higher than expected. These unplanned orders were sporadic and dispread and not isolated to any particular product type or market segment.

For ATM factories, during the quarter, key equipment utilization rates were still relatively low averaging out in the mid 60s. Our EMS businesses pickup was slightly below our initial expectation. We believe this was due to some loading being pushed out into the fourth quarter.

With that, please turn to page three, where you will find our third quarter consolidated results. For the third quarter, we recorded fully diluted EPS of $2 and basic EPS of $2.04. Consolidated net revenues increased 13% sequentially and declined 18% year-over-year. We had a gross profit of 24.9 billion with a gross margin of 16.2%.

Our gross margin improved by 0.2 percentage points sequentially and declined by 3.9 percentage points year-over-year. The sequential improvement of margin is principally due to higher ATM business loading in the current quarter, offset in part by higher EMS revenue mix.

The annual decline in gross margin is principally the result of lower loading during the current downturn. Our operating expenses increased by TWD1.2 billion sequentially and declined by 0.8 billion annually.

The sequential increase in operating expenses are primarily due to higher profit sharing expenses, and miscellaneous increases such as D&A in factory supplies and others. The year-over-year decline was primarily attributable to lower bonus and profit sharing expenses across the company.

Our operating expense percentage declined 0.2 percentage points sequentially and increased 1.2 percentage points year-over-year to 8.8%. The sequential operating expense percentage decrease was primarily related to lower salary and bonus costs relative to revenues generated.

The annual operating expense increase is primarily due to higher mix of ATM business during the quarter. Operating profit was 11.4 billion, up 2 billion sequentially and down 12.3 billion year-over-year. Operating margin was 7.4%, improving 0.5 percentage points sequentially, and declining 5.2 percentage points year-over-year.

During the quarter we had a net non-operating gain of TWD0.8 billion. Our non operating gain for the quarter primarily consists of net foreign exchange hedging activities, profits from associates and other non-operating income offset by net interest expense of TWD1.2 billion. Tax expense for the quarter was TWD2.9 billion.

Net of a one-time capital gain tax of TWD0.7 billion, our effective tax rate was 18.1%. We believe our full year effective tax rate to still be about 21%. Net income for the quarter was TWD8.7 billion, representing an increase of 1.1 billion sequentially, and a decline of 8.8 billion year-over-year.

The NT dollar depreciated 2.9% against the US dollar sequentially during the third quarter and 4.5% annually. From a sequential perspective, we estimate the NT dollar depreciation had a 0.8 percentage point positive impact to the company's gross and operating margins.

From a year-over-year perspective, we estimate that that depreciating NT dollar had a 1.2 percentage point positive impact to gross and operating margins. As a rule of thumb, for every percent the NT dollar appreciates, we see a corresponding 0.27 percentage point impact to our holding company gross margin.

On the bottom of the page, we provide key P&L line items without the inclusion of PPA-related expenses. Consolidated gross profit excluding PPA expenses would be 25.8 billion with a 16.8% gross margin. Operating profit would be 12.6 billion with an operating margin of 8.2%. Net profit would be 9.9 billion with a net margin of 6.4%.

Basic EPS excluding PPA expenses would be TWD2.31. On page four is a graphical presentation of our consolidated financial performance. As you can see here, the current correction appears to have had a stronger impact on our ATM business than our EMS business.

Our traditionally strong third quarter ATM revenues are just now near our first quarter 2022 levels. On page five is our ATM P&L. It is worth noting here that the ATM revenue reported contains revenue eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses.

For the third quarter 2023, revenues for ATM business were at 3.7 billion, up 7.6 billion from the previous quarter and down 15.1 billion from the same period last year. This represents a 10% improvement sequentially and a 15.3% decline annually.

Gross profit for our ATM business was 18.6 billion, up 2.4 billion sequentially and down 10.2 billion year-over-year. Gross profit margin for ATM business was 22.2%, up 1 percentage point sequentially and down 7 percentage points year-over-year. Gross margin was on the higher side of our expectations.

The sequential margin improvement is the result of improved scales of efficiency from higher loading, offset in part by slightly higher summer utility consumption and outsourced services, while the annual margin decline is primarily the result of lower loading due to the current downturn.

During the third quarter operating expenses were TWD9.8 billion, up 1 billion sequentially and down 0.4 billion year-over-year. The sequential increase in operating expenses was primarily driven by higher compensation-based expenses and higher R&D related factory supplies.

The annual operating expense decline was driven primarily by lower profit sharing and bonus, offset in part by higher R&D related costs. Our operating expense percentage for the quarter was 11.7%, up 0.2 percentage points sequentially and up 1.4 percentage points annually.

Sequential operating expense percentage increased as a result of higher R&D and compensation-related costs. The annual increase was due to lower loading and thus lower operating leverage. During the third quarter operating profit was 8.8 billion representing an increase of 1.4 billion quarter-over-quarter and a decline of 9.9 billion year-over-year.

Operating margin was 10.5%, improving 0.8 percentage points sequentially and declining 8.4 percentage points year-over-year. For foreign exchange, we estimate that the NT to US dollar exchange rate had a positive 1.4 percentage point impact on our ATM sequential margins, and a positive 2.2 percentage point impact on a year-over-year basis.

Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 23.3% and operating profit margin would be 11.9%. On Page 6, you'll find a graphical representation of our ATM P&L. Revenues and their corresponding scaled efficiency are still ways off from previous 2022 peaks.

On Page 7 is our ATM revenue by market segment. You can see here the seasonal pickup of some communications products during the quarter. We also saw a smaller pickup in our computing segment. Our automotive consumer and other market segment declined on a relative and absolute basis.

We believe this decline to be out of character for the seasonally strong third quarter. However, it is indicative of the current softness in demand. On Page 8, you will find our ATM revenue by service type. You can see here that we are experiencing a stronger pickup in our advanced packaging services, which includes bumping and flip chip.

Our wire bonding and test business saw their relative shares declined during the quarter. It is worth noting that on an absolute dollar basis, both wire bond and test service types increased in revenues. On page nine, you can see the third quarter results of our EMS business and a graphical representation of its market segment allocation.

During the quarter, EMS revenues were TWD71 billion, improving 10.6 billion or 18% sequentially and declining 19.7 billion or 22% year-over-year.

Sequential revenue increase is primarily attributable to the seasonal nature of our EMS business, while the year-over-year revenue decline is primarily due to the broad-based soft electronics demand environment.

Sequentially, our EMS businesses gross margin declined 0.2 percentage points to 9.1%, while our operating margin improved 0.4 percentage points to 3.9%. The operating margin improvements were driven primarily by loading and favorable foreign exchange impacts to raw materials.

Our EMS third quarter operating profit was 2.8 billion, up 0.7 billion sequentially and down 2.3 billion annually. For our EMS market segment, our consumer segment picked up seasonally as industrial and automotive segments declined on a relative basis.

And while the automotive segment lost relative share, it grew during the quarter by 7% on an absolute dollar basis. From a full year perspective, we continue to expect our automotive market segment to outperformed other segments. On Page 10, you will find key line items from our balance sheet.

At the end of the third quarter we had cash and cash equivalents and current financial assets of TWD71.9 billion. Our total interest bearing debt was down 32.1 billion to 219.2 billion. Total unused credit lines amounted to TWD347 billion. Our EBITDA for the quarter was 27.8 billion.

As mentioned in our previous quarter, our net debt-to-equity this quarter was up as a result of cash usage for annual dividend payment. On Page 11, you will find our equipment capital expenditures.

Machinery and equipment capital expenditures for the third quarter in US dollars totaled $239 million, of which $121 million were used in packaging operations, $89 million in test operations, $28 million in EMS operations, and $1 million interconnect material operations and others.

Current quarter EBITDA of 0.9 billion US dollars continues significantly to outpace our equipment capital expenditures of $0.2 billion.

It is worth noting that with more excitement surrounding AI, our leading-edge advanced packages and our vertically integrated or VIPack offerings are getting a lot more attention from our shareholders as well as our customers.

At this point, we are expecting incremental customer adoptions of our Fan-Out and interposer-based solutions, along with increasing collaboration with upstream foundry partners on leading-edge advanced packaging. As a result, we will be making incremental investments to support these businesses subjected to financially justifiable returns.

And while revenues related to these products are relatively small, representing a low-single digit percentage of ATM revenues, we believe we see significant growth opportunities in the coming year. We are in October now and the year is almost done, much of the original wafer banks for ATM business still remain to be addressed.

As with many situations during the downturn, our wafer banks situation has become a bit complicated. During the third quarter while some wafer banks were gradually being worked out, the composition of some of those wafer banks appeared to be replenishing instead of just declining.

In effect, we saw newer wafers starting to come in and replace older ones. Devices on these older wafers may continue to be sold, perhaps by being re-skewed [Phonetic] or by being marked down. And if that is the case, we will provide packaging and testing services for those products.

But for us, the focus going forward should be placed on the newer generation of products. And while we are not in position to predict how long those new products will stay in the channel before they sell through in the end markets, we do believe that the overall environment heading into 2024 appears to be improving.

Our customers have been more cautious in their approach towards restocking. Overall demand looks marginally better as consumers finish their post-COVID catch up spending. Businesses are looking to implement AI to optimize their business operations. Consumers are discovering how new AI technology may help improve their lives.

It is an opportunity to target a new generation of products at a new generation of consumer demand. Looking out into the fourth quarter, we've seen many products continuing their seasonal bills. And while we did see a welcome mild seasonal ramp, we have not necessarily seen a rapid recovery for the industry.

As an extension to this concept, we believe the seasonal forces of product cycles are still stronger than the recovery we are encountering. As such, we see our fourth quarter revenues to be more indicative of waning seasonal builds, than the rising momentum of a full recovery.

For our EMS business, the third quarter’s shallower than normal product ramps turn into a longer building season with a peak in the fourth quarter. Product mix and the cessation of foreign exchange benefits will result in a lower quarterly operating margin similar with year-to-date levels.

We would like to summarize our outlook for the fourth quarter as follows. For our ATM business, in NT dollar terms, our ATM fourth quarter 2023 revenues should decline low-to-mid-single digits quarter-over-quarter. Our ATM fourth quarter 2023 gross margin should be flattish as compared to third quarter 2023.

For our EMS business, in NT dollar terms, our EMS fourth quarter 2023 revenues should increase percentage wise in the low-teens quarter-over-quarter. Our EMS fourth quarter 2023 operating margin should be similar or slightly higher than our EMS year-to-date 2023 operating margin of 3.3%. That is the conclusion of our prepared remarks.

I would like to open the floor to questions..

Now we would like to open the floor for questions. [Operator Instructions] We have a question from Mr. Gokul Hariharan of J.P. Morgan..

Hello. Thanks for the opportunity. So my first question is on the wafer bank comment, quite interesting.

Could you talk a little bit more? Can -- Joseph, on the composition of the wafer bank, are you seeing new wafers coming in for one kind of application, while the older wafers that are not yet getting fully depleted as for some other kind of application? Is there any difference by application that you see in terms of the wafer bank inventory build up and production? And to the extent that you have visible for, could you talk a little bit about how quickly this wafer bank could potentially get depleted over the next maybe couple of quarters or so? That's my first question..

Well, I don't think this is -- we can predict how fast or how material pace that the original wafer bank will be worked on. We are seeing this original wafer banks are being progressively working down to a certain level.

But at the same time, the overall wafer bank is still at a relatively high level because some of the wafer banks are being replaced by the new wafers that are coming in. And I think at this point it is really the new products that are being launched, which is mostly in the communication consumer as well as in computing area.

It's quite widespread in terms of new wafers coming in. And I think the overall inventory, digestion is still going on and it should continue for some time.

But I think the bright side of it is we are seeing that being worked out and we are seeing signs of this inventory being consumed and the digestion should be at the tail end of the industry digestion now. .

Thank you. Thanks, Joseph. So if we look at the Q4 guidance down low-to-mid single digit. You saw a pretty good improvement in communication by both auto and industrial kind of tailed off in Q3.

Is that the same trend going into Q4 that communication is still relatively strong, while you see -- communication and consumer is relatively strong while you see the drop off continuing and auto and industrial? And lastly, I think on the auto industrial side, any thoughts on how this is likely to play out, given it's been a sector, which has been relatively strong until very recently, it seems like seeming to go into inventory correction now.

Based on prior history and your judgment, do you think there's going to be still a drag for most of next year, like first half of next year at least?.

I think overall situations are stabilizing now and auto remains to be one of the brighter spots, and we are making quite a bit of progress in moving up the auto part of the business.

I think last year, we have overall about 7% of our revenue coming from automotive and that ratio has been up to 10% for this year and we believe it will continue to grow.

Although we are seeing some level of the growth, the momentum seems to be slowing down a little bit, because there are certain areas where there will be some inventory that needs to be digested. But overall, I think the overall trend is still going fairly healthy. For quarter four, I think it is across the board.

I think a lot of the new products are being introduced and we are seeing the seasonal uptick from these new products that are being launched..

Our next question is from Ms. Laura Chen of Citigroup..

Hi, thank you.

Can you hear me?.

Yes. .

Yeah, I thank you for taking my question. My first question is about the [Indiscernible] or substrate advanced packaging expansion.

Can you provide us more detail about how big of the capacity you are preparing? And also, in terms of the growth outlook, even though so far is at very low single digit of the IC ATM business, I was just wondering your view on the capacity expansion plan and also to growth outlook? That's my first question. Thank you..

Well, instead of giving out numbers for capacity, I think what we can say is we have the sufficient store capacity for generating the revenue that we're generating now and we do see pretty good potential going forward. And we'll be making the necessary investment, provided those are financially justifiable.

And most of the CapEx that we're going to put in or the investment that we're going to put in are for the de-bottling the capacity. And at this point, we are confident that we should easily double that part of the revenue next year..

Okay, thank you. And also, my second question is also just wondering that you see the ATM business was slightly down, but at the same time, the gross margin seems to be resilient at their current level.

So just wondering like in terms of the technology mix, or applications, what -- have you held relatively well, for the profitability into Q4, even though we see some still some softness?.

Well, a lot of it comes with the product mix that we were building and we are -- in quarter three and also in quarter four, we are seeing that the higher margin products being representing a higher percentage of our overall revenue. And also I think the pricing continue to be resilient.

And given our scale in our technology offering and the efficiency or the level of automation that we have, we have continued to be able to maintain a reasonable pricing level and also to have pretty good control over our costs and making the margin at a [Indiscernible]. We're not totally happy about the cost as every level at this point.

Even when we're anticipating a mild decline in revenue going into quarter four, given the efforts that we put in, we believe that we can maintain whatever margin we achieved in quarter three if not higher, a little bit higher..

Next question is from Mr. Bruce Lu of Goldman Sachs..

Hello, can you hear me?.

Yes. .

Okay..

Hi, Bruce..

Hi. I think the management sounds a lot more bullish or positive in terms of AI revenue potentials.

Given that the technology for AI in terms of packaging is so complicated for me, can you tell us what is the service you provided for AI is more legged to Fan-Out or sub tray or anything, what kind of profitability, what kind of return on equity, what kind of capital intensity for this business?.

Well, we are getting pretty good traction with our customers in terms of both our Fan-Out as well as in proposal based kind of packaging products. And we will be aggressive engaging these customers and try to fit their needs.

But at the same time, we are also increasing our collaboration with the upstream foundries in providing the sufficient capacity into this area. So, we are optimistic about the revenue from these different package type products coming from both directions, one is our own solutions and the other is really the collaboration with foundries. .

But which one is stronger for there? For the past three months, which one turns out to be more positive to give the management like stronger confidence? Is it collaboration was foundry or yourself?.

The collaboration is more stable there and it's more obvious. In terms of our own solution, I think the design or the process of it is still subject to a lot of the customer discussion and also co-working with our customers.

We are making a lot of progress on that and we were actually in mass production, but in terms of real volume, I think we should be seeing that coming from next year..

Okay, got it.

What was the profitability for that? Capital intensity and profitability? The profitability for the AI-related business and the capital intensity for that?.

Well, you're seeing our margin being gradually improving so because at least the margin should be good..

Hello, thanks for taking my question. So, first of all, congrats for the [Indiscernible], especially for first quarter gross margin improvement. So first question is about your view about the cycle and I know right now customers are placing rush orders with riverbank depleted.

But do you think right now is the hard bottom in cycle, meaning for the first quarter, you then expect a further decline of the fab utilization? Can you give us some color about the cycle recovery? Thanks..

Well, I certainly don't have the crystal ball for it. I think the market is still very volatile. I think one good sign of it is really, same as everybody else, we believe that we're at least at the -- maybe at nearing the end of the inventory digestion.

But still I think that's really not -- at this point, I personally don't believe that this is really the real issue here. I think the real issue is still whether the overall consumption will recover more in the stronger pace than what we were witnessing now. That really involves a lot of different -- various exogenous factors.

The recent war that's going on in the Middle Eastern, it doesn't help the situation. And we thought that the inflation is in check now but with the war going on, that may have another -- put in another variable into it. So it's very hard to predict how soon or how fast the industry will recover. We're just going to play by years.

I think there are good signs, there are bad signs, but you know, overall, I think we’re just focusing on what we do best and serve our customers. And we are cautiously optimistic about next year. We believe that going into Q1, over the -- throughout the whole year of next year, we will continue to see year-over-year growth..

Okay. Thanks, Joseph.

So, just a look back, right, when did you start to see your field that so called a rush orders? Can you give us a kind of timing when did you start to see that?.

We have been seeing rush orders throughout the years, particularly at the -- last month of any particular quarter, we see some rush orders coming in across the board. I think the reason for that is the customers are, like Ken mentioned, at this point more cautious about restocking.

And since there are no ample capacity as well as wafers and also materials, I think the customers will tend to wait till the last minute until they see they have a clearer view of their upcoming demand they will put the orders in. So that what we have been seeing for the past few quarters and we are seeing that still going on at this point..

Next question is from Mr. Rick Hsu of Daiwa Securities..

Hi. Good afternoon.

Can you guys hear me?.

Yes. .

Okay, great. First question is regarding your capacity utilization across the board at ATM. I think, if I don't remember it wrong, Ken said something about mid 60s for Q3 right. So, I assume, given your steady decline in Q4 ATM revenue, so your loading should be below mid 60s in Q4.

Is that right?.

It will be slightly lower than 65 years..

Okay, great. Second question, your founder partners at the TSMC, UMC see some good early signs of demands stability from PC and smartphone and consumer electronic products.

Do you guys agree? And if so, do you see any counter-seasonal possibility for your Q1 building, assuming there is the early sign recovery -- demand recovery from this consumer space?.

Well, there are spotty signs of optimism and demand remains to be seen. There could be some volatility in 2033. We believe that things are starting to look up and that's why we -- like I said earlier, we are cautiously optimistic about next year..

All right, thank you so much. .

Thank you..

Next question is from Brad Lin of BoA..

Hello. Hi. Thanks for taking my question. I have two questions, one on generative AI and second on the silicon photonics. So basically, firstly, we are encouraged to learn the management's positive comments on the new generation of the consumer demand.

I'm quite curious about what kind of the new applications should be expected for the consumer market and what are the applications that are inside for the AIC? And also what time do we expect it to, well, take off? Thank you..

Take off in what? In silicon photonics?.

No, no. For the new generation of the consumer demand, which may be brought by the generative AI..

I think AI is coming and we were expecting the AI technology to proliferate into so many different kinds of edge devices. And they will be the main thing for the next few years, and will be a mega driving force for the industry to grow. And we're certainly going to be well prepared for it.

I think the real cream for us is not just the AI chip itself, but the proliferating applications into all different kinds of devices that will create tremendous peripheral chips, demand for us to satisfy..

Got it. So that’s structure or tray and then we should see a lot of the new application to come in coming years..

Exactly. And I think the momentum will really start to accelerate in 2024..

Got it. Got it. And then my second question is on the CPL. So we have learned ASE [Phonetic] started our development of the CPL photonics for a couple of years during the [Indiscernible].

So may we learn the opportunities and also the implication of the new technology? And what are the key barriers or challenges for ASE here in this new technology? Thank you..

Well, now being a technology guy, I think, from what I heard, that's still a few years away. Right now we're still focusing on the silicon photonics chips pathogen test. Going forward, I think the technology will just push the development of CPO and we're still at the investing stage. When the demand really comes, we'll be ready for it..

Next question is from Ms. Sunny Lin of UBS..

Hi, could you hear me okay?.

Yes. .

Thank you very much for taking my questions. So my first question is on interposer base 2.5D package. I think currently, the mastering solution is based on silicon interposer but there's increasing discussions on the technology move into RDL-based 2.5D package.

And so based on your engagement with key customers, when do you think that shift will start to happen? And for ASE, I assume that you should be getting more opportunities if the industry does start to make that shift..

Yeah, we're seeing that happening now and we are aggressively engaging customers who are looking for a more cost effective kind of solution.

At this point, I think if you call silicon based -- silicon interposer based is still a bit more matured kind of technology and I think the RDL based, there will still be some discussions in terms of the design or the process of it that needs to be worked out individually with the customers that we are engaging now.

We are in mass production at this point, but with limited amount, but we see this has a pretty good potential and we will continue to make investment into it and continue to work very closely with our customers to start expanding that part of the business for us..

Got it. So a quick follow up on this part of the business. So in terms of the competition, obviously the leading foundry is also aggressive on the overall technology roadmap, some of your competitors are also focusing on exploring the opportunities.

And so for ASE, what are some of the competitive advantage that you think you have, when competing with key projects?.

Well, our long partnering relationship with the foundry or the foundry, certainly give us an edge and given our scale and the technology that we have been growing over the years, I think we are certainly ahead of our competitors, and in whatever products that we are building today, or whatever technology that we're developing.

So, the competition is given, there's always going to be competition. The key here is really to stay focused and you'll continue to bring out the satisfactory offering to our customers, as well as our upstream foundry partners..

Next question is from Mr. Szeho Ng of China Renaissance..

Hi. Thank you. My first question is regarding the pricing environment.

So far, it seems to be quite stable but would there be a reset the pricing environment would be more aggressive and inflection point really kicks in when the market rate bottoms?.

Well, pricing is -- pricing pressure is always there, but given our scale, and our leading position, I think our pricing is more resilient than our competitors. And we will continue to find the most suitable pricing strategy to satisfy ourselves as well as our customers..

I see. All right.

And same question regarding the CapEx this year, and also any initial outlook for next year's CapEx?.

Nothing for next year, but this year, we're sticking to our original CapEx roughly for equipment about a billion dollar and the split of it will be around 50% in assembly, 30% in tests, 17% in EMS, 3% for material..

Next question is from Mr. Gokul Hariharan of J.P. Morgan..

Yeah, hi, thanks for taking my question. So for some of these 2.5D packaging and advanced identity-related products, could you talk a little bit about how much more capital intensive these investments are? I think long time back, we used to talk about $1 revenue for $1 of CapEx for flip chip and much lower for wire bond.

Could you talk a little bit about how we are seeing this capital intensity going up for some of these investments? Second, what is ASE’s stance on taking some customer supported capacity buildups? Some of your competitors or some of your peers have kind of done some of the capacity expansion in partnership with some of the AI customers.

Any thoughts on how ASE is approaching this kind of capacity build out? And lastly, I think we've been seeing CapEx cuts or CapEx declining since 2021, so do we feel like we are reaching an inflection where we start to have to add some capacity, increased CapEx in next year or you think given utilization is still mid-60s, next year outlook is still not that clear to guide for any meaningful CapEx increase? Thank you..

Well, we are seeing a better overall marketing environment for next year, it wouldn't be surprised that we -- next year’s CapEx, although I don't have the number here, but I do believe that the CapEx that we need to put in for next year will be higher than this year.

In terms of the advanced packaging, I think the -- like we said, the -- right now we're still at the very early stage in developing this part of the business.

And so I think we don't have sufficient data points to come up with the real or more precise investment intensity at this point, plus, like I mentioned earlier on, whatever investment that we are on the table today for this type of products, it is mostly for de-bottling the current capacity that we have.

So I don't have a real number for in terms of capital intensity for this type of product, until we collect more data points and until this part of the business becomes a larger enough poor business that we can come up with the more meaningful real numbers for it.

I think whatever we’re going to do is really, we will look at the demand, we will look at the technology that's required or the equipment as required, and also the business terms that we can get so when we put the investment in, it will be suitable for the demand and also create a justifiable financial return for us..

Okay, got it. My second question is on the adoption of chiplets. We've seen a lot of that happen in the HPC side.

Broadly, could you talk a little bit about how the chiplet adoption helps or changes ACE’s role, either adds to it or takes away something, but just how you think about it? And more specifically, do you see more chiplet-related packaging, potentially getting adopted even in the communication, the mobile smartphone segment, which is largely monolithic, right now, looking out maybe a couple of years in terms of what you see and have discussions with your key mobile customers?.

I guess chiplet is certainly the technology that's required for specialty for vessels and there's physical boundaries that we need to break through the chiplet packaging, so it is a growing trend. And we will -- at this point, we think it is still predominantly in the HPC area, or networking.

When or how fast it will move into other areas, I think it will take some time for us to have a better grasp of this development..

Next question is from Bruce Lu of Goldman Sachs..

Hi, Joseph, I want to ask about the dividend.

Given your EBITDA is so much stronger than the CapEx, can we expect higher dividend payout ratio moving forward or at least for this year? You're paying $8, $7 for last two years, given the weakness of this year, but your cash flow is still very strong, so can we expect a higher payout ratio this year?.

I think we have been paying 60% to 65% over the years and no. This is not for me to answer. I think this has to go through the Board and, given the circumstance, I think we will have a good discussion on how we address this issue. .

I understand that just like if you've maintained the 60%, 70%, given that the earnings decline more than that, so we don't want to see the dividends per share goes down much, just the investor feedback. And another question is --.

Yeah, yeah, understand. .

Another question was your testing, I mean, I think I do recall in early 2022 management turns more aggressive in testing, which generate pretty stronger growth and earnings.

However if you look at from second, third quarter, your testing revenue for the quarter was substantially slower than your packaging business, at the same time, your peers in the testing business is doing pretty good with very impressive share price.

So what kind of testing strategy can we expect? Do we expect some change for the testing? Do we turn more aggressive into testing? Do we get involved in the wafer level testing moving forward? What kind of strategy can we expect?.

Well, we still have the same view on testing that we believe still has -- it does have the potential for us. We want to maintain -- remain aggressive in making tests. This is a larger part of overall.

And we're going to come back and revisit the overall situation and see how we can move further towards our target and to bring this part of the business up, what are the right business that we should we be pursuing? What kind of new technology that we should be investing in? That's an ongoing process.

I think the reason for kind of a slower growth pace in tests is because of the overall product shifting in this market at this point. So I think that's one of the main reasons why we're seeing some of the differences in the test business growth pattern between us and our competitor.

But we're going to look into this and we're going to put our focus back on tests. We'll continue to drive that business..

Next question is from Mr. Szeho Ng of China Renaissance..

Yeah, thanks for taking the question. Yeah.

Regarding the interposer business, do you have any plan to get into the fabrication part of the business?.

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

Do you have any plan to build an interposer internally?.

Interposer internally, I wish we could but, no, I don't think we have any plans of doing that..

Because it doesn't fit our DNA right, I think for interposer?.

Doesn't fit what?.

I doesn't fit our DNA, I mean, the business or the know-how?.

I'm not sure this is really what our strength is and this is a way for a process and we're assembly house, so I don't see the real good fit in it..

Yes, it makes sense. Yeah. Okay. Thanks very much, Joseph..

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

Hi, Charlie..

Hey, Joseph. Thanks for taking my question again. So I'm not trying to be picky but I'm very interested about your previous comments. You said usually in previous quarters, right, rush order only happen in a quarter end.

But now we are at the beginning of the quarter, you still see rush orders coming in? Am I get anything wrong or is that a sign of kind of demand is actually better than expected? How do we read this? Thanks..

No, I'm saying the pattern seems to be remaining. That's to say, by the end of the quarter, we could see some other rush orders coming in. I'll simply trying to say that the quarter end rush older seems to be the pattern up until now, yes..

Okay. Okay. Thanks. So, another follow up question or two, if I may. One is the AI chip placed business right, in the middle of GPU or ASIC, right, inside your computer, in testing business are gaining a lot of market share. I just wanted to know any fundamental reason behind that.

And second, part of question is more about long term because as you can see data for maturing [Phonetic] foundry that's a capacity expansion is happening in China.

So just wondering if China in the long term would gain market share, whether that means that ASE in a big game foundry series will lose market share, because you probably -- I'm not sure, right, but you probably sold your China operation couple of years ago..

Well, I think our China operation remained in Suzhou, which is under spill. It's a bit different from -- it's quite different from the four factories that we sold two years ago.

I think, the Suzhou factory today is more advanced facility than the four that we sold and it does suggest the growing demand in China, particularly when things are -- the whole industry is kind of polarizing at this point, where China demand remains into China and the outside of China posted outside.

So I think the Suzhou being a more advanced, more efficient, more cost effective facility, I think it does – it is doing quite well actually in China, particularly in terms of serving the Chinese customers with higher-end technology requirements.

So we are confident that in China we could be losing some revenue in terms of dollar per -- in terms of business where we're actually gaining better quality business in China. [Multiple Speakers].

The testing, for the GPU and ASIC, yes?.

Other than congratulating, our competitor is doing a very good job in securing that type of business. Well, we have some catch up to do and we will do so..

Okay. Okay. Good to know. Thank you..

[Operator Instructions] There is no more questions..

Okay. Thank you all for coming. Sorry for my low voice because I caught a cold. But you know, thank you again for joining us and we'll see you next quarter..