ASE Technology Holding Co., Ltd. (ASX) on Q4 2021 Results - Earnings Call Transcript
Ken Hsiang: Hello, I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our Fourth Quarter and Full Year 2021 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, 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, including those represented by our subsidiary using Chinese GAAP. I am joined today by Dr. Tien Yu Wu, our COO and Joseph Tung, our CFO. For today's call, I will be going over our financial results, Tien will be providing our annual business recap and outlook and Joseph will then provide an update on our China site dispositions and our quarterly guidance. We'll have a Q&A Session following the prepared remarks. Please turn to Page 3, where you will find our fourth quarter consolidated results. Intercompany transactions between our ATM and EMS businesses have been eliminated during consolidation. During the quarter, we announced and completed the disposition of our subsidiary ASE, Inc.’s major China sites. From a financial perspective, the sites were valued at an enterprise value of US$1.46 billion, and the final consideration was US$1.33 billion after adding cash balances and deducting the existing debt. We recorded in the fourth quarter a gain of US$551 million net of related expenses and taxes. Joseph will give more details regarding this transaction towards the end of our prepared remarks. For the fourth quarter, we recorded fully diluted EPS of $6.99 and basic EPS of $7.20. Without the inclusion of our China site disposition gain, fully diluted and basic EPS would be $3.45 and $3.66, respectively. Consolidated net revenue increased 15% sequentially and 16% year-over-year. We had a gross profit of $32.9 billion with a gross margin of 19%. Our gross margin declined by 1.4 percentage points sequentially, and increased by 3.3 percentage point’s year-over-year. This sequential margin decline is principally the result of higher EMS business mix. The annual increase is primarily the result of higher profitability of our ATM business. Our operating expenses increased by $0.9 billion during the fourth quarter to $13.3 billion as a result of higher profit-sharing expenses issued during the quarter. Despite the absolute dollar increase, our operating expense percentage declined 0.5 percentage points sequentially, and 0.4 percentage points year-over-year to 7.7%. Operating profit was $19.6 billion, up $1.2 billion sequentially, and $8.4 billion year-over-year. Operating margin was 11.3% declining 0.9 percentage points sequentially as a result of higher EMS product mix, while operating margin increased 3.7 percentage points year-over-year as a result of higher profitability from our ATM business. During the quarter, we had a net non-operating gain of $17.7 billion. The gain from the China site dispositions accounted for $17.3 billion of this net non-operating gain. The remaining non-operating gain was from our foreign exchange activities, government grants and other non-operating gains. This amount was offset in part by net interest expense of $0.6 billion. Tax expense for the quarter was $5.6 billion. The effective tax rate for the fourth quarter was 15%. The lower effective tax rate during the quarter was principally the result of differing taxation methodology related to our China site disposal. Net income for the quarter was $30.9 billion representing an improvement of $16.7 billion sequentially and an improvement of $20.9 billion year-over-year. Excluding the gain, net of taxes and related expenses from the sale of our China sites, our net income would be $15.6 billion dollars, which would still represent substantial earnings growth of $1.4 billion sequentially, and $5.6 billion year-over-year. The NT dollar U.S. dollar exchange rate was fairly stable from the third to fourth quarter, and as a result did not impact holding company level margins meaningfully. However, from a year-over-year perspective, we estimate that the strengthening NT dollar had a one percentage point negative impact gross margin. As a rule of thumb, for every percent the NT dollar appreciates, we see a corresponding 0.3 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 $33.8 billion with a 19.6% gross margin. Operating profit would be $20.8 billion, with an operating margin of 12%. Net profit would be $32.1 billion with a net margin of 18.6%. Basic EPS excluding PPA expenses would be $7.48. Please refer to Page 4. Here you will find the 2021 consolidated full year result. Fully diluted EPS for the year was $14.40, while basic EPS was $14.84. Fully diluted EPS for the year without inclusion of our China site dispositions would be $10.86 and basic EPS would be $11.30. For 2021, consolidated net revenues grew 20% as compared with 2020. ATM revenues grew 21%, while EMS revenues grew 17% annually. Gross profit for the year was $110.4 billion, increasing $32.4 billion year-over-year or 42%. In 2021, our gross margin improved 3.1 percentage points to 19.4%, principally as a result of higher profitability in our ATM business and slight improvement in EMS. Operating expenses increased $5.1 billion for the year and came in at $48.2 billion. We were able to lower our operating expense percentage by 0.5 percentage points to 8.5% for the year. Operating profit for the year was $62.1 billion, improving 78% or $27.2 billion. Operating margin for the year was 10.9%, an improvement of 3.6 percentage points. We recorded a net non-operating gain of $18.2 billion for the year. As mentioned earlier, $17.3 billion of this was attributable to the disposition of our China sites. The remainder was primarily attributable to investment income, government grants and other non-operating income offset by net interest expense of $2.3 billion. Total tax expense was $14.3 billion. The effective tax rate for the year was 17.8%. Our full year effective tax rate was primarily lower as the result of different taxation methodology related to our China site disposals. For ongoing purposes, we believe our effective tax rate to be about 20.5%. Net income increased by 132% to $63.9 billion. On a full year basis, we estimate that the strengthening NT dollar had a negative 1.6 percentage point impact to gross and operating margins. Removing the effect of PPA depreciation, our gross margin would be 20%. Our operating margin would be 11.8%. Our basic EPS would be $15.96. On Page 5 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. During the fourth quarter, our ATM business continued to run at a fully loaded rate. Operationally, it was almost a continuation of the third quarter with slightly more business. We had a reclassification of bonus expense from cost of goods sold to operating expense during the quarter. We will explain sequential fluctuations that are impacted by this after the reported numbers are presented here. For the fourth quarter 2021, revenues for ATM business were $92.0 billion, up $1.9 billion from the previous quarter and up $19.2 billion from the same period last year. This represents a 2% increase sequentially and a 26% increase year-over-year. Our ATM revenues came in slightly ahead of our expectations due to higher-than-expected customer loading. Gross profit for our ATM business was $25.7 billion, up $1 billion sequentially, and $9.3 billion year-over-year. Gross profit margin for our ATM business was 28%, up 0.6 percentage points sequentially and up 5.4 percentage point’s year-over-year. The year-over-year gross profit margin improvement was primarily attributable to higher loading, improved efficiency and a friendlier ASP environment offset in part by a stronger NT dollar appreciation. During the fourth quarter, operating expenses were $9.7 billion, up $0.6 billion sequentially, and $1.2 billion year-over-year. The year-over-year increase was primarily driven by a higher employee headcount and incremental bonuses tied to corporate performance. Our operating expense percentage was 10.5%, up 0.4 percentage points sequentially, and down 1.1 percentage point’s year-over-year. During the fourth quarter, operating profit was $16.1 billion, representing an improvement of $0.5 billion dollars quarter-over-quarter and an improvement of $8.1 billion year-over-year. The year-over-year mark represents a 101% increase from last year. Operating margin was 17.5%, improving 0.2 percentage points sequentially and 6.5 percentage point’s year-over-year. The NT dollar exchange rate did not have a significant impact on our ATM sequential margins. However, on a year-over-year basis, we estimate that the strengthening NT dollar had a 1.5 percentage point negative impact. During the quarter, we made a onetime reclassification of $0.4 billion relating to how bonuses were classified between cost of goods sold and operating expenses during the first three quarters of the year. In the fourth quarter, this reclassification lowers cost of goods sold compensation expenses, while increasing OpEx level compensation expenses. Adjusting for bonus reclassification, our gross profit margin would be 27.6% or flat sequentially. Our sequential operating expenses would be flattish, up $0.1 billion, and our operating expense percentage would be 10.1%, down 0.2 percentage points sequentially. This reclassification has no impact to ATM operating margins. It also has no impact at a full year level. Without the impact of PPA related depreciation and amortization, ATM gross profit margin would be 28.9% and operating profit margin would be 18.7%. On Page 6, we have our ATM full year P&L. On this page, you can see how that we saw a significant improvement in all aspects of our business during the year. 2021 revenues for ATM business increased by 19% with our packaging business and test business up 22% and 6% respectively. Gross profit for the year improved 49% to $88.7 billion. Gross margin was up 5.3 percentage points primarily as a result of higher loading and efficiency, a friendly ASP environment and offset in part by NT dollar appreciation. Our operating expense percentage declined by 0.9 percentage points from 11.4% to 10.5%. Operating profit improved 94% to $53.4 billion, with operating margin improving 6.2 percentage points to 16%. On a full year basis, we estimate that the strengthening NT dollar had a 2.3 percentage point impact to gross margins. Without the impact of PPA expenses, gross profit margin would be 27.5%, and operating margin would be 17.3%. On Page 7, you'll find a graphical representation of our ATM P&L. The commentary we would like to reinforce here is that we believe the improvements in our business are not only related to a prolonged semiconductor cyclical uptick. We strongly believe that we have substantial, systemic improvements from our combination with SPIL. And while cyclicality in the industry is given, from a longer-term perspective, we believe that our margins still have further room to rise, given our strengthened market position after the combination with SPIL. On Page 8 is our ATM revenue by market segment. There is not a significant change here. However, it is worth noting that our computing segment appears to be outperforming our communication segment. This appears to be driven by strong demand from high performance computing products. On Page 9, you will find our ATM revenue by service type. As we have mentioned, we expected a significant uptick in our advanced packaging services during the quarter. We expect continued strength within advanced packaging to persist through 2022. We also expect our testing revenues to outperform during 2022, after a muted 2021, which was impacted by EAR related business adjustment. As a percentage of revenue, our wirebond revenues have declined, but were flattish on an absolute dollar basis. On Page 10, you can see the fourth quarter and full year results of our EMS business. The information we provide in regards to USI may differ materially from the information directly provided by our A share listed subsidiary, as they report independently using Chinese GAAP. During the quarter, demand was stronger than anticipated driven by stronger than expected demand for our SiP services. As production was slowed by component and chip shortages in its third quarter, such operating conditions continued to persist throughout the fourth quarter. Further in 2020, our consumer SiP business had a significantly later start as compared to the current year 2021. We believe the combination of these two factors distorts fourth quarter year-over-year comparisons. And as such, we believe that comparing back half numbers may be more telling of our EMS business' performance in such situations. For EMS business during the fourth quarter, EMS revenues increased 33% sequentially, and 3% year-over-year. As a result of component and chip shortages, this year's production cycle of certain SiP products was more evenly spread out across our third and fourth quarters. Some production will push into the first quarter of 2022. In 2020, the production cycle for some of our consumer SiP products launched later than 2021. As such, the year-over-year percentage increase was a bit muted. If we compare second half numbers between 2020 and 2021, we saw a 13% improvement in revenues. Our EMS gross profit was $7.1 billion, improving $1.2 billion sequentially, and $0.1 billion year-over-year. The sequential gross profit improvement is the result of the seasonal ramp of our SiP related products. The year-over-year improvement is again the reflection of comparing two manufacturing cycles at different times. Comparing second half gross profits, we saw a 7% improvement from 2020 to 2021. Gross profit margin for the EMS business unit came in at 8.7%, which is a decline of 0.9 percentage points sequentially, and 0.1 percentage point’s year-over-year. The margin declines are primarily the result of product mix shifting to higher material pass through products. Our EMS business unit’s fourth quarter operating expenses were $3.5 billion, increasing the $0.3 billion sequentially, and flat year-over-year. Operating Expenses increased primarily as a result of increased employee profit sharing recorded during the year-end. Our EMS units operating expense percentage was 4.3%, down one percentage point sequentially and 0.2 percentage points year-over-year. This sequential decline in operating expense percentage is primarily attributable to higher revenues, while containing operating expenses. Our EMS operating profit improved $0.9 billion sequentially, and $0.1 billion year-over-year. This sequential improvement was primarily due to increased seasonal demand for SiP products. Our EMS operating margin was 4.4%, which is up 0.1 percentage point sequentially, and is flat year-over-year. On a full year perspective, our EMS business in challenging conditions delivered another strong year. On a full year perspective, our EMS business revenues increased 17%. Gross profit increased 14%. In these challenging operating conditions characterized by wafer and component shortages, our full year gross and operating profit margins each declined by 0.2 percentage points. On Page 11, you will find a graphical representation of our EMS revenue by application. With sales increasing 33% sequentially, interpreting this chart gets a bit tricky. What is fairly straightforward to see is that our consumer segment increased by five percentage points as a result of product seasonality? Other categories generally grew in absolute dollars. However, their growths were not as pronounced as that of the consumer segment. On Page 12, 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 $79.1 billion. Our total interest-bearing debt was $227.2 billion. Total unused credit lines amounted to $278.8 billion. Our EBITDA for the quarter was $51.9 billion. EBITDA for the year was $136.8 billion and our net debt to equity was 54% at the end of the year. On Page 13, you will find our equipment capital expenditures. Machinery and equipment capital expenditures for the fourth quarter in U.S. dollars totaled $472 million, of which $231 million were used in packaging operations, $116 million in test operations; $68 million in EMS operations and $13 million in interconnect material operations and others. For the full year, machinery and equipment capital expenditures were $2 billion. $1.3 billion was spent on packaging, $0.5 billion on test and $0.2 billion on EMS. Our ATM business continues to be constrained by substrate and wafer availability, in addition to a lack of our own manufacturing capacity. Given that we can generally put in capacity faster than our upstream foundry partners and our substrate suppliers, we can be a lot more nimble in our approach to our business. Although our smart factories do take somewhat more investment and time to build, we still believe that many of our investments are granular, which allows us to adapt quickly to market conditions. We continue to provide our EBITDA in U.S. dollars here as a reference. The earnings related to the China site disposition are separated for better comparability. We believe that the company's EBITDA relative to our equipment CapEx serves as a key financial performance metric for the company. Before we move on to Dr. Tien Yu Wu's and Joseph Tung's sections, I would like to inform everyone that they will make forward-looking references on a pro forma basis, removing the results of the China factory sold. As a reference, we have included an appendix to the slide deck that has a set of quarterly pro forma financial statements for the consolidated holding company, and one for our ATM business unit. With that said, I pass the presentation over to Dr. Tien Yu Wu. Dr. Wu?
Tien Yu Wu: Hi, everyone. I would like to give you the 2021 recap, as well as the outlook for 2022. I will also touch base on the industry perspective from where we can see. First of all, 2021 was a good year. We have seen revenue and margin improvement better than target. For example, in 2021, the ATM revenue grew 26% year-over-year or 45% year-over-year, if we exclude the EAR-affected business. The ATM margin, gross margin was 26.5% approaching historical peak level of 27%. ASE consolidated revenue grew 26% year-over-year. ASE consolidated operating margin improved 3.6 percentage points versus the target that we set at the beginning of the year of 2.5% to 3%. So overall, 2021 was a good year. We have seen broad based growth in all sectors with momentum that carry over to at least 2022. For example, the 2021 wirebond revenue grew 36%. We continue to see the wirebond to be fully loaded. And we do expect wirebond revenue in 2022 will achieve double digit growth. Even with the EAR impact, which was very significant in test business, the 2021 test revenue grew 12% year-over-year. We do expect the test business in 2022 without the EAR impact; the growth rate will double from the 2021 level. So, we do expect the testing business to play more of a important role for our business in 2022 and beyond. Advanced packaging based on the customer's requirement, we're seeing more complexity and more demand. In 2021, we have seen the advanced packaging revenue grew 23% year-over-year. We do expect the growth rate in 2022 to be better than the number, which is another important sign that we're migrating more mix to the testing business as well as advanced packaging business, while we're maintaining the established base in wirebond and everything else. ATM automotive revenue grew over 60% year-over-year. The momentum will continue in 2022 and beyond. The good news is we do expect to achieve $1 billion automotive revenue in 2022, which will be a significant milestone for ATM business. Let me talk about the 2022 outlook. We do expect the revenue and margin to continue to see improvement in 2022. Our demands and forecast indicating a very strong 2022. And Joseph will talk about the specific guidance for Q1. Again, we're seeing a better than seasonal Q1, followed by our traditional pattern of quarter-to-quarter growth for the remainder of the year. The logic semiconductor industry without a better number, we believe will be in the 5% to 10% range for reference. And our ATM revenue year-over-year growth should be 2x of that. And we have been following this traditional pattern for at least the last 15 years, and 2022 will be of no exception. And the reason being, market demand is very strong, and we are seeing signs of IDM outsourcing accelerating. The pricing environment is friendly and stable with a higher mix of testing and advanced packaging business. And our margin, also our position will continue to be improved. We are expanding the SiP customer portfolio. And we're happy to report that, in 2022, our new SiP customers with a diversified background from all sectors. For the first time, our new SiP customer’s revenue will break the US$0.5 billion mark in 2022, it's another good news. The 2022 ATM growth and operating margin should surpass historical peak levels set in 2014, consolidated operating margin to see further improvement versus 2021. Next page let me comment a little bit on the industry. We do see a solid outlook for year 2022. Capacity and supply constraint. Last year, I commented in Q1 time frame that sometime in 2023, we will see the – a holistic balance of the supply versus demand. But right now, we believe the capacity and supply constraint will last maybe beyond 2023. Scale, technology leadership, flexibility and proven record for the past two years is making ASE an indispensable manufacturing partner. And we're gaining trust, support from customers and which is signified by the long-term service agreement as well as the design in a socket that we have been receiving for the last two years, particularly. Customer long range service agreement are in place through 2023. We will continue to discuss, collaborate with our customer and see how do we extend this beyond, as we're building additional capacity for our loyal customers. IDM outsourcing ratio accelerating, we do see healthy growth of HPC, automotive, 5G migration, IoT and also the expanding silicon content leading to a quite robust end market environment, so we are optimistic about the long-term prospects. I would like to comment a little bit on what ASE is doing to prepare for years beyond 2022. We have started a new round of smart factory, building a infrastructure investment. As you know, building takes the longest time and the smart manufacturing environment infrastructure does take a long time to develop. In 2021, 2022, as well as in years beyond, we have launched a new wave of smart manufacturing building. The purpose of that is working with our customer, we do believe that in 2023 and beyond, there will be impending wave of wafer supply coming. In case the market demands a much higher volume of wafer and silicon devices supply, ASE should be ready for that. With that, I would like to pass to Joseph. Joseph?
Joseph Tung: Thank you, Tien. Let me start with a bit of a recap of what we did on our China sites. In fact, we actually sold six major manufacturing sites in China, and the deal was closed in December – on December 16, 2021. The total value of these sites that we sold or the combined enterprise value was about US$1.46 billion. And as Ken mentioned earlier on, after adding the cash balance and deducting the existing liabilities or debts that we have, the total consideration was US$1.33 billion. Now the disposed sites accounted for about 7.6% of our overall ATM revenues in 2021 and about 4.5% of our consolidated revenues in 2021 as well. EPS wise, it generated about below TWD0.80 in 2021. And the purpose of doing this transaction is really to better realign our resources and to focus on the investments in our mega sites, which is mainly SPIL Suzhou to continue to address the China opportunity. In fact, in this year, we're expecting very high growth in our Suzhou sites, SPIL Suzhou site, and as a result of revenue coming from expanded customer base mostly the Chinese customers in the region. And this transaction does provide us with more cash resource for our continuing organic expansion as well as we seize the opportunities, we will make further strategic investments to enhance our overall market position. Now with that, let me give you a bit of a first quarter outlook. Based on the current business outlook and exchange rate assumptions, management projects overall performance for the first quarter of 2022 to be a very strong quarter to start with and with the details as follows. Now on a pro forma basis, in U.S. dollar terms, our ATM first quarter 2022 business will slightly be impacted around 4% because of the lower working days in the quarter and also the SiP seasonality. That really implies that the – aside from the SiP business, our overall ATM business continue to be running at full loading and the momentum is continuing throughout the year. On a pro forma basis, our ATM first quarter 2022 gross margin should be slightly higher than our second quarter 2021 gross margin. The margin will be slightly – will be a bit lower than the fourth quarter, largely because of the – first of all, of course, the lower revenue, but more so on the increase of labor cost and also depreciation as we continue to plan for the support our overall business going forward. In the terms of EMS, first quarter business level should be similar with the quarterly average of full year 2021, which follows a normal seasonality pattern. In terms of operating margin, it should be close to the average of second and third quarter 2021 operating margin as we continue to run our EMS business following the seasonality pattern. Now a bit of a comment on the – okay, and this is the guidance on the first quarter, and we will now open the floor for questions. Thank you.
Operator: If you have any question, please raise your hand. We have a question from Randy Abrams of Credit Suisse. Randy?
Randy Abrams: Okay. Yes, sorry. Okay. I'm unmuted. Yes. I wanted to ask the first question on the new view that you have further out, so extending the period of tightness in the industry beyond 2023. We have seen more CapEx announcements from the supply side. So I'm curious on your commentary, what drove the change? And then how much it's reflection of what you're seeing supply, if that's a commentary on the front end, the foundry, the back end or substrate or if it's a commentary on demand side, a different confidence on the demand driver?
Tien Yu Wu: The comment that I made was referring to a holistic supply chain line balance. What we're seeing today is the foundries are making major investment. The IDMs are making the front-end investment. The OSAT industry, equipment industry, the substrate industry, lead frame epoxy, everyone has increased the CapEx. But judging on the fact that the equipment delivery are still slow comparing to historical norm. And that typically is the first indicator that we're not back to normal yet. The second indicator is among out of the whips, sometimes we're waiting for aged-wafer, sometimes we're waiting for 12-inch wafer for different technology nodes. And sometimes, we're waiting for substrates of different technologies, sometimes we're waiting for lead frames. So we do not see a holistic squareness of all of the material equipment, capacity balance versus the overall demand. Now in 2021 time frame, we were calculating we believe in 2023, sometime in 2023, we should see the squareness of that. But based on the last year, as was out of the conversation with our supplier and customers, now we believe that line balance on the holistic view will be beyond 2023. For example, some of the technology substrates, we are confident that the demand will be oversupplied for a much longer than 2023, just as an example.
Randy Abrams: Okay. Great. That's helpful. And the other question on the IDM. And you mentioned about the CapEx that we're seeing the investment and a few – I mean, TI was one that talked about raising the ratio. And I thought all the time they had mainly focused on outsourcing that. But they're mentioning the ratio. A few other IDMs are talking about actually adding capacity as well to back end. So I'm curious your comments for IDM, are they seeing that as a fix over the next year as they try to put in capacity? Are you seeing a different trend that's multiyear for behavior of IDM because some of their tone on calls sound like they want to also do more just for self-sufficiency, add some more capacity on the back end?
Tien Yu Wu: I'll try to be more careful in making this comment, because you're asking a very sensitive question, right? Now based on our discussion as was news release, in general, the U.S.-based IDM, they will declare they would reduce their outsourcing. But let's put that comment in a separate category. Let's focus on everybody else. In all other geography, no one comments on increasing the internal or everyone agree in public a specific milestone to talk about increasing outsourcing ratio. What that is telling us is as the foundry and the OSAT world is gaining technology positioning, I won't even use the word leadership, but you can make that judgment yourself. The economic scale and in the last two years, the foundry world has clearly demonstrate a flexibility and agility that the IDM cannot match. Otherwise, we will not have the automotive issues until today. So if you judge on all of the facts and you fast forward, you look at the total dollar amount of CapEx of old company, IDM included, what is the percentage they want to put in into the design, service as was front-end, what is the percentage they want to allocate to the back end, it is not difficult to go figure out because the competition is multidimensional. You do a parametric study in the OSAT world with the scale, with the fundability, agility and flexibility and the supply chain or the class green fact and the economic benefit. How do you judge upon the outsourcing ratio? Now the U.S. based, we do understand politically and also incentive wise, there are reasons. But at the end of the world, this world is competing –semiconductor industry is competing on efficiency, right? So that's why we have a solid trend, socket complexity that we're leveraging the foundry world of technology. And we're trying to position ASE as well as our partner and our customer. And I think the outsourcing ratio are absolutely is increasing, I mean, you can use the same argument. Go back to 25 or 30 years ago, how this outsourcing started. And today, in the outsourcing world, much stronger, much more flexible and even politically, it makes a whole lot more sense. So I think the outsourcing ratio per se, it will increase. But geographically, where do you do the manufacturing, how do you manage the logistic route, that can be discussed, right? I mean it's a long answer, but I have to answer this carefully, because it's very politically sensitive. But I feel obligated to give you my best perspective, explaining the difference between the declaration or the sentiment and the reality.
Randy Abrams: Okay. No, and I appreciate that. And I feel on their comments, they're mentioning back-end there's an efficiency to the clusters in Asia. A question on the CapEx, if you could give a sense now also with the growth outlook and confidence, the view relative to – I think last year, it was about US$2 billion equipment CapEx. How you're seeing that? And then it sounds like the mix, its terms and test with bonder decent but coming down from last year.
Tien Yu Wu: Well, this year, the CapEx dollar amount will be either equal or more than US$2 billion. And we will have a different mix, maybe more towards the testing, maybe more towards the advanced technology, but we have to wait for how the year has evolved. And then we just move the dynamically. But the comment that I was making is, in addition to the equipment CapEx, we're spending more on the building and the smart factory, and the infrastructure of CapEx. And that number we normally don't report it. Now the reason why we're doing that is, it shows our aspiration as our customers' collective confidence they really would like us to get ready. In case 2023, the market demand doesn't come down and there's a surge of wafer and the line balance is better, you will have a lot of back end demand. And then the question is now who will have the most readiness, flexibility and also the willingness to support that surge.
Randy Abrams: Okay. And the last one, it's a couple of kind of housekeeping, but a few metrics. One is the wirebond and tester. If you could – how many actually sold with the venture because it did drop, so trying to see how many you added or sold. And then a couple of others I was curious. Since you gave us the 2022 for SiP and auto, if you could give the base for 2021? And then the other housekeeping, because of the onetime gain how do you see the payout because you have that sale in terms of the dividend?
Tien Yu Wu: Let me comment on a few question. Then I'll pass the floor to Joseph for the payout. The automotive in 2021, the base was US$700 million.
Joseph Tung: ATM.
Tien Yu Wu: ATM. Sorry, ATM. Now, the wirebonder, roughly, I think we add 4,000 wirebonder in 2021.
Joseph Tung: No, I will give you the….
Tien Yu Wu: Sorry. Joseph, why don’t you talk about it?
Joseph Tung: Yes. At the end of fourth quarter, our total wirebond account was about US$25,800. And that number is actually reduced from third quarter, given the fact that we sold the four factory of the China sites. And the number of boundaries that we saw is about – total, it's over 4,000 units, 4,221 to be exact. And in terms of testers, our total comp at the end of fourth quarter is 4,890 testers in the quarter. Along with the sale of the sites the testers that we sold out is about 1,522 units of testers that we sold out.
Randy Abrams: Okay. And then the last one was the – or last two, the SiP. I think US$500 million, if you have with SiP other customers was and then also your view on the payout, just factoring the big onetime gain?
Joseph Tung: I'm sorry.
Tien Yu Wu: The SiP revenue will break the US$500 million in 2022 overall.
Randy Abrams: Okay. And what was that in 2021?
Tien Yu Wu: In 2021, I think the revenue from new customers was about US$330 – US$240 million.
Joseph Tung: And the payout?
Tien Yu Wu: In terms of the dividend payout, we do not plan to have a special dividend payout. I think for this year, the dividend will continue to be paid out from the earnings that we made for the year from operation. And the payout ratio will remain at about 60% to 65%.
Randy Abrams: Okay. And that includes the gain, like you'll pay out a proportion even on the additional amount for the sales?
Tien Yu Wu: No. That does not include the special gain that we got through the transaction, taking out from the operational earnings that we made.
Randy Abrams: Thanks a lot and congratulations.
Tien Yu Wu: Thank you.
Operator: If you have questions to ask, please keep two questions at a time. Our next question is from Gokul Hariharan of JPMorgan.
Gokul Hariharan: Hi, good afternoon and congrats on the good results. A couple of questions from my side, I think, obviously, second half 2020 and 2021, we have seen some degree of price adjustment especially in the older technologies like wirebonding, but also in some of the advanced packaging. If we think about the roughly 10% to 20% pro forma growth that you're guiding for, could we talk a little bit about how much of that is roughly units? How much of that is roughly pricing? Are we expecting any further adjustments in price or we think pricing is basically going to be largely settled and kind of stable from here on?
Tien Yu Wu: Well, I think it's very, very difficult to break it out like even in volume growth as well as say, price increases. I think the so-called pricing adjustment is really across – to a very different – many different ways of adjusting our pricing, including some from expediting fees, some from discontinuing discounts, the longer-term agreements and so on and so forth. There are many ways of dealing with the pricing issue. I think the bulk of the growth will still come from revenue, from the volume increase that we have and also the different product mix that we generated in the year. But in terms of overall pricing environment, I think 2022 will continue to be what we call the pricing friendly year for us. And at this point, we're seeing very, very stable pricing. And what we meant by friendly pricing is really a environment that can – a pricing environment that can help us better protect and/or improve our return.
Gokul Hariharan: Understood. Thank you. So if we look at CapEx, now I think we're expecting US$2 billion or more CapEx in 2022 higher than where we were maybe middle of last year, given the increased confidence in the market. We have seen that some of your Chinese peers are starting to invest even further, especially for their outside China capacity by like 40% to 50% increase in CapEx. And how do we think about competitive competition with some of these China companies, especially their competition in advanced packaging? Are we starting to see more kind of more kind of competition for future bids? Obviously, currently, things are clearly tight. Around a year back, Dr. Yu, you had mentioned that some of the China capacity or China market-related demand is starting to become a little bit more segregated and you're kind of not really competing in the same markets. Is that still the case? Or are we starting to see that there is still some linkage between what we are seeing in China OSAT because some of those companies are also seeing some utilization in….
Tien Yu Wu: I think this is natural for our China competitor under the support of the industrial market as well as the government to build up capacity, because the mid-term or even the short-term projected is to recreate a self-sufficient ecosystem in China per se. So many of the equipment as well as the capacity build up in China, they're mainly target at the internal consumption in China. I commented on the parallel universe. I think we're seeing the beginning of that. For example, our long range forecast from customers are primarily comes from the non-China based. The technology requirement is different. The end market, the system is different. Of course, there are overlaps into the China, the consumer market, but there are a lot of market that we have no access to. And therefore, we're not privileged to understand some of the long range capacity requirement. We are monitoring the situation closely. For example, we do understand some of our OSAT competitor continue to order some equipment. Basically, we do have a total the bird's eye view on where the equipments are going. However, at this point in time, we don't believe the China competitor based on technology as was access to the design of our key customer, we don't believe that the competition is anywhere near, right? But we are mindful of that. But so far, we think we do have a clear leadership and also a clear firewall between – not just on ASE, but ASE customer base versus the China base.
Gokul Hariharan: Got it. Maybe one last question from my side, when you talk about undersupply or supply demand not coming into balance into probably 2023 and beyond, what is your underlying industry growth expectation through this period, given I think in 2022 itself, we are expecting to see the logic semi growth normalizing back to the 5% to 10% kind of growth rate compared to like the 20% plus growth or 15%, 20% growth that we saw last year?
Tien Yu Wu: I mean we're the last person to be able to tell you what the overall semiconductor can do. I mean we don't know any better. We always use 5% to 10% like everybody else. And I think there is a demand. The cold is still very much in place, and we are seeing the continuation of 5G migration. And the PC number, they went up and it did not have the kind of phenomenal growth. However, it's not coming down. And if you want to order any auto today, your waiting time is six to nine months. So we clearly know at the channel inventory system manufacturers, we do not have enough components to ship what the consumer wants, and that's a fact. It doesn't matter how we project the macro economy and all of the potentials. But in the market, we know we're not shipping enough components. We're managing the squareness of the line balance. But today, the fact is we are short of wafer, we're short of substrate. We're short of lead frame. For different customer, we're short of different things. Under a very complex logistics and the line balance maneuver, I think all of us are constrained, how do we grow our business and satisfy the end customer demand to the best of our capability. Along the way, you will have the expedite fee, you have a commoditized surcharge, you have all kinds of things, and that's why it's adding to the pricing increase. So overall, we think 2022, we need to struggle for another year. And the things are getting better. However, we're not seeing a line balance by far. I know we don't believe in 2023 you will see that line balance. Of course, the end market, if there's any black swan or any kind of major impact that we won't be able to see. But based on all of our customers, the short-term and loan range forecast, the design, pipeline and we look at the end market, the electric vehicle, IoT and smart manufacturing demand, we're quite optimistic, which is why Joseph and myself were giving all of you a solid, confident 2022 outlook. And we're trying to extend that a little bit beyond 2023. And we're building additional footprint in smart factory just in case 2023 and 2024, 29 new fabs, wafers are coming out. And if they need a back-end partner, at least, we have been inspired in the last few years to make investment, just to get ready for the next wave.
Gokul Hariharan: Fair enough thank you.
Joseph Tung: I think, if I may comment. I think from a higher level perspective, a more linear kind of a growth pattern actually help us in terms of managing our overall business. It gives a better planning. And also during the last year, I think the whole industry is scrambling and there's a lot of – lot of that that needs to break through and makes planning – overall planning a very difficult task. I think this more linear type of a growth is – does help the industry as a whole, and it certainly helps in outsourcing as well.
Gokul Hariharan: Understood. Thank you very much. Thank you.
Ken Hsiang: Our next question is from Mr. Bruce Lu . Bruce, please go ahead.
Bruce Lu: Can you hear me?
Ken Hsiang: Yes.
Bruce Lu: Okay. Great. Thank you for taking my question and congrats for the great result. I think one thing management mentioned that strong growth in 2022. I just wanted to double check, is it like an apple-to-apple comparison or even you exclude your divestment in China and you still can generate like 2x of the semi growth? But the question I'm trying to ask here, another one is that you suggest that your testing business grows and is substantially higher than your wirebonding growth. Is that for the company-specific issue? Or is that for the market share issue? Or do you really see testing dollar content per devices has gone up?
Tien Yu Wu: Well, let me comment on the testing business. The testing business have two components to it. The first one is we would like to do turnkey. And as the packaging becomes more complex, the testing naturally becomes proportionately more complex. In that scenario, it makes more sense for ASE to handle the packaging and the testing from design, qualification all the way to manufacturing and ramp up. Now under that understanding, strategically, ASE is increasing our appetite and aspiration to improve our testing business percentage. So I think I pretty much covered your question, right. That's that. Now in terms of the overall growth pro forma versus the China side, I will let Joseph answer that.
Joseph Tung: Yes. I think the growth that we're mentioning is really an apple-to-apple comparison, which means that we are based on the – for last year's numbers, we're based on the pro forma numbers that we are giving, which excludes the China sites that we sold out.
Bruce Lu: So Joseph Tung, so to follow up that, we should expect a stronger growth for the final test versus wafer test, and we should see the testing business growth will be faster than the overall ATM business growth even for the coming years. Is that the right assumption?
Joseph Tung: All right. I'm not going to get into the final test or wafers are, how do we do the breakdown? The overall testing business will grow at a faster than the corporate average, yes.
Bruce Lu: On the – even for the following years?
Joseph Tung: Correct.
Bruce Lu: That's right. That's great. The second thing is that I think there are several counter traditional wisdom thing at this moment. Maybe Tien, you can help us to understand it, right? We do see that end demand fluctuation, right? Some of the end demand is not as good as expected. And we do see some EMS overall inventory is going up. We also see your competitor was citing for wafer bank increase. However, we do not see the meaningful orders cut in the foundry side. We do see ATM – at least your ATM business is still doing very, very good. So where is the discrepancy? And is that more of the company specific, like ATM is – ASE is getting some market share? Or at the end of the day, the fundamental demand is still very strong and – help us to understand the discrepancy.
Tien Yu Wu: Okay. Well, I think you're talking about a short-term disconnect because in the marketplace, for example, you might see one area specifically, they're complaining about inventory also the order drop. And you have some supplier, to talk about specifically, they're seeing slowdown in particular area. But at the same time, you have different company serving a different segment. And then they will use the idle capacity from some of the idle sector and then the – will support the higher growth. So I think that's the nature of the outsourcing industry. Now one of the key things that we have is we have 400 customers. Some customer are growing very, very fast and some of the customer are growing in step function like the 50%, 100% a year. So how do you support this kind of customer and you have that fungible capacity. So in the foundry world, there's some fungibility. In the assembly world, the fungibility is quite good. And therefore, we're writing between the foundry and the materials. So our job is to make sure we will support the high growth rate in that particular time frame to the best of what we can do. We do see some of our customer are having slow down, and they're going through inventory adjustment. But this is the kind of thing that we do for the last 30 years. A localized slowdown and seasonality for different customer and different sector is on rotational basis is very normal and very healthy. As a matter of fact, industry needs that break. If you look at 2020, the second half of 2021, we've been running straight line going nuts. So I think it's very healthy for the industry to go through some localized the adjustment and that's what we're seeing. And we're giving you a solid outlook because the overall forecast is very strong. I would not comment into which company, which sector, but overall, we have to manage the logistics, the line balance and the fungibility between all requirements. And I think the ASE has clearly demonstrated over the last few years that we're very good at that. And this is particularly appealing to IDMs, automotive as well as some of the very high growth like high-performance computing. They really would like to have the flexibility.
Joseph Tung: I think the overall industry is – will continue to grow because of the increasing IC contents as well as IC applications. And so I think the overall market will continue to grow. And ASE businesses in particular, I think we are very confident that we are gaining market share, and we are taking the lion's share of the increasing IDM outsourcing. And with all the volume growth and all the industry trends that working to our favor, I think our growth is – we're going to see a very healthy growth pattern in the foreseeable future for us.
Tien Yu Wu: And just one additional comment here I feel obliged to explain is the new product design cycle takes two to three years. So for example, if we're not pre-positioning for capacity and technology ahead of the curve, the designing will not occur. But once you have the technology and the infrastructure, the early stage then the design start coming in. They start developing the volume. I think we're all very used to it. So we are sitting in 2022. If we believe 2023 and 2024 there's going to be a recession, if we're going to say if we believe that, you probably announced that we're not investing CapEx, we're not building infrastructure. Then your customer will have concern, what is your aspiration? And what is your view and appetite for much longer term. So what helped us quickly is ask yourself the question, in the next five to 10 years how do you see some semiconductor going up in total content or going down in total content. Everyone that I talked to believes in the next decade, semiconductor will provide more efficiency to the world. So it is going up. But if you see that, then you ask yourself just, well, how about in the next five years, and people move beyond the impending wave of semiconductor of the wafer in 2023, they believe that next five years is still good. If you believe in that, then the infrastructure investment, the capacity investment to us makes perfect business sense. Then you start asking what is your service agreement, pricing, margin. How do you do granularity with each one of your customer and then that's what the management do. You do long-term, midterm-term as well as quarter-to-quarter report. So I think there's a lot of disconnect between the mid- to very, very short-term. But that's why when we talk about our view and our customers' view, sometimes are distinct – different from the analyzed view – the analysts view. So I'm just trying to offer you my perspective on the disconnect. I don't think there's a disconnect, but I think the timing difference between how – when we talk about things, we don't talk about a quarter. We talk about three years design cycle, sector growth, content growth, electrical vehicle, autonomous driving, what kind of infrastructure do you need to have in place. So in five to 10 years' time, we can start pluck, part all of the design with you, expect the efficiency and the ASP for the kind of volume that the world needs. So I think the Taiwan and the ASE as a member of the cluster, we understand that obligation. That's why we're building technology and economic scale and all of the smart factory, the light-out factory, we're developing all this just to receive the next five, 10 years of different waves the – of semiconductor.
Bruce Lu: Thank you. I think that this comment is actually pretty big between the investors and what industry we're seeing. So I think thanks again for the explanation. And then one last quick question from me is that we do see a increasing new customers, new revenue contribution from the SiP business. Do we expect a better, much better profitability moving forward given that the newer customer or newer projects?
Tien Yu Wu: I'll give you the direction. The direction is yes, with a diversified portfolio and then the assuring of IP technology and equipment set. I mean that was the whole idea of building a strong base of SiP and then offer that library and the expertise to other customer. I mean, that's the whole idea of foundry and the outsourcing. And so the answer is yes.
Bruce Lu: Thank you. I will go back to the queue.
Operator: Thank you. Next question is from Roland Shu of Citigroup.
Roland Shu: Hi, good morning. Hi, Tien, I know you don't want to talk about for this quarterly view, but I still have a problem, a question on this first quarter IC ATM guidance. So look at your IC ATM revenue guidance, you guided the first quarter to decline by 4% quarter-on-quarter. However, if you look at in your – of the foundries have been reported, they all guide first quarter revenue to up sequentially. And also some of your key customers also reported sequential up at first quarter. So for your IC ATM revenue to – declined by 4% in first quarter. Again, is there any disconnection putting your IC ATM revenue with foundry or your key customers in your first quarter guidance? Thanks.
Tien Yu Wu: By the way, there is no disconnect. We have two parameters to think about it. First of all, there is a time lapse, right? They are typically between the six weeks' time. There is a time lapse between wafer to assembly. Therefore, okay, that will explain some of it. Now the second comment which Joseph already made it. Our assembly and test continue to run at a full run rate. Now we have like two fewer days, so that's like two percentage sum. And then the – you do have seasonality between one of our largest customer on the SiP shipment. So when you look at revenue, they're reporting the – whatever they have. They're selling for inventory or they're reporting the revenue of the last quarter. So our key customer revenue versus our shipment to them, you're off by one or 1.5 quarter. Foundry to assembly, you're maybe typically off by like a quarter. I'm not sure that explain it, but that's what we see.
Roland Shu: Yes. I agree. But the foundry and your customers also have two fewer base working days in first quarter. So is there any business from you have been kept by or constrained by the component shortage in first quarter?
Tien Yu Wu: I will not comment on the – why the foundry is growing. And yes, we have component shortage that we already talk about it. We have a variety of line balance issue, which I will not comment here more on that.
Roland Shu: Okay. Thanks. And my second question is, yes, since Tien, you are on this call. So can you give us more colors on your progress for your 5G millimeter wafer smart factory and also light-out factory? And how did they contribute to your profitability or efficiencies improvement last year? And what's the target for this year?
Tien Yu Wu: Right. Last year, we talked about our target was to build 27 light-out factory. And we're happy to report that we have to build 25 and two of the factory was delayed because we couldn't get the equipment in time. Well, anyway, this year we will have a new target for 37. So we continue to add 10 light-out factories per year, all right. Maybe accelerating over time based on the customer volume, how do we aggregate the volume into smart factories. In terms of the overall efficiency, I think you can see that from overall operating margin improvement. And that to us continue to serve two purposes. First is efficiency that goes to the margin. What is more important is I talk about the ramp of the SiP and also automotive. Our automotive customer per se, they are extremely delighted to have light-out factory where you document our data's of every single process station, every single process. And then it demonstrate the unparalleled quality as well as traceability. I actually talked about this a few years ago. I'm not sure the – we all remember that. One of the key things going forward is in the heterogeneous integration world, things will become more complicated. The liability will become bigger. You really have to have much better granularity as well as traceability and without the light-out factory of every single process, you will not be able to demonstrate that. We have demonstrated a 100% automated factory versus a 90% automated factory. They are different in nature. A lot of people couldn't comprehend that. But when you talk to the automotive guys, you will understand. So in the heterogenous integration going forward, as the micro system become more smaller, more difficult, more complex, and then the material sect become more intrinsically involved. And I think the light-out factory will add – will play a great role in our engagement with our key customer in the complex design arena.
Roland Shu: Okay. Thanks. Just a follow-up for the operating margin; so last year you have the target to grow operating margin by 2.5% to 3% last year, and you end up have better 3.6% improvement last year. So how about this year? Do you have any operating margin improvement target for this year?
Joseph Tung: We don't have exactly a target per se, but we'll – what I can say is we will continue to see margin improvement both on the sequential only basis as well as on an annual basis. We'll continue to see our margin both at the growth and the operating margin level to improve for the year.
Roland Shu: Okay. Okay. Thank you.
Operator: Thank you. Our next question is from Rick Hsu of Daiwa Security.
Rick Hsu: Hi. Can you guys hear me?
Operator: Yes.
Rick Hsu: Okay. Yes, just one quick housekeeping question from me. Maybe to Joseph, what's your utilization rate across the board on your wirebond, testing and freight ship for Q4 last year and in this year, Q1 this year? Thank you.
Joseph Tung: Q4, our overall assembly utilization rate is for 85% and test above 80%. I think it's going to be very similar in Q1 as well. Packaging will be 80% to 85%, and test will continue to be above 80%.
Rick Hsu: Okay. Just one quick follow-up. When you say about 4% impact to your ATM – IC ATM sales in Q1 this year that also has taken to account of the capacity loss because of your China disposal, right? So it's not really a apple-to-apple comparison, right?
Joseph Tung: I don't quite get your question. I'm sorry, can you repeat that?
Rick Hsu: Okay. Because your ATM revenue in Q4 last year, that was still – yes, that was still including the China operation, but starting from Q1 this year.
Joseph Tung: When we say reduced by 4%, it's really apple-to-apple is that quarter four, we excluded the China operation.
Rick Hsu: I see. Alright. Thank you so much.
Joseph Tung: Thank you.
Operator: Next question from Szeho of China Rennaisance. Szeho?
Szeho Ng: Hello. Hello. Yes, good afternoon, gentlemen. Two questions from me. The first one, you mentioned that you are seeing more IDM outsourcing this year. Is it fair to assume that IDMs nowadays are turning more receptive to turnkey outsourcing to us? Yes, because in the past then tends to only outsource the assembly part?
Tien Yu Wu: When I talk about IDM outsourcing, I mainly comment based on the fact from the last two years. As you know, automotive is the most difficult one to outsource simply because the automotive manufacturers and Tier 1, and they're not flexible at all. But we all know this. Now in the last two years, because of the supply chain disconnect, people are more accepting alternative route, different the material set, different the suppliers and different qualification standard. So I think the COVID-19 has done great for the outsourcing industry is it broke that constraint. As a result of that, if the automotive end customers and the Tier 1 are directly connecting to the outsourcing industry. The IDM becomes one of the acceptable alternative as well as the outsourcing industry. So by that standard, it is good long-term that the assembly and test will increase the outsourcing ratio from the IDMs. When you talk of fabulous, it's meaningless because the fabulous has been outsourcing all of it. But IDM, we're seeing a clear trend not only in the automotive, you actually have the same issue even with the computing. And so we are seeing the outsourcing acceleration. Of course, I'm not addressing the location of the manufacturer, which is a totally separate the rationale, not purely based on economics.
Szeho Ng: The second question is on chiplet. Do you think OSAT or ASE in specific will play a meaningful role in the chiplet market? And if that's the case, in what areas and when we should see the contribution to us?
Tien Yu Wu: Well, I do see the – in the future, ASE will continue to play a important role in the outsourcing market, whichever segment. I think you talked about the chiplet.
Szeho Ng: Right.
Tien Yu Wu: I mean the chiplet that without naming the – there are only a handful of customers are dealing with the chiplet architecture. And I believe all of them have more willingness to do outsourcing. And then the question is the – for the back end of the chiplet, should I go to foundry or should I go to the OSAT, but if you have that view and in my – I would advise you to have a bigger longer-term view.
Szeho Ng: This is why I'm asking your opinion.
Tien Yu Wu: Yes. Outsourcing is one trend, that's binary. Once you outsourced, how do you partition the outsourced volume as a totally separate question. I think having the binary from zero to one is a whole lot more meaningful than how do you partition the one afterwards. And afterwards, we have to look at technology and the overall presence, logistics, business model, whether round is more meaningful or square is more meaningful. And then you get into an argumental – the arena, which I'm not ready to discuss online. But I believe outsourcing per se is very meaningful. And once the customer outsourced, that becomes a competition who can ramp-up faster, who can manage the cost better, who will have better service and the less constrained. I mean, the outsourcing we've been doing this for 40 years. We understand how it works. Yes.
Szeho Ng: Yes. Last question maybe prior to closing, can you kind of cross sell letdown between assembly and test this year? A rough number would do.
Tien Yu Wu: I think the number – Joseph, yes, why don't you...
Joseph Tung: Yes. This year, I think we will start increase our investment in tests. So from a very rough sketch, I think this year, we're looking at around 50% of the CapEx – equipment CapEx will be assembly, about 30% in tests. And at EMS, we're also because of the new projects that we're taking up, I think the percentage will increase to about 15% and the rest to material.
Szeho Ng: Alright. Great. Thank you very much. And happy Chinese New Year.
Operator: We have one last question, online question from Mr. Charlie Chan of Morgan Stanley. I'm going to read it for the management. Any observation for the chip inventory trend in the supply chain? Will company's ATM utilization stay's high through the year? How about the pricing and gross margin trend? Thanks.
Joseph Tung: As we mentioned, I think – yes, we're still expecting a very strong year this year. I think the loading will be kept at a very high level. And in terms of pricing it's still a very pricing-friendly year for us. And as I mentioned earlier on, in terms of our margin, we are expecting a sequential margin improvement on quarterly basis. And for the whole year, I think there will be further improvement in terms of both our growth and operating margin comparing to last year.
Tien Yu Wu: Well, in terms of the chip inventory, we have seen some reports from some customers, but not all of the report. We think the chip inventory is low overall. Of course, the chip inventory can be high in a very highly localized application sector, right? That's all we want to share. Thank you.
Operator: There is no more questions. Thank you, everyone for joining us this quarter. See you next quarter. Thank you.
