Megan Faust : So with respect to ’22, specifically, there was about 75% of our capital was spent on machinery and equipment. As far as capacity expansion, it’s difficult to quantify how much of that expand when you think about the variety of products, et cetera and the diversified markets that they support. When we think about ’23, lowering that CapEx spend by $100 million, but the equipment portion of that has been lowered significantly more than the $100 million because we do have additional facilities expense that were — or capital for ’23. So just to give you a cut on that, we’re anticipating out of that $800 million about 45% of that is geared towards our facilities expansion. So that leaves quite a lower investment for machinery and equipment, given the market demand doesn’t require it.
Tom Diffely : Okay. But I guess just to confirm, the lower CapEx does not mean you’re slowing down your expansion into Vietnam.
Megan Faust : Correct. We are maintaining that. We see that as a midterm, long-term need given the advanced packaging growth that’s expected. So we are maintaining that investment on track.
Tom Diffely : Okay. And from some earlier comments, it sounds like that was mainly for the consumer market.
Giel Rutten: For Vietnam, Tom, you referred to?
Tom Diffely : Yes.
Giel Rutten: I mean, yes, we will launch with products for — mainly for the consumer market, but very quickly thereafter, we are introducing a broader product portfolio there. Memory products are the second generation and that will be introduced only one quarter after the launch with consumer SiP products.
Tom Diffely : Okay. Great. And Giel, just to confirm the statement you made earlier, you said that you expected the industry to be down mid-single digits, but then you expected Amkor to outperform that this year.
Giel Rutten: Yeah, that’s correct, Tom. I think we are well prepared to outperform the industry and to accelerate out of this downturn.
Tom Diffely : Great. And then maybe a quick question on the last couple of quarters. Obviously, spectacular record results, but curious how much of that was driven by the delays you had in China earlier in the year? And how much of it was reflective of true end market demand?
Giel Rutten: Let me make a first comment and then Megan can give more specific. I think we don’t believe that there was any revenue upside in the second half related to the China lockdown in the second quarter, Tom. So no corrections there. And so it was mainly driven also by business in the communication and automotive markets, so not out of a recovery of China.
Tom Diffely : Okay. And maybe just sticking on China right now, how much impact you’re having from just a soft environment in China today? And then at what point do you think you really benefit from the move from a lot of your customers to the regions around the world? Have you already seen a lot of that? Or is it still to come?
Giel Rutten: Well, Tom, let’s say, the transformation into more regional supply chains is a multiyear process. It’s a very gradual process like the previous transformation to a globalization of the supply chain was also a very slow process, but it started already. I think, definitely in some areas, specifically automotive, we see that transformation starting and that was part of the motivation for customers to move more volume into Japan and into Europe. So it has been started, and it starts step-by-step depending on the industries that our customers are active in. And of course, this goes with qualification, requalification of products, end customers need to buy in. But what we observe is that it’s ongoing, and it’s actually accelerating.
Tom Diffely : Okay. Great. And then just two final questions for Megan. When you look at the gross margin guidance for the first quarter, is that just overhead absorption with a lower revenue level? Or is there something else going on?
Megan Faust : Yeah, Tom. So the decline in Q1 and then the respective decline in gross margin is purely a utilization. We’ve given general guidelines that our incremental gross — profit flow-through is around 40% to 50%, and our guide is actually a little bit better than that. So really, that’s — it’s just the drop in utilization. There’s no other structural changes.
