Gokul Hariharan: Hi, good afternoon. Thanks for taking my question. First of all, on the overall end demand outlook, Ken, you mentioned you’re not really changing your outlook, which I think was 6% to 10% growth for largely SanDisk. Could you talk within that, what are you seeing in different verticals. Last time I remember, Joseph talked about auto are potentially growing this year. Since then, we have seen some downward reductions in automotive demand. Is that still your view? And secondly, could you also comment about smartphone and communication demand given some of the concerns there. That’s my first question.
Joseph Tung: Yes. I think most of the sectors, we’re seeing bottoming out in the second quarter. But with automotive and maybe it’s industrial, still with some lingering softness. But I think overall, I think things might digest itself, and we’re not changing our view for the outlook for the whole year at this point.
Gokul Hariharan: So you still think Joseph that automotive will be growing this year for you?
Joseph Tung: Yes. We’re still gaining market share on the automotive. In fact, we are making quite a bit of progress in moving that part of the business up.
Gokul Hariharan: Understood. Okay. My second question is on your advanced packaging, the advanced packaging related to AI that Ken mentioned is tracking ahead of plans to double this year. Could you talk a little bit about some kind of longer-term view? Like how do you see this business evolve? Is it going to get to 15%, 20% of revenues in the next 3, 4 years? Your key partner TSMC also raised their expectations on AI-related growth. So, I just wanted to pick your brains on that. And also related to that, now that you’re doing some of the packaging for this lead GPU customer, do you stand the chance to start winning some test business also for them? I think previously, you didn’t have much testing, whether it is panel test or system-level test. Is there a chance that you could start winning some test business with them as well in the upcoming product migration?
Joseph Tung: Yes. I think we still see very, very good growth momentum in the AI-related or the leading-edge both to packaging and test. And we’re ahead of our schedule for this year, and we’re expecting continuous strong growth over next year as well. In terms of test, I think overall speaking, we are increasing our full year CapEx by another 10%. And the bulk of the increase is in test, and we are making further investments to win not only, to raise not only our turnkey ratio but also to penetrate more into the test only kind of business. And that, of course, includes the advanced testing.
Operator: The next to ask questions, Charlie Chan of Morgan Stanley.
Charlie Chan: Hi, Joseph, Ken. Good afternoon. So I have a few questions. First of all, it’s also related to your advanced packaging. May I know your progress in the AI GPU testing business opportunity, especially burning, there seems to be a very important process. Do you think the company will gain much market share this year?
Joseph Tung: We are investing in tests and that also includes burning. And we’re hopeful that we will be seeing some volume by the later part of the year.
Charlie Chan: Okay. Okay. Thanks, Joseph. And another one is more the end demand and the cycle recovery. So we continue to hear that China smartphone relative semiconductor seeing some forecast cut destocking. Does the company see a similar trend? And do you think these are kind of short lived or you think third quarter from a smartphone segment, you are also seeing very muted growth into the quarter?
Joseph Tung: No, I think overall, we are still looking at the whole market, and most of the sectors will be bottoming out, and we are seeing steady but kind of moderate growth in the cell phone area. And the strongest is still high-performance computing, but all the other areas, we’re seeing gradual recovery. And coming into second half, we will see a much more substantial growth momentum.
Operator: The next to ask question is Brad Lin of BofA.
Brad Lin: Thank you for taking my question. So I have two questions. One is on the advanced packaging. So, as we learn that, well, the outset including probably ASE prefers non-silicon-based interposer solution for this leading-edge advanced packaging. So, when or what time does the management see faster adoption in this type of solution and contribute to ASE? Thank you.
Joseph Tung: Well, we are in mass production at this point, and we are having a lot of engagement with some other customers as well. And I can’t predict the pace of it, but we certainly see a very good growth potential in this area as well.
Brad Lin: Got it. So for the strong growth that we just mentioned into 2025, currently, this is still based on the well silicon-based solution. Can I assume that?
Joseph Tung: Well, it can be both. I think with our own solution, we’ll see some pickup in next year as well as we go with the existing packaging.
Brad Lin: Got it. Thank you. And then my second question would be about the on-device AI. So, what will be the increasing well value addition from ASE in the on-device AI. And when do we think well, the growth to be meaningfully pick up in the future?
Joseph Tung: Yes. I think this year, we are ahead of the schedule in doubling that part of the business. Although next year, we still see very strong momentum going on. And we are – not just from the business from the foundry, but also, we’re having engagement with multiple customers, including design houses, system houses. So, I think there is a momentum building at this point, and we do have fairly good confidence in growing that part of the business quite substantially in next year as well.
Operator: The next to ask questions, Randy Abrams of UBS.
Randy Abrams: Hi, thank you. I wanted to ask a follow-up on your CapEx, the 10% higher CapEx. So could you go through – is some of that also tied to advanced packaging. I think you mentioned the test. And could you remind us you’re now – because equipment CapEx was still fairly low in the first quarter, would the CapEx guidance full year now for the equipment or for overall? And a follow-up you is with the optimism into next year, are we starting another CapEx cycle like we’re at a low base, but do you think directionally, there could be a good increase with you owning more AI opportunities to go after?
Joseph Tung: Yes. I think for this year, we are upping our CapEx by another 10%. We mentioned last time that this year will be 40% to 50% growth in our CapEx, and we’re upping that. I think in terms of overall CapEx, roughly 61% for packaging and 24% for tests. And for test portion of it, the percentage has increased from last quarter as well, we were budgeting about 18% now to 24%. So, we are making quite a bit of investment or expanding quite a bit of our investment in test CapEx, aiming to leverage on our turnkey services as well as trying to get more of the test only business as well. So, I think in terms of the overall CapEx roughly, I would say 50% of it will be for advanced and the other half of it will be for the maintenance and also some of the upgrades.
Randy Abrams: Okay. Great and thanks for the color, Joseph. I’ll ask a quick follow-up on that and then the second question. For the test, could you clarify, is that application more HPC, like high-performance compute driven? And then the second question I wanted to ask on – it looks like a few things happening on margins. So, on the gross margin, could you talk about the mix change, which you’re getting some product mix change, both ATM and sounds like EMS as well. And on the OpEx side, with some more of this investment in R&D, the view for OpEx, I guess I should say OpEx growth, how much do you think the OpEx has to grow?
Joseph Tung: Well, I think testing CapEx is both for the HPC as well as other applications. And as I mentioned, we do have a lot of opportunities in reaching our overall turnkey ratio, and that includes all products. And of course, in terms of the more advanced or AI-related tests, we are also investing into that area, and we expect to have some – making some inroads in that area as well. What’s the other part of the – okay – our gross profit margin, I think the improvement is, of course, coming from revenue increase as well as our more favorable product mix as we go into – as we grow our more leading-edge packaging and test. In terms of operating expenses, I think the increase mostly coming from our beefed-up R&D investments.
And we’re staffing up in R&D, putting more resources into more advanced packaging and test. And of course, we are in the process of expanding our overseas sites as well. So there will be some more additional investment put into it. And also, in terms of compensation, we’ve granted our new round of employee stock options. So, we will be including that part of the expense increase as well for this year. All in all, I think for the whole year, operating expense percentage will have about 1% increase from last year or less than 1%.
Operator: The next to ask questions Rick Hsu of Daiwa Securities.
Rick Hsu: Can you guys hear me?
Joseph Tung: Yes.
Rick Hsu: Okay. Hi, thank you for taking my question. So the first question is a housekeeping one, can you share with us your utilization rates across ATM for the coming second quarter?
Joseph Tung: We have about slightly below 60% in quarter one and quarter two with the revenue growth, we’re seeing the overall utilization rate could be slightly above 60%.
Rick Hsu: Alright. The second question also about your second half. I remember last quarter, Joseph, you said your ATM gross margin will go back to your structural target, which is a mid-20% to 30%. Is that still viable for your second half this year?
Joseph Tung: Yes. I think from the forecast we have, we’re still pretty confident that we will be reaching structural margin in the second half of the year. And I think we have a fairly good chance that for the whole year, we’ll be – we can also reach that level.
Operator: [Operator Instructions] The next to ask questions, Bruce of Goldman Sachs.
Bruce Lu: Thank you for taking my question. I want to ask about your U.S. expansion plan. The advanced packaging business, a major chunk of it is coming from the foundry outsourcing part. On the other hand, you probably the most important also in partner for TSMC. But as TSMC mentioned during the call, that they are very happy to see Amcor is going to have another advanced packaging facility in U.S., which ASE doesn’t really have a sizable facility there. Do you have any plan to do that? Do you see any change in terms of landscape? How you do the business with TSMC in the future?
Joseph Tung: We’re not precluding any possibility, but then any investment that we make needs to make economic sense. And right now, we’re not sure that a greenfield operation setup in the U.S. fits into that category. So, we are monitoring the situation at this point. And I think bulk of the advanced packaging or tests can still be serviced out of Taiwan and our other locations as well.
Bruce Lu: So even with government subsidy, you still don’t think that’s a profitable business or a good returns business?
Joseph Tung: No, I don’t think it’s wise to make any commercial decision based on subsidy.
Bruce Lu: I would tell Amcor that.
Joseph Tung: I think they know that, too.
Bruce Lu: Okay. The next question is for the SiP business. I mean what do we see that SiP business growth in this year and the coming years? I mean it has been built for quite some time already. When can we see another course momentum for the SiP business?
