Joseph Tung: I think the SiP business for this year, we could see a flattish or a little bit down for the whole year, given the fact that there are less products being introduced and there is the seasonality and we are seeing market conditions are a little bit different from previous years. But we are still quite actively engaging with customers and some of the products are going to be mass produced and some are in earlier stage, but we do feel that come next year, the growth in our SiP business will resume.
Operator: So next to ask questions Laura Chen of Citigroup.
Laura Chen: Hi, good afternoon. Thank you for taking my question. Just a quick follow-up on the gross margin. Just so you mentioned that for the structural gross margin target of 25% to 30% is achievable or not just for the second half but also for the full year, is that correct?
Joseph Tung: Yes. I think for the second half, we will sort of reach that level. And we are trying very hard and working very hard to – for the whole year. We’re working hard to reach that level as well. Bear in mind that that’s with the increase of our utility costs. The recent rate increase for us, it’s about 15% in electricity in Taiwan. And that will have roughly about 0.8% impact on us. So, that needs to be offset as well. So, it’s – even with that kind of increase in cost, we are still confident that in the second half, we will reach that. And we have – we are feeling, at this point, quite comfortable that for the whole year, we should be able to reach that as well.
Laura Chen: Thank you. May I understand that aside from the utilization rate improvement, do we also assuming that more mix change towards the advanced packaging or AI-related or increasing like testing revenue, which would lead to higher gross margin?
Joseph Tung: Yes, that’s correct. We believe the higher advanced packaging as well as our test business will definitely help our margin.
Laura Chen: Okay. Thank you. That’s very helpful.
Joseph Tung: Thank you.
Operator: The next to ask questions Jason Chen from CLSA.
Jason Chen: You preferably mentioned that it makes sense for ASE to enter the new AP business when it is mainstream enough to reach maybe mass production stage for ASE. So, is that the case that for leading-edge service that you talk about, how should we expect the volumes or contribution for this kind of advanced packagings or your new business? Thank you.
Joseph Tung: Are you talking about percentage of revenue?
Jason Chen: Yes, or can you give us more colors on maybe the contributions or your outlook in the future?
Joseph Tung: Well, look, last year, we have about low-single digit percentage of revenue coming from what we call the leading edge. And we are – as we pointed out last time, we expect to double that to mid-single digit. And as I pointed out that next year, we still continue to see strong momentum. And but in terms of exact percentage, we don’t have – I don’t have that number yet because we are expecting not only the advanced packaging will grow. The other so-called traditional advanced packaging or tests and all the other areas will grow as AI development continues to expand.
Jason Chen: Okay. Got it. So, my second question in terms of your outlook in second half this year. So, can we expect seasonality or how season for end demand to sustain our growth momentum for maybe traditional packaging or flagship or even mature testing or any kind of service or products in Q3 or Q4?
Joseph Tung: I think Q3, Q4 or second half, we will see all kinds of all products to start to grow. But I think leading edge would may be above the corporate average.
Operator: The next to ask questions Gokul Hariharan of JPMorgan.
Gokul Hariharan: Yes. Hi. Thanks for the follow-up opportunity. First one, I wanted to explore a little bit is the partnership with the leading foundry for the advanced packaging. Could you help us understand a little bit the nature of this agreement, the arrangement? Is that something that you have visibility into the long-term? And is it kind of like a strategic partnership that ASE has entered into, or is it something that doesn’t have that kind of visibility given they are also expanding their own in-house capacity as well? So, I just want to understand how this partnership works over the next, let’s say, 3 years, 4 years?
Joseph Tung: Well, obviously, we work very closely with the foundries, and we do have continuous dialogue with them and to set up an expansion plan for our capacity. But this is something that between us and the foundry, I don’t think it’s proper for us to discuss what exactly the arrangement will be.
Gokul Hariharan: Okay. But do you think it’s something that will continue to drive the growth for the next 3 years, 4 years?
Joseph Tung: We do have good visibility, but I don’t want to get into the detail for it.
Gokul Hariharan: Okay. No worries. Thanks. Thanks Joseph. A couple of quick follow-ups, one is on pricing. Any changes you are seeing on pricing? And for the electricity tariff increase, is there any chance you are able to pass through some of these cost increases to customers? And also secondly, on the traditional packaging side, utilization in the early ‘60s definitely seems quite low. Based on your current customer forecast, any view on when we get back to like 70%, 75%? Will it happen this year, or will have to wait for next year to kind of get back to 70%, 75% utilization? Thank you.
Joseph Tung: Well, I think going into the second half, we will start to see our utilization to grow. And I think it’s safe to say that we will be above 70% for the second half. And in terms of pricing, I think we feel – I think the pricing – overall pricing for us is still resilient and there are a bit of a price pressure on the legacy products. But overall, I think on average, I think our pricing still remains to be resilient. And I think overall pricing structure will be much better than the past cycles.
Gokul Hariharan: Okay. Any chance you can pass on some of this electricity tariff, because it seems like it’s not a 1-year thing, it’s actually happening every year now.
Joseph Tung: Yes. I think all costs are being considered. And when we further set up the proper pricing that we have. So, whether it’s 100% passed out or is shared with our customers, I think that we will just come up with the sort of pricing, considering all the costs that we need to bear.
Gokul Hariharan: Got it. Thanks Joseph. Thank you.
Joseph Tung: Thank you.
Operator: There are no more questions. I am sorry, there is a follow-up question from Jason Chen of CLSA.
Jason Chen: Yes. Sorry, I have follow-up questions. I wonder if you can provide more details on your comments regarding the leading-edge service. I mean, can you provide some of the type for cutting-edge packagings, like 2.5D or 3D or chip on wafer substrates? What kind of the type of advanced packaging or testing can you currently enter into the mass production stage, or have the contribution right now? Thank you.
Joseph Tung: We have Fan-Out. We have 2.5D. We have OS. I think those are our focus. Those are the ones, the type of packages we call leading edge.
Jason Chen: Okay. And all of them account for right now low-single digit of the ATM business, right?
Joseph Tung: Like I said, this year, we are expecting mid-single digit.
Jason Chen: Okay. Got it. Thank you.
Operator: There are no more questions.
Joseph Tung: Okay. To sum up, I think we had a better than expected first quarter. And going into second quarter, we are on track of things and for the whole year. We are also expecting same kind of outlook that we presented last time. I think overall, this is all sectors are bottoming out, maybe with some different test sectors with different time pace or time schedule. But all-in-all, we are comfortable with the current situation, and we will continue to make the necessary investments to service whatever customer needs, including the leading edge and also on the test side, we are increasing our CapEx as well to try to win more test business. Thank you very much. We will see you next quarter.
