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.
Operator: Now we would like to open the floor for questions. [Operator Instructions] We have a question from Mr. Gokul Hariharan of J.P. Morgan.
Gokul Hariharan: 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.
Joseph Tung: 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.
Gokul Hariharan: 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?
Joseph Tung: 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.
Operator: Our next question is from Ms. Laura Chen of Citigroup.
Laura Chen: Hi, thank you. Can you hear me?
Operator: Yes.
Laura Chen: 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.
Joseph Tung: 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.
