Earnings Call: Q3 2018

Oct 30, 2018

Summary

Q3 pro forma revenue rose 17% QoQ, with seasonal ATM and EMS strength lifting gross profit, while net income remained flat YoY. Q4 guidance was mixed: ATM softer, EMS growth moderating, and margins broadly stable.

Hello, I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holding. Welcome to our third quarter 2018 earnings release. All participants consent to having their voices and questions broadcast via participation of this event. Please refer to page 2 of our presentation, which contains our safe harbor notice. I would like to remind everyone on this call 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 from these forward-looking statements. For the purposes of this presentation, dollar figures are generally stated in New Taiwan dollars, unless otherwise indicated. For today's event, I will be going over the financial results. Afterwards, we will have a Q&A session with Joseph Tung, our CFO. Following the event, our VP in charge of Public Relations, Eddie Chang, will be available to address the media in Mandarin Chinese. I would like to remind everyone that because ASE Holding was jointly formed on April 30th, during the middle of our second quarter, ASE Holding's second quarter results include a full quarter of ASE and a stub 2-month period of SPIL. Specifically for April, only 33% of SPIL's net income was recorded in non-operating investment income. But for May and June, the consolidated results of SPIL are included. We have included this set of results and labeled them as legal entity basis. During the third quarter, even though we came in slightly under where we thought we would be, we still saw record revenues in our ATM business. The business picked up in its usual pattern, with the July and August revenue run rate stepping up from our second quarter pace. However, our September revenue run rate seems to have leveled off before when we would have expected. When looking at our results from a total quarter perspective, some of our business related to cryptocurrency and communications didn't achieve our forecasted targets. This order timing discrepancy resulted in a small misalignment of product and the capacity and labor put into place to support such product. As such, our planned optimization of certain lines were not fully achieved during the third quarter. However, most high-end packaging and testing capacities were still running relatively tight. So it may be contrary to some sentiments at this time, but things are not doom and gloom, just as they are not back to the brim. Our EMS business performed generally as we expected. We went through our typical third quarter ramp-up. During the quarter, we did note that things appeared a bit more dynamic than normal, with some product timing changes from multiple customers. However, with the way of modern supply chains, these dynamics are part of the norm. With that, let's start the financial overview. On page 3 and 4, you'll find our legal entity results for the holding company and our ATM business unit. For the legal entity, we recorded fully diluted EPS of TWD 1.43 and basic EPS of TWD 1.47. Sales were TWD 107.6 billion, with a gross profit of TWD 18.4 billion, and gross margin of 17.1%. Operating profit was TWD 8.4 billion. It is worth repeating here that ASE Holding's second quarter results only include 33% of SPIL's results recorded in non-operating investment income during the month of April, and the consolidated results of SPIL during May and June. For lack of comparability reasons, there is not a lot of productive commentary we can add to the legal entity basis results on these two pages. Please feel free to go through them at your leisure. If you should have any specific questions regarding the legal entity results, you may address them to us during the Q&A or contact us thereafter. Let's move to page 5. Here we have our pro forma P&L for the consolidated holding company. To generate the historical pro forma periods, we added the historical P&Ls of each of the two entities on a retroactive basis. We added PPA and interest expenses related to the transaction, as if those expenses existed in such periods. We also removed relevant transaction fees and expenses. Further, for the second quarter specifically, we excluded the revaluation gain of TWD 7.6 billion. Aside from these, we made no further adjustments to the pro forma. On a small housekeeping point, we have included in our presentation an appendix at the end of your packet, which contains our quarterly pro forma P&L results from 2017 to present. These results are presented without commentary. On a pro forma basis for the third quarter, we had net revenues of TWD 107.6 billion. This represents a 17% increase quarter-over-quarter and a 12% increase year-over-year. Gross profits were up 25% quarter-over-quarter. The sequential gross profit improvement was driven by stronger business in both our ATM and EMS business units. While on a year-over-year basis, consolidated gross profit increased 5%, driven primarily by our EMS business. Gross profit margin improved 1 percentage point on a quarter-over-quarter basis to 17.1%. This was driven by improved seasonal loading from our ATM and EMS businesses and the corresponding economies of scale boosts. Gross profit margin declined year-over-year by 1.1 percentage points, principally as a result of higher EMS revenue mix and slightly lower ATM gross profit margins. Operating expenses were TWD 10 billion, up TWD 1 billion sequentially. However, because of the higher revenue base, our operating expense percentage was down 0.6 percentage points to 9.3% from 9.9%. Operating profit improved TWD 2.7 billion quarter-over-quarter and was flat year-over-year at TWD 8.4 billion. Sequentially, operating margin improved 1.6 percentage points, driven by increased loading in the seasonally up period, offset by higher operating expenses. On a year-over-year basis, operating margin declined 0.9 percentage points, driven by increased operating expenses in our ATM and EMS businesses and higher EMS product mix. Non-operating expenses were TWD 0.3 billion, which includes net interest expense of TWD 1 billion. Tax expense for the quarter was TWD 1.6 billion on a pro forma basis. Net income for the third quarter was TWD 6.3 billion, representing an improvement of TWD 2.8 billion from the previous quarter. On a year-over-year basis, net income was roughly flat with 2017 levels at TWD 6.3 billion. On the bottom of the page, we have again provided here key P&L items without the inclusion of PPA. Consolidated gross profit, excluding PPA expenses, would be TWD 19.6 billion, with a 18.2% gross margin. Operating profit would be TWD 9.8 billion, with an operating margin of 9.1%. Net profit would be TWD 7.7 billion, with net margin of 7.2%. EPS, excluding PPA expenses, would be TWD 1.81. On page 6 is our ATM pro forma P&L. For the third quarter, revenues for our ATM business were TWD 66.3 billion, up TWD 4.8 billion from the previous quarter and up TWD 2.5 billion from the same period last year. This represents a 7% increase from a quarter-over-quarter perspective and a 4% increase from a year-over-year perspective. Gross profits within ATM were up 20%, or TWD 2.4 billion quarter over quarter, and 1%, or TWD 0.3 billion year over year, to TWD 14.3 billion. Gross margin for ATM was up 2.3 percentage points quarterly due to weaker NT dollar currency and scale efficiencies achieved. Gross margin for ATM was down 0.6 percentage points on a year-over-year perspective, primarily from product mix and softer-than-expected order flow and the resulting capacity misalignment. During the quarter, operating expenses were TWD 7.6 billion, up TWD 0.6 billion from the second quarter, primarily due to higher expenses related to organizational changes. As we complete these changes, we expect for these expenses to persist into but end in the fourth quarter. During the third quarter, operating income was TWD 6.7 billion, representing an increase of TWD 1.8 billion, or 37% quarter over quarter, while operating income declined TWD 0.3 billion, or 4% year over year. On a quarter-over-quarter basis, operating margin improved 2.2 percentage points from 7.9% to 10.1%, driven entirely by gross margin drop through offset by higher OpEx percentage. While on a year-over-year basis, operating margin declined 0.9 percentage points year over year, principally as a result of lower gross margin and the organizational restructuring costs recorded in operating expenses. Net income improved 79%, or TWD 2.5 billion, to TWD 66.3 billion on a quarter-over-quarter basis, while on a year-over-year basis, net income was flattish at TWD 6.3 billion. Net margin finished the quarter at 9.4%, which is up 4.4 percentage points quarter over quarter and down 0.5 percentage points versus last year. Without the P&L impact of PPA depreciation and amortization, ATM gross profit would have been 23.3%, and operating profit would have hit 12.3%. On page 7, you'll find graphical presentation of our pro forma ATM P&L. During the third quarter, our ATM revenue improved 7% sequentially and was down 4% year over year to TWD 66.3 billion. On page 8 is our ATM revenue by market segment. Sequentially for the third quarter, our market segment movements had our communications segment climbing 1 percentage point to 54%. Our computing segment declined 2 percentage points, led by cryptocurrency applications. Our automotive, consumer, and other segments increased 1 percentage point to 32%. These are not particularly significant changes. On page 9, you can see here that during the third quarter, wire bonding revenue declined 2 percentage points, offset by increases in testing, discrete, and others. We do expect our test business to continue to perform well as we make attempts to gain more market share. On page 10, you can see the results for our EMS business. During the third quarter, we had revenues of TWD 42 billion, representing an increase of TWD 11.5 billion, or 38% sequentially, and an increase of TWD 8.9 billion, or 27% year over year. This was driven by our consumer product segment, which usually initiates its seasonal ramp at this time. Sequentially, our gross profit improved 45%, or TWD 1.3 billion to TWD 4.2 billion. Compared with the previous year, gross profit improved 22%. Gross profit margin for the EMS business unit came in at 9.9%, representing a 0.5 percentage point increase from the previous quarter. Compared with the previous year, EMS gross margin declined 0.4 percentage points as a result of generational device differences. Operating profit for the quarter was TWD 1.7 billion, which is a TWD 0.9 billion improvement sequentially, and TWD 0.3 billion improvement year-over-year. Our operating margin came in at 4.1%, which is a 1.4 percentage point improvement sequentially, and a 0.2 percentage point decline year-over-year. The operating margin decline is principally the result of higher operating expenses. On page 11, you will note that our product segment mix within our EMS business. Our consumer product segment grouping is performing well and has grown 11 percentage points sequentially. Outside of our automotive segment, all product segments grew in absolute dollar terms. The percentage share declines in this quarter are more representative of the strength of our consumer product segment. We currently expect continued consumer strength into the fourth quarter. On page 12, you will find key line items from our balance sheet. At the end of the quarter, we had cash and cash equivalents and current financial assets of TWD 63.1 billion. Our interest-bearing debt decreased from TWD 216.6 billion to TWD 208.2 billion. Total unused credit lines amounted to TWD 165.1 billion. Our EBITDA for the quarter was TWD 21.6 billion. I believe many people did not notice that in our press release starting the previous quarter, we have started to include our summary statement cash flows. I believe the information will become increasingly important given the impact of PPA on our results. On page 13, you will find our pro forma capital expenditures. On a pro forma basis, machinery and equipment capital expenditures for the third quarter totaled 290 million US dollars, of which 128 million US dollars were used in packaging, 130 million in testing, 21 million in EMS operations, and 2 million in interconnect material operations, and others. We still expect our 2018 capital expenditures to be below total holding company level depreciation and amortization. We believe that capital expenditures held below depreciation and amortization to be representative of an overall modest growth environment. Depreciation and amortization, including PPA adjustments, is currently running slightly below 1.5 billion US dollars per year. The overall geopolitical climate is on everyone's mind, but ironically, the more we think about it as a general impact, the less clear it becomes. Even though there is plenty of chatter about changes in order timing, whether it's pull-in or push-out, what's fundamentally clear is that there is a lack of consistent supply chain strategy across all of our customers. If you think about it, this makes sense. In the face of potential tariffs, do electronic producers move their supply chains quickly, slowly, or not at all? Well, the answer is that it depends upon each of our customers' products' competitive position, the end market it competes in, and the sensitivity to cost shifts. What that means is that every customer, there can exist seemingly contradictory strategies for any one product. That effectively means there will be no consistency in response. In the U.S.-China trade war, our ATM business, with the majority of our factory output in Taiwan, looks to be only minorly impacted. We could potentially see benefits from potential outflows of products dropping out from China production. From a short-term perspective, our EMS business looks to see limited impact given that we offer multiple production line options, either in or out of China. The equity market's recent unease has pointed to an overall sign of uncertainty. Whether it's interest rates or trade imbalances, uncertainties throw financial markets into a tailspin. I point this out not to make light of the jitteriness of the markets. I point this out to say that in what we do, change and unknowing is the norm. Adaptability gets you in the game, and certainty is actually an illusion. Even though our engineering and advanced processes provide the most consistent output and yield, why our customers come to us is that we are able to provide unprecedented flexibility in the face of momentous uncertainty. With our outlook, we don't see anything that would indicate the environment is dramatically out of the norm. Things, of course, are dynamic. Given that, we will continue to monitor the overall situation and stay vigilant. On a pro forma basis, and in U.S. dollar terms, ATM fourth quarter 2018 business should be similar with the second quarter 2018. ATM fourth quarter 2018 gross margin should be similar to third quarter 2018 levels. For EMS, in U.S. dollar terms, the EMS fourth quarter 2018 business sequential growth rate should be slightly lower than the third quarter's sequential growth rate. EMS fourth quarter 2018 operating margin should be similar to the third quarter 2018 levels. Q&A. Now for online participants, please press 01 on your telephone keypad to ask question. To cancel your question, please press 02. Thank you. Name and company, sir. Thank you, Dwight. It's Randy Abrams, Credit Suisse. The first question, just wanted to go through the guidance you just gave. It looks like the gross margin is seeing better leverage, holding up relative to third quarter, but your sales you're guiding back down to second quarter levels, which I think implies like mid to high single digit decline. Could you talk about on sales, what's driving that, what you're seeing across end markets for that sales decline, and then what's holding up the gross margin at third quarter levels? Just a quick correction on that. The revenue at the time referred is down roughly 4%. All right. There should be some deviation from that. I think the margin will pretty much be fairly similar to what has achieved in the third quarter. I think basically the result came from a little bit more favorable change of product mix going into the quarter. As for the EMS business, I think the margin, also because of the product mix change, at the gross level, it will come down a bit, but at the operating level, it should stay the same. For the EMS business, could you talk about or give an update on the SiP business, both from a contribution, and if you could talk about diversification, how much is kind of coming from your core projects and maybe the pipeline for diversifying outside your traditional customer? Well, as we mentioned last time, we are currently engaging in multiple projects in SiP, but most of the additional projects are at the ATM level, where EMS is remaining to have the core projects still going on. But the momentum of such project is actually getting stronger than previously. How is the momentum outside your traditional customer? Well, it's basically on track, and as Ian mentioned last time, I think we're looking at over $100 million range. Can you talk also about the memory strategy? I think for SPIL, maybe you could confirm what's in the press. Looks like there's originally a stake with SPIL and Tsinghua, and now with Jinhua. So you could talk about those equity stakes, just the strategy behind that, and what the opportunity is, and I guess now with the risk with the U.S., it looks like they're putting an export ban on Jinhua. I think the Tsinghua investment in our facilities in China is mostly as a step for us to somewhat localizing our operations in the region. It's not so much aimed for the memory business that has virtually come up from Jinhua's factory going forward. As well as for the Xiamen project that SPIL is engaged in, I think I should say, from the start, it's never intended to be a captive site for the Tsinghua. The setup is more toward serving the potential customers in the South China region. And right now, the project is going on track. We put in roughly $100 million-$110 million investment into the project here. But more than 80% of it is really spent for the construction of the factory. There's very, very minimum amount invested into machinery at this point. I think it has sufficient flexibility to move to something else if the progress in Jinhua factory is not as planned. So the impact on us is really very, very minimum. Just one final question, a two-part on the CapEx. With a bit of slowdown in uncertain environments, if you could give an initial view how you are looking at CapEx going into 2019. In the EMS business where you have more of the capacity in China, how flexible are your tools? Would you need to spend toward tariffs if you had to ship production out of China for EMS? Do you have flexibility in terms of that capacity and that tools, or would you need to spend additional CapEx to ramp at another facility? Well, we certainly have the sufficient flexibility in looking at the overall situation. In terms of the EMS, we do have multiple sites in different locations. We are actually seeing maybe a handful of customers looking to move some of the orders outside of China, and we certainly have the capacity or the flexibility to entertain that. In fact, we are beefing up the Mexico factory, also Taiwan factory. We are setting up a new footprint in Eastern Europe. We are still on track with the JV that we are supposed to set up in Brazil. Things moving along, and we are capable of entertaining whatever requests from our customers. Do you have an initial view on CapEx for 2019? Well, I think it is a little bit early to give you a number. I think the overall target remains to be below the D&A that we will have for the year. Thank you. Yeah. Hi, Joseph. This is Rick Hsu from Daiwa Securities. Ken, could you put back your Q4 guidance? Because my handwriting is slow. I missed the last part of the EMS part. Can I move it again? Thank you so much. Right. My first question, again, this is a housekeeping question. Could you run through your Q3 utilization rates among your three major categories, wire bond, testing, and bumping? And what is your outlook for Q4 in terms of capacity add and utilizing rates? Utilization rate? I think Q3 for both wire bonding as well as advanced packaging, the utilization is over 80%. In fourth quarter, we are expecting around 80% level. In terms of test, it is above 70%, and that should remain relatively the same in fourth quarter for test. All right. Thank you so much. That is clear. The next question is, could you talk about your customers' inventory level? I think we are not in real good position to comment on inventory level, but from our forecast, I think the order backlog situation, the operation is still going at a normal level. The one last question is about your EMS business in Q4. It looks the scale keeps expanding, but your OPM is going to be similar to Q3, and your GM will be, I don't know, maybe a little bit lower. Could you elaborate a little bit more about this mix? Well, as I said, there's going to be a similar, a little bit lower growth rate in fourth quarter in terms of our EMS business. But the bulk of the increase is really coming from a higher material content business, and therefore, the overall gross profit margin could come down a bit. But with the operating leverage that we have, I think at the operating level, the margin, we can keep the same margin at the operating level. Thank you so much. Yeah. Hi. Bill Lu from UBS. Thanks for taking the question. Follow-up to Rick's question. If you look at EMS, and specifically the consumer products, ramping up quite nicely. I think in the past you've talked about margin getting better with volume. Can you give us an update on that? Can you repeat the question again? Yeah. The consumer EMS product that is ramping up quite nicely, in the past, you've talked about margin getting better when volume starts ramping. Can you give us an update on where margin is right now and the outlook? You mean the product-specific margin or the overall EMS margin? I guess I'm talking about, you've got this one big product in SiP, right? Consumer-related SiP. Yeah. I think the SiP itself, the margin is improving. But as a whole, if you count the EMS business as a whole, the SiP business does represent a higher material content business. Therefore, the more we do in SiP, that will put some pressure on the overall EMS margin. But like I said, the operating leverage itself will carry the operating margin at the same level. Thank you. I guess I am wondering, if volume continues to ramp, where does margin go for that SiP system? If volume still ramps even higher in the next couple of quarters, where should we expect margin to go? For EMS? Just for that particular product. We're not disclosing particular product margins. Secondly, Ken talked about the test gaining market share. Can you talk a little bit more about where those shares will be coming from in terms of applications? It's part of the strategic initiatives that we're focused on. We believe that there is lower hanging fruit out at test for us to go and get. Lastly, on the trade tension, the geopolitical risk that Ken talked about, it seems like a lot of the concerns are on auto and industrial. Can you talk about what you're seeing from those customers? I always think that we are not just serving any particular customer in any particular region. I think we are serving the whole world. I think it doesn't really matter where the product is being built. We still provide the same services. I mean, short-term wise, there is going to be fluctuations because of a lot of the uncertainties ahead of the industry itself. But in the longer term, I think the business remains intact. We just have to make the necessary adjustments along the way when the customer request changes, and we certainly have the flexibility to respond to that. Our exposure to automotive tends to be fairly small, so I don't want to project that onto the rest of the industry. Hi, good afternoon, Joseph and Hsiang. This is Roland Shu from Citigroup. You just mentioned how for your die bank level in 3Q, it is a normal level. Did you mention that? How does that compare with three months ago? I don't think there is any real differences between during these three months. I think the situation looks to be pretty much as expected, and we are not seeing anything abnormal. Okay. Thank you. For TSMC, I think now it is just projecting very strong growth for 7 nanometer, and the market actually very positive comment on that. How many or what percentage of this 7-nanometer wafer production are using conventional FCBGA or FCCSP packaging? How many products are you engaging with so far? Well, I wouldn't know. I think whatever the customer gives us, asks us to do, we will do it. For this 7-nanometer revenue contribution, will it be a significant part for your revenue growth next year? Roland, we don't necessarily focus on the nanometers in terms of what comes to us. Our focus is more upon the die pads and the die pad density on the die, right? It could be 14, it could be 28. There are associations and trends in terms of what you use or type of packaging you use, but it doesn't necessarily mean that like a 7-nanometer package. I mean, you could feasibly do wire bond on a 7-nanometer die. Yeah, understood. Yeah, but I said, for this 7-nanometer growth part, I think what is the business you are seeing grow from there? I think TSMC looks at things probably slightly differently than how we do it. But I do not believe that we really look at 7 nanometer. I think 7 nanometer to them is not as unit driven, right? We are much more unit driven. Okay. So next year for your IC ATM, will this advance or leading-edge technology be a big growth driver for your IC ATM next year? I think are you referring to fan-out? Specific? Hang on, it's our next question. Yeah, just specifically for this, maybe 10 nanometer, 7 nanometer, or 16. Well, it depends on how you define advanced packaging. I think for us, bumping, flip chip, wafer-level CSP, those are the so-called advanced, and it represents about 30-some percent of our overall ATM revenue. In terms of panel, I think it's still, right now, it's still small. I think for the 300 millimeter, we're getting into mass production starting from now, actually, in fourth quarter, we're moving into mass production. But for this year, I think the percentage of total revenue is still going to be quite low in the year. I think the real meaningful number, we should start to see some meaningful numbers starting from first half next year. That will be coming from 300 millimeter? Panel. Yeah, panel. Is it a 300 millimeter wafer type or panel type? Wafer. How about the panel type? I think that will be late 2019 or even early 2020. That also starts from the 300 millimeter size, 300 millimeter size. I mean, for your panel. No, I think the 300 millimeter is really wafers, and then we go to 600 and above panel. Okay. Yeah. Thank you. Hi, Joseph. Hi, Ken. Charlie Chan from Morgan Stanley. I actually want to follow up a few questions on your SiP margin improvement. First of all, why this time around your margin can improve for the SiP project? Is that because of a better yield or higher volume? My question, essentially, I want to get a sense, whether this part of margin can keep improve in the coming quarters over years? Well, I think it's not a linear type of pattern in terms of margin goes with volume. It really depends on the characteristics and the structure of the product itself. I think the margin improvement that we mentioned before is a result of overall streamlining the overall operation. It's not just because one particular product volume goes up and then the margins start to improve. It really depends on how you streamline the overall operation, how do you lay the production line, how do you bring the yields up, and also then how do you structure the deal, the business terms, and so on and so forth. There's a lot of different factors involved, and it took us roughly over a year for us to streamline the overall situation, and then it becomes a profitable business for us. I can't tell you when volume goes up and then margin will improve how much. It doesn't really work that way. Generation to generation, products' characteristics may be very, very different. With the previous generation, the material content could be lower and be higher in the next generation. It really depends on how you structure the overall business to decide what kind of margin you will be getting. And so for the current margin level, are you kind of happy with the current margin? I mean, how would you describe the entry barrier of this business? Is that possible you can potentially kind of a higher price for this project going forward? Well, how do I characterize the margin now? Yeah, so I mean, from surface, right, this business looks like a good business to have, right? But it continues to dilute your corporate margins. Right? So from CFO perspective, are you happy with the current margin? I think that is still associated to your kind of competitive edge of the entry barrier of this project. Do you have any competition for this project? From a CFO's perspective, I am never happy with any margin that we are getting. When you look at different businesses, you really need to look at the potential of it and also the return that it is getting. I think as far as the return for SiP business, it is as good as any other business that we are currently doing now. Okay. Thanks. Also on this EMS business overall, right? Long term, do you expect this business to outgrow the ATM business? Outgrow by what? What do you mean by outgrowing? Let's say ATM to grow at 10% and EMS maybe grow more than 10% bigger in coming years. Well, that is certainly possible, but it really depends on what kind of business you are getting and whether you get the business or not. Is there any kind of a more kind of a particular trends, for example, customers wants more modularization or you think you can really differentiate your EMS business with other industry players? Well, I guess what I can say is we are seeing the so-called SiP business, regardless if it is in the EMS arena or is it more ATM-related kind of SiP projects. Hope I pronounced it right, it is SiP project, not sick project. I think the overall, we are seeing the momentum being built, being built up. Like I said, it is really actually starting from this year that we are starting to have meaningful multiple customers and multiple projects. Also in different applications and functionality, different types of SiP projects that are going through the pipeline. We are seeing the momentum continuing into next year with we are actually engaging in more different projects now. So, we still firmly believe that SiP is really going to be the next big driver, growth driver for us, and we believe the trend is moving to our favor. I think in terms of technology, we need to continue to put more investment into our technology offering to grab that business opportunity. Thank you. Thank you. Sebastian from CL Securities. My first question is to ask about the fourth quarter IC ATM guidance. Ken just clarified that it is down like 4% quarter-on-quarter, but if we compare to the past few years, average seasonality in 4Q, it is about flat, sometimes up a little bit, sometimes down a little bit. But I think the down 4% quarter-on-quarter has been very low end of the 4Q seasonality in the past five to eight years. Can you illustrate more, elaborate more details about what is driving this weaker than seasonal 4Q? I think this year, the peak came a bit earlier than previous years. I think the overall fourth quarter forecast looks a little bit soft compared to previous years. I think that is a result of the overall uncertainties ahead of us. I think there is a lot of things going on at the same time in this world economy, and therefore, I think the overall pace is kind of slowing down a little bit, and that is what we are seeing from our customer at this point. But I do not think this is something that is structurally different. I think the market or the industry goes up and down with different pace. This is something that we are seeing and we just have to respond to it. Thank you. With the fourth quarter guidance, then we roughly get the full year ATM business compared to last year if we use a pro forma basis, probably about up like 1%-2% year-over-year. Correct me if I calculate it wrong because of the currency difference. But I think that certainly is less than 3% year-over-year growth. Because I think, if I remember correctly, that would be another year for ASE, the IC ATM business to grow less than the overall semiconductor industry growth. Would this be the norm going forward? Or is there any chance that for ASE, the pace of growth, business growth to accelerate to reach the average semiconductor growth or even above the semiconductor growth again? I think our overall position is getting stronger, although there is some hurdles for us to cross. I think the integration that we need to go through, we are still having some hurdles in front of us, including the restrictive conditions put on us by MOFCOM. But going forward, I think the overall momentum will start to come back again. Having said that, I think one thing I want to point out is, it looks from the surface, it looks like if we are growing slower than the overall industry growth, then it may look like we are losing market share, which in my mind, I don't think that is really the case. It is really, we have to strike a balance between return and margin and business growth or revenue growth. There are business that either we can't afford to get into or specifically that there are money losing propositions. Those are the ones that we would not be interested in moving in. It is really a matter of choice, how do we want to grow our business and which areas we want to move in more aggressive or not. As an example, I think starting from this year, we are really putting more investment or efforts into our test business. We see better potential because of the higher turnkey ratio that are going through our factories. It really depends on how the market moves and how do we respond to it. I think the overall situation, we are the leader and we will remain to be the leader in the industry. There will be some earlier investment that we need to make to maintain our leadership position. That could create some capacity timing differences gap between revenue and investment. There are a lot of factors that are in play, and we just have to hopefully make the right choices at this point in time. Thank you. Thank you very much. Next question is on the trade war between U.S. and China. I am just wondering, given the tariff, are you seeing some customers that used to use the Chinese OSAT players and now or increasingly coming back to you because of the concern about that? That's really unclear. I think that could be the theory, but the customers certainly don't come and tell us that they're purposely moving their business from one place to another. There could be some business moving toward, or the theory says that should be the logical move. Different customers have different agendas or different perspectives in terms of running their own businesses, and we're just trying to be as flexible as possible. If there's more business coming in, we'll have to be able to take it in different locations and different sites. Last question from me is, I'd like to know more about your ASE Holding strategy in memory packaging. I think it's somewhat related to your strategy in China as well, because I see your collaboration with Fujian Jinhua and also earlier collaboration with the Tsinghua Unigroup. It seems to me that these strategic move action is more related to the memory development in China. I just want to ensure that I get it right, that the ASE Holding as a company will become more aggressive in the Chinese memory packaging opportunity. That means that the discrete memory packaging will become more serious, aggressive in the future. Is that right? I think as we mentioned earlier on, whatever we do in our different locations or the investment that we make, we're trying to capture whatever business opportunity there are for us to materialize. China memory is certainly one area that is worth our attention. That doesn't mean that we will be just putting all the resources in China solely for memory. I think whatever investment that we make, we have to make a balanced decision and looking at different scenarios so that we have the flexibility to make the required changes. Jinhua is one example. I mean, from day one, the investment was never meant to be a captive operation to serve Jinhua only. It's really aimed at serving the customers that are coming out of southern China. That could be logic, that could be memory. It really depends on how the market moves and what kind of progress China semiconductor industry is moving or is making. We will remain to be flexible, and whatever is required, we will have the capability or capacity to service that demand. That would be the strategy that we have. I don't think we're not saying that we're head-on mindset on China memory. It's whatever China opportunity provides, we will have the suitable capacity or investment made in that region. Thank you. Just one follow-up on that. I think remember earlier, Joseph, you talked about that you still have the flexibility in Fujian Jinhua, this collaboration, that you can also, you have the flexibility to do something else if Fujian Jinhua, their progress, is not on schedule or slower than expected. So in terms of the Sorry, dumb question, but just wondered, in terms of the equipment and the capacity that you plan for memory and plan for other, I believe, like analog or logic, would it be the same, or can you leverage the same equipment for memory than do logic? The testers could be different. But for packaging, more or less, they are fungible. But for Jinhua, in particular, I think we haven't really started the installation of equipment, and we certainly have the latitude to make any changes that we need to have in terms of both the equipment that we will eventually install or the timing of the installation. Thank you. Any more questions? Any questions online? We don't have any questions online, so last call. All right, thank you for attending. See you next quarter. Thank you.