ASE Technology Holding Co Ltd
TWSE:3711
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
125
193.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches TWD.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
ASE Technology Holding Co Ltd
You don't have any saved screeners yet
Hello. I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our first quarter 2019 earnings release. All participants consent to having their voices and questions broadcast via participation of this event, please refer to 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.
For the purposes of this presentation, our dollar figures are generally stated in New Taiwan dollars, unless otherwise indicated. Like most Taiwan-based companies, our financials are presented in accordance with the Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from other accounting standards.
For today's event, I will be going over the financial results, then 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.
As a reminder, because ASE Holdings was jointly formed on April 30, 2018, during the second quarter, as a legal entity, our SPIL subsidiaries results are consolidated only as of that date going forward. Results for the legal entity are labeled legal entity basis in this presentation. For the sake of comparability, we have also included results which are compared against a pro forma set of results as if SPIL was a subsidiary and consolidated as of the beginning of 2017. This set of results is labeled as pro forma basis.
Given that the transaction was completed during the second quarter, the legal entity and pro forma basis will have the same sequential comparisons between the first and fourth quarters. However, the pro forma numbers are still relevant for the quarterly year-over-year comparisons.
From our point of view, the business is going through a period of lackluster demand for some products and ramping unprecedented demand for others. Some of our customers are cautiously managing inventories, while some of our other customers don't appear to have inventory concerns at all. We even have customers who are continuing to ramp their capacity requirements while into the second half of the year. I mention this because, even though our seasonal revenue drop was somewhat stronger than normal, there are still some highlights that were not part of a broad-based softness.
Recently, we have been frequently asked by -- asked to comment on how much semiconductor inventory digestion has already occurred? And I would like to remind everyone that we do not have meaningful visibility of our customers' inventory levels. From our perspective, once the wafer comes out from fab, it proceeds to get packaged as quickly as possible to minimize wafer oxidization.
As such, we cannot make any thorough determination as to whether anything we build is for inventory accumulation or for immediate sell-through. Thus, through the small peephole we have visibility over -- for just a fairly short moment of our customer's manufacturing cycle. From that short moment, we can say, nothing appears particularly abnormal at this time. However, from a wider macro perspective, we do see signs that global politics are impacting regional consumer preferences. These preference shifts do appear to benefit some of our customers while being detrimental to some others.
For our ATM business, the first quarter results were somewhat sluggish. Orders for this quarter came in on the lower side of where we expected them to be. Our ATM revenues were down 15%, which probably represent a slightly stronger than seasonal decline for the first quarter. Some orders were pushed into the second quarter because of customer supply chain issues. However, when taken together with the last half of 2018, our first quarter results are probably best characterized as business being softer than expected because of end demand.
For our EMS business, the first quarter came in behind our expectations. Our EMS revenues were down 31% sequentially. Softness within our Consumer and Communication segments were primarily responsible. We expect soft order volumes should persist following their seasonal trend, with orders being sluggish through the second quarter and eventually picking back up during the third quarter.
Let's start the financial overview. On Pages 3 and 4, you will find our legal entity quarterly results for the holding company and our ATM business unit. On a legal entity basis, the first quarter year-over-year results are not particularly comparable between 2019 and 2018, because of the inclusion of SPIL in 2019 or the lack of SPIL in 2018. I will generally discuss the sequential and year-over-year comparisons as part of the pro forma basis slides.
With that, let's briefly go over Page 3. For the legal entity recorded fully diluted EPS of $0.46, and basic EPS of $0.48. Sales were $88.9 billion, with a gross profit of $11.4 billion, and gross margin of 12.8%. Operating profit was $2.3 billion, and net income was $2 billion.
On Page 4, you'll find our legal entity results for our ATM business. Again, we will discuss this in the pro forma section a bit later.
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 ASE and SPIL on a retroactive basis. We then added PPA and interest expenses related to the transaction as if the transaction was completed as of the beginning of 2017. And lastly, we removed relevant transaction fees and expenses. Given that the fluctuations from the holding company are comprised of the ATM and EMS businesses, I will try to keep explanations here short and provide detailed explanations during each of the business unit pages.
For the first quarter, we had net revenues of $88.9 billion, representing a 22% decline quarter-over-quarter, a 6% increase year-over-year. The quarter-over-quarter decline is somewhat stronger than what we normally see relative to seasonality. This was driven primarily by a stronger than expected decline in our EMS revenue. The year-over-year increase is primarily the result of a higher revenue base within our EMS entity, despite stronger than seasonal weakness.
Gross profits were down 39% quarter-over-quarter, and 7% percent year-over-year. These quarterly declines in gross profit are the product of lower than seasonal loading as a result of inventory control among some of our customers across both ATM and EMS. Gross profit margin declined 3.6 percentage points on a quarter-over-quarter basis and 1.7 percentage points on a year-over-year basis. Both of these declines were primarily driven by higher EMS revenue mix.
Our operating expense percentage was up 1.3 percentage points to 10.2% from 8.9% in the fourth quarter, and up 0.5 percentage points on a year-over-year basis. We believe this to be the peak of our OpEx percentage for this year. From a total year perspective, we are looking to contain the OpEx percentage increase to within a 30 basis points increase.
Operating profit was $2.3 billion. This represents a seasonal decline of $6.3 billion quarter-over-quarter and $1.8 billion year-over-year. Sequentially, operating margin declined 4.9 percentage points, and was down 2.2 percentage points year-over-year. During the quarter, we had a net non-operating gain of $0.3 billion. This includes net interest expense of $1 billion. The gain was primarily from our financial instruments and foreign exchange hedging activities during the quarter, offset by net interest expenses.
Tax expense for the quarter was $0.4 billion, with an imputed tax rate of 15%. The imputed tax rate was low during the quarter due to high utilization of tax assets. For the second quarter, we expect to book a tax charge $0.3 billion related to our annual undistributed earnings tax. We expect the imputed tax rate for the year to be 21%, inclusive of the annual undistributed earnings tax.
Net income for the first quarter was $2 billion representing a decline of $3.4 billion from the previous quarter. On a year-over-year basis net income was up $1.3 billion from the same period in 2018, principally from lower non-operating costs and tax expenses.
On the bottom of the page, we have again provided here key P&L line items, without the inclusion of PPA related expenses. Consolidated gross profit, excluding PPA expenses, would be $12.6 billion with a 14.2% gross margin. Operating profit would be $3.8 billion with an operating margin of 4.2%. Net profit would be $3.5 billion with net margin of 3.9%. Basic EPS, excluding PPA expenses would be $0.82.
On Page 6 is our ATM pro forma P&L. For the first quarter, revenues for our ATM business were $54.4 billion, down $9.7 billion from the previous quarter and down $1.6 billion from the same period last year. This represents a 15% decrease sequentially and a 3% decrease year-over-year. Loading levels for our ATM business fell somewhat short of our expectations, principally from softer loading and customer supply chain issues.
Gross profits within ATM were down $5.5 billion quarter-over-quarter and $1.1 billion year-over-year to $8.4 billion. Lower gross profits were driven by lower seasonal loading and costs associated with ramping new products. Gross margin for ATM was down 6.3 percentage points sequentially and down 1.5 percentage points year-over-year. The sequential decline is primarily due to the lower seasonal loading and a higher raw material pass-through of product mix. The year-over-year drop in gross margin is primarily the result of softer than expected loading and new product ramps.
During the first quarter operating expenses were $6.9 billion, down $0.8 billion from the fourth quarter and up $0.6 billion from the same period last year. Year-over-year operating expenses were primarily up as a result of increased compensation expenses and ramping R&D expenses. And even though it may appear outwardly that we are just adding ongoing expenses, we believe the increased compensation expenses help us recruit and retain the individuals necessary to move the company forward to the next stage of evolution. Further, a portion of incremental R&D expenses spent are for projects meant to generate new streams of revenue by the latter part of this year and a significant portion of R&D expense is specifically for helping support the ramp-up of our new panel level fan-out technologies and processes.
OpEx percentage was 12.7%, up 0.8 percentage points sequentially and up 1.4 percentage points year-over-year. Sequentially speaking, the OpEx percentage increase was primarily the result of lower revenues. On a year-over-year basis, higher OpEx is due to higher R&D costs from new project ramp-ups and higher compensation expenses. We expect the first quarter to represent the peak operating expense percentage for the year. We expect the quarterly operating expense percentages to start trending downward going forward.
During the first quarter, operating income was $1.6 billion representing a decline of $4.8 billion quarter-over-quarter and $1.6 billion year-over-year. Without the impact of PPA related depreciation and amortization, ATM gross profit margin would have been 17.7% and an operating profit margin would have been 5.5%.
On Page 7 you will find the graphical presentation of our pro forma ATM P&L. Here, you can see the impact of the overall softer than expected growth environment, starting from the middle part of last year.
On Page 8 is our ATM revenue by market segment. As you can see here, there hasn't been any substantial change in mix or you can also interpret that the software environment has been fairly broad-based.
On Page 9, you can see here that during the first quarter, not much has changed from our fourth quarter. Test revenue fell off a bit as a result of it being on the tail end of her business cycle. So it will be the last to pick up.
On Page 10, you can see the results of our EMS business. During the first quarter we had revenues of $35 billion, representing a decline of $15.7 billion or 31% sequentially and an increase of $6.3 billion or 22% year-over-year. Our original expectations for the first quarter were based on higher run rates within a few of our Consumer and Communication business lines.
However, demand for our EMS services was trim during the quarter and revenues for the quarter came in short of our expectations. The year-over-year increase was driven by higher revenues from our Consumer Products segment.
Our EMS gross profit dropped to $2.9 billion, representing a decline of $1.7 billion sequentially and an increase of $0.2 billion year-over-year. Gross profit margin for the EMS business unit came in at 8.4%, representing a 0.7 percentage point decline from the previous quarter. This decline was driven by our product mix and slower than expected loading for the quarter. Compared with the previous year, EMS gross margin declined a percentage point. This difference was primarily the result of generational device differences in product mix.
Operating profit for the quarter was $0.7 billion which is a $1.4 billion decline sequentially and a $0.2 billion decline year-over-year. Operating profits declined as a result of the expanded scale, ramp up costs and higher bonus.
Our operating margin came in at 2.1%, which is a 2.2 percentage point decline sequentially and a 1.2 percentage point decline year-over-year. The operating margin was somewhat behind our expectations and was primarily the result of lower than expected loading of expanded operational scale.
On Page 11, you will see our products segment mix within our EMS business. Our Consumer Products segment declined 6 percentage points of segment share, subsequently while -- sequentially, while our Communication segment also declined by 3 percentage points. Our Automotive, Industrial and Computing segments picked up that share.
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 $70.4 billion. Our interest-bearing debt increased from $198.4 billion to $201.4 billion. Total unused credit lines amounted to $207.7 billion. Our EBITDA for the quarter was $16.5 billion.
On Page 13, you will find our pro forma equipment capital expenditures. Machine and equipment capital expenditures for the first quarter totaled $239 million of which $156 million were used in packaging operations, $72 million in testing operations $8 million in EMS operations and $3 million in interconnect material operations and others. We continue to expect our 2019 capital equipment spending related to capacity expansion of existing product lines to be low that of 2018 levels.
Going into the second quarter, we still see the overall environment as being somewhat unbalanced and a little bit volatile. There are certain pockets of strength as the industry gets its legs back underneath it. However, our customer mix seems to differ from the traditional customer mix at this time. If you wanted us to characterize the environment, we would say the overall competitive environment continues to be fierce.
In this fierce market, we believe we can continue to earn the vast majority of the OSAT sector's free cash flow. With that free cash flow we are paying off our debts, cleaning up our balance sheet and continuing to pay our dividend. The free cash flow generation also allows us to continue to develop operational advantages such as rolling out multiple lights-out factories and leveraging new technologies.
Of particular importance to us this quarter is that, we have just put in place one of the most advanced packaging lines ever with the ability to achieve on paralleled fan-out yields, while improving structural integrity and electrical performance of the device. And hopefully, we'll become a principal building block of the heterogeneous integration.
On the test front, we will continue to invest in our own capacity. During this year, we will be executing an aggressive test business strategy by leveraging our unparalleled assembly capacity to reach its corresponding downstream test business. We believe test business, sprinkled across Taiwan and other parts of the world can be precisely targeted with our turnkey solution. We believe such a campaign will allow us to gain market share against our competition.
Looking into the second quarter, we believe the worst is most likely behind us, and a moderate recovery is starting to happen. Our customers continue to give us consistently upbeat outlooks for the second half of 2019. And even though downward revisions are still common, the size of those revisions are becoming significantly smaller.
Given that trend is somewhat unusual -- given that trend is somewhat unusual this year, we don't have much of the position to say whether such outlooks are accurate, overstated or understated. We can rationalize them to the best extent we can and internally digest these expectations to generate our own outlook. With that said, we still see a strong seasonal uptick beginning in the latter part of the second quarter and sustaining through a latter half of the year. Things are still rather dynamic and we will remain prudently cautious in our approach.
So for our guidance, on a pro forma basis in an NT$ terms, ATM second quarter 2019 business should be similar to -- I got the old thing stuck back on here. So on a pro forma basis in NT$ terms, ATM's second quarter 2019 business should be similar to the quarterly average of the first half of 2018. On a pro forma basis, ATM business for the second quarter of 2019 gross margin should be similar to the first half of 2018. In U.S. dollar terms, EMS second quarter 2019 business should be similar to second quarter of 2018 levels. In U.S. dollar terms, EMS second quarter of 2019 operating profit should be similar to second quarter of 2018 levels.
We would -- we can start the Q&A.
First question -- it's from Randy Abrams, Credit Suisse. I wanted to ask, in the prepared remarks, can you talked about investing for new streams -- like new revenue streams in second half. Could you talk a bit more about those streams if it's more IC ATM or on the EMS side? And maybe a bit more on magnitude, if this is just more industry recovery or what...
So during the year, we're expecting to spend more R&D expenses on basically developing the fan-out process lines a little bit better. There are technologies that could basically help in terms of [ cup ] linearity of the fan-out, basically making things little bit smoother and also rolling out the panel level fan-out. So there is a lot of R&D that's -- so there is a lot of different projects and revenue streams that are coming to fruition, but we don't -- we generally don't see that level of a rollout.
If I could ask on the EMS, the -- I've been running the full math, but it looks like second quarter its roughly flat for the EMS division after growing quite nicely double-digits. And I know there has been weakness in some of that consumer application or smartphone. How is the view? If you could give an updated view on full year or expectation for growth as we look towards the second half and pipeline for new projects.
For EMS, I think in the second quarter, I think, the softness will persist into second quarter as well. So there was still a bit of a dip in terms of revenue which is seasonal. So there is nothing abnormal about it. And it really -- it's in line with the customer's product cycle. Second half of the year, we will see a fairly strong pick-up. Again, in line with the product cycle as well. And also in the -- as Ken mentioned, we have already started to scale up our operation, both in terms of ATM and EMS for the second half ramp up of the some of the new products or new technology that we're going to bring in. So overall, I think, both for ATM and for EMS as a whole on a consolidated basis, without giving out a very specific guidance, I think the general trend is, we will continue to see quarter-to-quarter a growth in terms of our top line. And for both business we are still expecting growth for the year.
I'd probably ask just a follow up on both sets of margin. On gross margin, just year-over-year, you've talked a bit about the factors. But the EMS, down about 1 point and the ATM is down about 1 point, 1.5 point. Maybe talk about the factors, year-on-year what's been impacting the margin.
And you referred to -- and I don't know if you've referred as much in the past about fierce competitive landscape. But has it gotten more challenging competition in the either segment? Like it seems like more going after the SiP business, but are you seeing more -- is, I guess, competition in pricing a factor in the margin or is it other issues?
Well, I think the second quarter is particularly tough for us. I think the -- it's a combination of many different factors that's affecting our margin. Of course, the softer than expected margin does have an impact on the loading and that translates directly to a lower margin for us.
And also, during the quarter or starting from the beginning of the year, we were already trying to scale up our operation, preparing for the second half ramp up, including the scale itself and also putting a lot of resources into new products that are coming on stream in the second half. Also, we are in a phase of relocating some of our business to outside of Chine. We're expanding some of the facilities that we have outside of China as well.
Also in the first quarter, we do – we did experience some issue in the supply chain that had an impact on the overall revenue as well. So put all the things together, there is a bit of a larger impact on our margin than expected for the quarter.
And we are – and also on the operating side, I think the more compensation expenses that are incurred because of the employee option that we put on last year. Also on the R&D side, we did spend quite a bit of money into -- or resources into some of the new technology or new products that we are coming on stream, mainly for fan-out as well as for SiP.
As we mentioned in last quarter, we are seeing more projects -- SiP projects coming on stream. We are starting to entertain multiple customers. We are seeing the momentum starting to build and we are -- actually starting from the beginning of the year we're preparing for that.
And the last question I wanted to ask, clarify the OpEx -- I think you mentioned 30 basis point -- and I just want to know, is that a year-over-year just a OpEx percent of sales for consolidated? And then is there a way to think about a year-over-year growth in OpEx for the company?
Do you want me to confirm that or...
I just wanted to clarify what's that 30 basis point. Is that expectation versus last year OpEx percent of sales 30 basis points higher?
Yes. I think we -- like I mentioned, that we are beefing up our R&D, and also because of the additional compensation expenses out of the ESOP, the -- as we'd mentioned already last quarter that we are expecting our OpEx ratio to come up a bit this year. Although, at this point, we are working very hard to see if we can still manage to keep the OpEx ratio at last year's level. But if there is -- there's going to be some challenge in front of us in terms of managing -- maintaining that. But nevertheless, we will keep it -- if there is any increase we will keep it below 30 basis points.
It seems like, I guess, with the low first half pace OpEx still not growing much -- I mean, to only be up 30 basis points is still pretty flat OpEx.
We're trying to keep it in place.
This is Rick Hsu from Daiwa Securities. My first question -- again its housekeeping question, so your utilization rates across the board -- the wirebond testing and flip-chip for Q1 and second quarter.
I think for Q1, across the board, it's about 70%. And in second quarter ATM was -- is -- there will be some uptick in our revenues, so the loading we're expecting to be at around high-70s.
Can you -- second question, can you talk about -- a little bit about your pricing environment, especially for your ATM sales, because it looked your first quarter job was kind of below seasonal. Is there any pricing pressure?
Pricing is never pleasant topic. Pricing is -- there is always pressure. And in first quarter, I think the softness is an overall situation, its overall phenomena. There is a normal pricing adjustments on a quality basis or on annual basis. We don't see anything abnormal.
Just a little -- just want to clarify, I think Randy asked about your full year revenue is going to be still grow -- on year-on-year basis your full year revenue...
Yes, we're still expecting to have a top line growth on annual basis, yes.
So same as your guidance last time?
Yes.
Do we have any more questions from the floor?
This is Sebastian from CLSA Securities. So first question just to follow up on the EMS operating profit guidance, is it similar to second quarter last year, which implies that the absolute level is better than Q1 this year, while the revenue is down Q-on-Q, is that right?
Right.
So which means the margin is improving.
There will be better control on the OpEx at the EMS business unit and therefore, the -- we're expecting OpEx ratio to come down a bit in the operating. Also on the gross level, because of the different product mix, at the gross level the margin we just saw had some improvement.
Okay. And looking at your second quarter guidance of EMS and IC ATM, it seems like moving toward a different direction. So I just wonder what's driving your second quarter IC ATM business grow -- sequential grow? Is it mainly from mobile or some 5G high-performance computing?
Well, I think it's mostly because of the different revenue mix. I think EMS does have a higher consumer revenue and therefore the movement -- it was really -- it should be in line with the product cycle of our customers. So there is a little bit different direction in the second quarter. But all-in-all, going into second half, I think the ratio will be in sync.
How about the IC ATM -- the strength, which application is driving the sequential growth in second quarter?
Well, I think the second quarter is quite -- actually quite broad-based, so except that communication seems to be -- have a strong momentum.
Would you say communication is it just -- is it include both like consumer type of the smartphone communication and also like infrastructure based communication, right?
Both.
So both are seeing strength?
Relative to other segments.
Okay. On the second half recovery, I think, Ken seems to be pretty optimistic about the -- yes, about that. Yes, so I just wondered, how much of that is based on a typical seasonal product launch cycle? And how much of that is driven by a very clear visibility on the new products, new technology ramp?
I think by and large the second quarter is really seasonal uptick. The new products or new technology ramp-up would be mostly in the second half.
I was asking about second half?
You mean the growth...
How much is that is seasonal driven? And how much of that is -- you're doing something else that you didn't do before -- like new products, new socket, content gains, market share?
That would be a very tough question to answer. I need to go back and check.
Yes, I don't know if we can break that down, so...
I'm just curious, because you have a very strong confidence in the second half recovery. I think certainly you have some clear visibility and that confidence may probably come from like, "Hey, I win this socket and this is something I didn't do before, and that make me confident". Even if there's no strong seasonal recovery, you can still grow on top of that or even there is a seasonal recovery we can grow above that.
So our second quarter number are -- I mean they are not particularly above -- they are not above seasonality, like typical seasonality.
No, no, no, I'm asking about second half.
That's correct. So if we lead to a third quarter growth, than what we're -- we're still kind of coming from a general semiconductor environment improving category. I don't -- even if we throw our wonderful, spectacular numbers, it's just -- it's still kind of a recovery, right? We're just kind of getting back to where we were.
Well, let me say this. I think the -- if you look at our CapEx for the year, I think the -- roughly 25% of the CapEx will be spent on some of the new product or new technology. If that's any indication, I think that would be the likely split between the seasonal and the new product that being introduced.
So the second half recovery is most driven -- is driven equally strong by both business?
Both what?
EMS and ATM.
They both will experience recoveries, but in different -- I think they have different customer bases too.
I think this is a very, very difficult question to answer, because there is going to be fluctuations, maybe on the organic part of the business or the new product sets coming out. It depends on the end market sell-through which cycles up more, which cycles down more. So I really can't tell you what is really the split between the 2. What I can say is we are preparing ourselves by spending 25% of our CapEx for the year for new products. So if there is any synergy there, that could be the analogy for it.
The last question from me is on the -- I think Ken mentioned that your ASE Holding is still gaining share -- gaining free cash flow share in OSAT industry in this downturn and utilized their cash to pay back debt and pay dividend. So on the debt payback schedule do you have any -- what should we model -- like you paid down, like, 15%-20% per year.
The original guidance on terms of debt payback was roughly 2 to 3 years from transaction initiation.
So in 3 year -- like, should I say the -- we can assume that in 3 years' time the -- all the debt will be repaid? So, like, 30% per year pay down.
Well, if we are talking about the transaction specific debt that we incurred, that part has been possibly repaid by our own cash flow and partially by other -- different funding source. But by and large the total amount of syndicated loan is about NT$90 billion and we had paid it down to roughly NT$20 billion now within a year's time. And we are -- although, roughly 60% of it or 70% of it is being paid down by other funding sources that we've raised in the year, the rest is being paid down by our own cash flow.
Do we have more questions from the floor? At this time we do not have any questions from -- no, we do have a question. We have multiple questions suddenly. Hello?
Yes. [indiscernible] questions from the audio.
Yes, let's take a question from the call or audio. The first...
[Operator Instructions]
So we have 3 online, so can we take the first one?
The first question is coming from [ Bruce ] of Goldman Sachs.
I think the first question is regarding to the P&L level of packaging items, happy to hear that the company is developing a new technology. Can you give us some picture of this technology, what kind of addressable market, what can we expect on revenue, what kind of occasion, et cetera.
Hi, Bruce. We are not stating exactly the amount of revenue related to it, but we have actually put it in place during the first quarter. We do expect revenues starting in the second quarter. Hopefully, this revenue ramps during the year. This panel revenue right now is currently -- we are obligated to put it for just one customer, but we will be able to release this capacity to other customers by next year.
I am sorry. The connection is pretty bad. Your voice is breaking down, so I just hear that the revenue for -- is isolated in one customer and one else?
It's for one customer right now. We are only able to sell it to 1 -- to 1 customer at this time. But the capacity will be available to be sold to other customers, hopefully before the beginning of next year.
So just for the [ mentioning ] what when can we expect to see by [ mean ] contribution from panel level packaging like say 5% of revenue -- 5% of ATM business?
We do not have -- I do not have that right now.
I think -- as Tien mention last quarter, I think the -- we are expecting to grow our fan-out revenue by $50 million and above on annual basis, and right now things are moving on track. I think we are in the phase of increasing our fan-out capacity by another 50% at this point.
So what kind of profitability we're looking to derive from the [ 15% ]?
Well, I think, we are still at the early stage, so it's kind of difficult to anticipate a corporate average return or margin at this point until it gets to economies of scale. But I think the overall return, we are still -- we are making the investment based on the return requirement that we have, which is an ROIC of over 15%, so that is still the criteria that we are looking at.
What is scale of economies now?
I think it will go over $100 million when we start to see some scale and...
So basically, we get more than USD 100 million, can we expect the profitability -- is margin accretive?
It should, yes.
The second question is regarding to your strategy in testing business. The testing business, you have [indiscernible] in TSMC now having lot of developments in testing business. And you also have a lot of like testing service providers who with every [indiscernible], so what -- so ASE turning more aggressive in testing business. Can you tell us a little bit more about like what's the rationale behind and what's your strategy?
Well, I think at this point I think the -- as we mentioned last time, I think we -- in the past few years we have been quite passive in terms of making investment into test. And now with our -- we are seeing the turnkey services requirement has been the increasing. And we do have a largest -- much larger scale after the combination was SPIL. So, we believe that at this point this test business is something that we want to be putting more focus on and we do have the scale and also the tool boxes to penetrate this business more. And we believe the return of this test business is still justifiable at this point for us to expand.
So for the second -- I still don't understand, because the second tier of testing -- well, I shouldn't say second tier, a rather independent testing company's tier, ROE is [indiscernible]. And how do you make sure or how confident it is that, if you can do it like -- at least better than the industry in terms of return?
So right now, we are not quite as aggressive on test, right? And test is also more margin accretive. So we believe that we do have room. And then post-November 23, 24, we should have better capability to generate a turnkey test solution. So I think our customers are interested in being able to shorten up their cycle time. They are able to move their test product -- I mean, quick order right -- instead of having to wait in multiple lines and multiple cues.
Can I expand that, because SPIL traditionally has much less testing -- of capacity compared to ASE. Once integrated in terms of like packaging and testing, it's not as balanced in terms of capacity or location. Can I explain somehow from this angle as well?
Yes. We do expect some level of low hanging fruit to be able to go after -- or approach business that was not approached before.
Our next question comes from Citi's Roland.
First still a follow-up question for the testing business, so for the testing business are you referring to the final testing or are you also doing the testing for the wafer probe as well.
Both. We will target both.
So now for the percentage wise, also some allocation for this wafers probe and final testing?
I didn't get the question. One more -- one more time?
For the wafers probe and the final testing, what's the percentage of each for your total testing business now?
That's -- actually we don't know. I don't think you can necessarily make any rational decision out of that, because you could balance your tests more towards wafer probe or more towards final test. It doesn't really state anything.
For the -- going forward, if you are going to investing more on testing, so what kind of business you are going to invest? Is that are more flow to the probe business or more into the wafer – final testing business.
Both. So your tester -- it's a matter of peripherals that you attach to the tester. So we would attack both. We would buy further peripherals for probe if we get more probe business. We would buy more handlers if it were for final test.
Last quarter you said going forward for your SiP and fan-out business, every year you are going to see incremental revenue around the $100 million both SiP and testing to $100 million for fan-out business. So question is how much CapEx you need to invest in both technologies in order to maintain such incremental revenue every year?
As I mentioned earlier on, I think first of all this year's CapEX will be similar to last year and I mentioned that 25% of your CapEx will be -- right now it's still budgeted for the new technology that we're bringing in.
And how about the going forward?
Well, it depends on how the market shapes up.
So -- and then in the past you also said, for every $1 you invest in assembly, it generate about the $1 return for the first year after invest and testing actually will be generating more. How about the investments on this advanced technology?
I think we need to put everything into one basket to see -- we want to maintain for assembly and test combined a $1 of investment generates a $1 of revenue for us.
Sorry, I did not hear you clearly. Can you say again, sorry?
I said, as a whole for assembly and test, I think the fan-out or other technology in terms of assembly and test is still in the same basket and we want to maintain that ratio to a $1 of investment generating a $1 of revenue for us on an annual basis.
The next question comes from Gokul of JPMorgan.
First of all I just wanted to follow up on the testing question. So right now for ATM, we're running in about 15%, 16% of total revenues coming from testing. Given you -- your comments that you are underinvested in testing over the last few years, where does that look like settling in maybe in the next couple of years? Do you think that goes to 25%-30% or is it just a minor increase from the -- like, 15% to 20% kind of levels over the next couple of years once you complete your investments in testing capacity?
There is no preset target percentage for us in terms of our revenue split between assembly and test. What we're saying is that we see fairly good potential in the test business once we get the scale now. So we are putting more focus or putting more resource into test and we are confident or we are expecting this effort will lead us to gaining shares in test business, which we believe still makes economical sense for us. But having said that, it really depends on the execution how successful we are in terms of getting more business and how fast the business will start to come in. And it really depends on -- we'll just go with the flow to see how much resource we need to put in further to continue to grow that part of the business. But there is no preset goal, say, "Oh, we want to get to 25% or 30% at any given time."
Just a quick question on SiP. It looks like based on your Q2 guidance, the EMS revenues are basically flattish year-on-year. How should we think about the acceleration potential for this business as we get into second half given that you have some of the -- some new projects in the second half for SiP as well.
And secondly, could you also comment about your efforts with Qualcomm in terms of the SiP1 or QSiP kind of business that Qualcomm has been incubating, looks like they have started shipping some volume for some of their customers. Could you talk about the -- what do you think is the potential for that business long term?
We are actually expecting some growth in the – the growth on the top line for EMS as well for -- on annual basis for this year. And also we are entering not just the -- did you call it the QSiP project?
Yes.
Okay. That's just one of the project -- or SiP projects that the EMS is engaging in now. And -- but for that particular project, we're expecting sizable, but not a whole lot of revenue for us this year. But we do see potential that it will grow to maybe even to other customers or other applications as well. So this is one area that the EMS will be continuing to put resources in.
[Operator Instructions]
I have one follow up. With regards to the EMS business growth for full year this year, if we look at the second half, is the second half year-over-year also positive?
Yes.
So, the first half is already positive. So based on your guidance for the second quarter and -- so second half will still be positive.
That's correct.
And how much of this is driven by SiP?
Yes. I don't know for really -- we're talking about that, that numbers.
I mean, I don't want to be specific on the numbers, but just trying to see that the year-over-year growth of EMS this year is it mainly driven by the SiP project?
I would say both for SiP and as well as non-SiP type of business. Right now I think the overall SiP represents about 42% of our EMS revenue now. And we are expecting this revenue to basically more or less at the same level by the year-end.
Actually I wanted to ask if its QSiP that we should call it? But the -- for that particular project you had announced that Qualcomm Brazil, so I just want to understand, like that -- is it still a limited to -- is it still more limited to Brazil where you're doing that production or is it now more of a global opportunity? And do you also have potential or is there any exclusivity or could you go to MediaTek, Huawei and other platforms to do these type of SiP for 5G?
Well, I think is primarily targeted at the Brazilian market and we still think there is a -- it's a market that is more suitable for this type of the SiP solution for us to grow. There's still a lot of room for us to expand. And to serve that particular market there will be other supplier as well which could be our potential customers. That's why I'm saying -- so if it's for the current application then, yes, it's pretty much for the Brazilian market and we will expand this to other customers as well. But QSiP also has the potential for the other application then it would be different market and different aspect of it.
And to clarify other customers' application, so -- because I would think just Brazil, but is there an opportunity in China are global for these type -- like I guess, why only -- I mean, know these customers are Brazil project. But is there a global opportunity to do these type of modules?
Well, we will see how things evolve. But primarily at this point, we are still targeting at Brazil.
Then you mentioned in your prepared remarks pass-through and I think it was in the IC ATM on margin. Is there much like module pass-through growth in the IC ATM -- like is there a piece of SiP that's flowing in?
That was more in reference to higher substrate content.
Any more questions from the floor? No more. Okay. Thank you very much for attending our earnings release. See you next quarter.