Please ensure Javascript is enabled for purposes of website accessibility

ASE Technology Holding Co, Ltd (ASX) Q3 2021 Earnings Call Transcript

By Motley Fool Transcribers – Oct 28, 2021 at 3:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX earnings call for the period ending September 30, 2021.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

ASE Technology Holding Co, Ltd (ASX 0.60%)
Q3 2021 Earnings Call
Oct 28, 2021, 3:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Kenneth Hsiang -- Investor Relations

Hello. I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our Third Quarter 2021 Earnings Release. Thank you for attending our earnings presentation today. Please refer to the safe harbor notice on Page 2. All participants consent to having their voices and questions broadcast via participation in this event. If participants do not consent, please disconnect at this time. I would like to remind everyone 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. As a Taiwan based company, our financials are presented in accordance with Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiary using Chinese GAAP.

I'm joined today by our CFO, Joseph Tung. For today's presentation, I will make the prepared remarks going over our financial results. And Joseph will be available to answer questions during the Q&A. During the quarter, ASE saw new historical highs in its revenues and profits led by strength within our ATM business. Despite electronic industry challenges with various supply chain shortages, the overall health of our businesses remain relatively strong. During the third quarter, our ATM factory lines remained highly utilized through the entire quarter despite some device order volatility. Supply chain security still appears to be of primary importance to our customers. Even as certain parts of the supply chain appear to be improving in health, various shortages such as wafers and substrates continue to persist.

Meanwhile, some of our capital equipment installations for the current season have been completed. And while it's true, lead times on some equipment have come in, but others remain in short supply. Our EMS business also completed the quarter with strong year-over-year growth in revenues despite finishing the quarter slightly behind our own expectations. Our EMS factories still faced significant challenges related to component shortages and supply chain issues disrupting and product manufacturing. Things continue to be sticky with the various manufacturing limitations, making EMS factories run less smoothly. With that said, let's go over the numbers for the quarter. Please turn to Page three, where you will find our third quarter consolidated results. Intercompany transactions between our ATM and EMS businesses have been eliminated during consolidation. For the third quarter, we recorded fully diluted EPS of $3.20 and basic EPS of $3.29. Year-to-date, fully diluted and basic EPS is now $7.43 and $7.66, respectively. Consolidated net revenue increased by 19% quarter-over-quarter and by 22% year-over-year. The sequential increase was primarily driven by growth within both our ATM and EMS businesses. We had a gross profit of $30.8 billion with a gross margin of 20.4%. Our gross margin improved by 0.9 percentage points sequentially and by 4.4 percentage points year-over-year.

Our gross margin improvement is primarily driven by margin improvement in our ATM business, offset in part by higher EMS business mix. Our operating expenses increased by $0.8 billion sequentially and $1.8 billion annually to $12.4 billion. Our operating expense percentage declined one percentage points sequentially and 0.4 percentage points year-over-year to 8.2%. For the full year, we continue to see an improvement from last year's 9% level. Operating profit was $18.4 billion, up 40% sequentially and 102% year-over-year. Operating margin increased 1.8 percentage points sequentially and 4.8 percentage points year-over-year to 12.2%. During the quarter, our nonoperating income was 0 and contains $0.6 billion of net interest expense, offset entirely by gains related to our foreign exchange hedging activities, investments and asset sales. Tax expense for the quarter was $3.6 billion.

The effective tax rate for the third quarter was 20%, slightly lower than our expectation. As a result of increased profitability, we were able to offset the recognition of our annual undistributed earnings tax with higher recognition of deferred tax assets during the quarter. Going forward, we continue to believe our ongoing effective tax rate to be about 20%. Net income for the quarter was $14.2 billion, representing an increase of $3.9 billion sequentially and an improvement of $7.5 billion year-over-year. From a foreign exchange perspective, NT dollar per U.S. dollar exchange rate was at 27.8% during the third quarter of 2021, TWD28 during the second quarter of 2021 and TWD29.5 during the third quarter of 2020. We approximate that NT dollar appreciation had a negative 0.3 percentage point impact sequentially and a negative 1.7 percentage point impact year-over-year to both gross and operating margins at the holding company level. On the bottom of the page, we provide key P&L line items without the inclusion of PPA-related expenses.

Consolidated gross profit, excluding PPA expenses, would be $31.7 billion with a 21.1% gross margin. Operating profit would be $19.6 billion with an operating margin of 13%. Net profit would be $15.4 billion with a net margin of 10.2%. Basic EPS, excluding PPA expenses, would be $3.56. On Page four is our ATM P&L. It is worth noting here that the ATM revenue reported here contains revenue eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses. Business grew rapidly during the quarter. A strong seasonal uptick in advanced packaging led the way, driven by applications in the computing and communications end markets. Utilization rates across our key equipment were full or near full. For the third quarter of 2021, revenues for our ATM business were $90.1 billion, up $11.1 billion from the previous quarter and up $18.3 billion from the same period last year. This represents a 14.1% increase sequentially and a 25.4% increase year-over-year.

On a U.S. dollar basis, our ATM revenues grew by 15% sequentially, which is slightly ahead of our own expectations. Gross profits for our ATM business was $24.7 billion, up $4.5 billion sequentially and $10.2 billion year-over-year. Gross profit margin for our ATM business was 27.4%, up 1.8 percentage points sequentially and 7.2 percentage points year-over-year. Our sequential gross margin improvement was primarily due to higher loading, offset in part by a higher raw material product mix and ForEx impact. The year-over-year gross margin improvement was primarily the result of higher loading, improved efficiency and a friendlier ASP environment, offset somewhat by NT dollar appreciation. During the third quarter, operating expenses were $9.1 billion, up $0.7 billion sequentially and $1.4 billion year-over-year. The sequential and annual operating expense increases were primarily driven by higher employee bonuses, which are based on a profit-sharing model. Our operating expense percentage continued to decline to 10.1%, down 0.5 percentage points sequentially and down 0.7 percentage points year-over-year. During the third quarter, operating profit was $15.6 billion, representing an improvement of $3.8 billion quarter-over-quarter and an improvement of $8.8 billion year-over-year.

Operating margin was 17.3%, improving 2.3 percentage points sequentially and 7.8 percentage points year-over-year. From a foreign exchange perspective, we approximate that NT dollar appreciation had a negative 0.4 percentage point impact sequentially and a negative 2.5 percentage point impact year-over-year to both gross and operating margins at the holding company level. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 28.4% and operating profit margin would be 18.6%. On Page five, you'll find a graphical representation of our ATM P&L. ATM revenue for the quarter represents an all-time high. We believe that the current year's strength has been generated by strong demand across all product lines, including various trailing edge wirebond-based capacities, a revival in use and a reset in terms of profitability and wirebonded product lines have helped boost business for us during 2021.

Going forward, we believe that wire-bonded products will continue to grow along with our advanced packaging product lines. From an application of technology perspective, we increasingly see more opportunities for our ATM technologies to proliferate into subsystem and system level manufacturing. These products serve as a growing market created by increased transistor cosies at leading-edge nodes and expanding consumer appetites for smaller, more elegant electronic solutions. We increasingly provide cost-effective manufacturing solutions that make visionary products viable. On Page six is our ATM revenue by market segment. You can see here a pickup in our communications and computing market segments with a decline in automotive, consumer and other products. On an absolute revenue perspective, all segments grew. A particular interest is that our automotive business grew 68% on a year-over-year basis. We believe that the automotive market segment will be a significant contributor to our own growth during the coming year. On Page seven, you will find our ATM revenue by service type.

As we mentioned last quarter, our advanced packaging business picked up in accordance with our expectations, increasing three percentage points becoming 36% of our ATM revenues. Wirebonding as a percentage of revenue came down three percentage points. But on an absolute dollar basis, wirebond revenue grew 7% sequentially. On Page eight, you can see the results of our EMS business and a graphical representation of our EMS revenue by application. The information we provide in regards to our EMS business may differ materially from the information directly provided by our subsidiary as they report independently using Chinese GAAP. The overall environment at the EMS level has been sticky. Mass production continues to be choppy. Component shortages and supply chain deviations made their impacts felt during the quarter. And when we look at the entire situation, we believe we have been adversely impacted by various upstream component shortages and downstream manufacturing issues.

This resulted in manufacturing delays for multiple devices and customers. This is why our third quarter EMS revenues came in slightly behind our expectations. Fortunately, we do believe that most of the impacted revenue will get pushed out into later quarters, but overall manufacturing throughput continues to be choppy, limiting production efficiency. During the third quarter, EMS revenues increased by 24% sequentially and 15% year-over-year. Our EMS gross profit was $5.9 billion, increasing $1.4 billion sequentially and $0.8 billion year-over-year. The sequential EMS gross profit increase was the result of the seasonal build. The year-over-year gross profit increase was the result of a higher volume business. Gross profit margin for our EMS business unit came in at 9.6%, which is an improvement of 0.5 percentage points sequentially and a decline of 0.1 percentage points year-over-year.

The sequential improvement is primarily the result of cost differences from differing product mix and better utilization. On a year-over-year basis, there is a slight decline in gross margin due to new facility ramp-up costs. Our EMS business unit's third quarter operating expenses were $3.2 billion, flat sequentially, while increasing $0.4 billion year-over-year. Annual operating expenses are up primarily as a result of a larger operating base. Our operating expense percentage declined 1.2 percentage points sequentially to 5.3%, while staying flat year-over-year. The sequential operating expense percentage decline was primarily driven by flat operating costs with higher revenues. Our EMS operating profit improved $1.4 billion sequentially and $0.3 billion year-over-year. Our EMS operating margin was 4.3%, improving 1.7 percentage points sequentially and declining 0.1 percentage points year-over-year. The overall difficult manufacturing environment continues to persist. We were able to exceed our targeted 4% operating margin in the third quarter, and likely will in the fourth quarter. However, for the full year, we believe that we will be unable to reach our EMS operating margin target of 4%. We believe that the operating margin variance is generally attributable to IC shortages and the COVID-19 operating environment.

We expect some improvement in the operating environment next year. And as such, we believe a 4% operating margin target continues to be applicable for future years. On the bottom half of the page, you will find a graphical representation of our EMS revenue by application. Consumer product revenues as a percentage of total increased five percentage points, in line with its seasonality, while our Industrial segment came down four percentage points. On Page nine, you will find key line items from our balance sheet. Total unused credit lines amounted to $261.5 billion. After payment of our dividend in the third quarter, our net debt-to-equity ratio temporarily increased to 71%. On Page 10, you'll find our equipment capital expenditures. Amounts on this slide are denoted in U.S. dollars. Machinery and equipment capital expenditures for the third quarter totaled $468 million, of which $294 million were used in packaging, $101 million in testing, $60 million in EMS operations and $13 million in interconnect materials and others. And at this time, we see a slight uptick in our capital expenditures now up 25% from last year.

This pickup in expected capital spending relates to additional opportunities in advanced packaging and test business generated by our turnkey strategy. Financially speaking, our equipment capital expenditures expand factory capacity and utilization of that factory capacity generates EBITDA. Each equipment capital investment scales out facilities to generate additional revenue and EBITDA. This chart represents the ongoing EBITDA generating capability of the company. EBITDA for the most recent four quarters was USD3.9 billion, significantly ahead of our Capex even in a high Capex time frame. USD3.9 billion of EBITDA, state in another way, represents TWD25.8 of EBITDA per share. As of the end of the third quarter, capital equipment availability for certain product lines appear to be normalizing. However, this situation was not across the board for us. There are still extended lead times for certain pieces of capital equipment. For many product lines, we are still running capacity constraint and still in need of capacity expansion.

We have noticed, especially recently that much is being made about the timing of our capital equipment decisions. We understand this, from a simplified perspective, may serve as a predictive indicator, but this indicator can easily be misinterpreted as it means different things during different times of the season and in different contexts. Spending on capital equipment fundamentally indicates that we believe there is an additional production capacity needed for sustained new business. But what does our capital expenditures leveling off during a record year mean? And here is where some of the confusion seems to exist. It means that, for this season, after a period of rapid expansion, factory capacity is finally aligned with near-term expansion needs and goals. We have historically had the luxury of being able to judge our capital expenditures with a relatively short lead time, meaning we traditionally finalize our equipment orders about three to six months ahead of delivery. This allows for a final level of precision and granularity as well as better alignment with incoming business. Because of these short lead times and the annual seasonality of electronics, this intersection of capacity and expansion goals happens every single year. In fact, this intersection is actually happening substantially later in the year than in previous years.

Our wirebonding capex leveling off this late in the manufacturing season actually means there was strong demand this year, and capacity took a long time to catch up. In short, we are having a really good year. What it doesn't mean from our perspective is that a near-term correction is coming. Quite to the contrary, we still see growth in our business next year. We usually do not make detailed comments on next year's outlook this early. But given the level of volatility driven by what would seem to be a focus on noise versus the actual signal, we feel it prudent to express a more extensive view. We are, again, put into a position much like we were last year at this time in which the company's outlook signaled strength among generally cautious sentiment. The overall manufacturing environment remains positive for us. But admittedly, some of the data is a bit difficult to interpret. And while we do not presume to have the definitive answer on the semiconductor cycle, we do wish to express that we continue to have strong order flow from the vast majority of our customers with orders extending well into 2022 and some as far out as 2023, well beyond normal booking times.

From a more macro perspective, our data points taken along with the understanding that global wafer supply remains in severe shortage. This shortage is at a grand scale, causing design products unable to find manufacturing slots across the semiconductor manufacturing supply chain. Products with high promise relating to 5G, AI, IoT and ADAS are being delayed, if not outright being canceled in this environment. Despite noise of double booking, product and end market softness, we believe there still exists substantial pent-up demand. Barring a significant industrywide correction, we expect whatever future slack in wafer demand to be quickly taken up by other customers and products looking for production slots during this shortage environment. As such, we believe it's reasonable to continue to expect a somewhat full and linearized delivery pattern of wafers, leaving relatively little room for seasonal softness. With that said, we expect our own manufacturing linearization to continue, resulting in a better-than-seasonal first quarter outlook and extending into healthy but moderated growth during 2022.

This seems to be in line with much of the industry. We would like to defer to Dr. Wu's year-end presentation for more detail. But given this macro environment, we see full year sales and earnings growth based upon simple annualization of our recent quarter's results. And using that same logic, we expect full year margins should also continue to expand. This is all before we even consider new high-end wafer capacity entering the system, efficiency gains, market share gains and additional outsourcing from IDMs. From a pricing perspective, even though we may not see as many expedite fees this coming year, we believe the ASP environment will continue to be friendly. Pulling things back to the fourth quarter immediately in front of us, we expect for our product lines to remain loaded with business most likely staying steady. There are potential issues with substrate and downstream shortages, but we do believe things are manageable at this point. With that, we would like to provide our fourth quarter business outlook as follows: In U.S. dollar terms, our ATM fourth quarter 2021 business level should be similar to our third quarter 2021 business level. Our ATM fourth quarter 2021 gross margin should be similar to our third quarter 2021 gross margin. For our EMS business in U.S. dollar terms, our EMS fourth quarter 2021 business level should come close to our fourth quarter 2020 levels. Our EMS fourth quarter 2021 operating margin should come close to our third quarter 2021 operating margin. This concludes our prepared remarks. I'd like to open the floor for Q&A.

If you have a question, please raise your hand in the WebEx interface in front of you. Thank you.

10 stocks we like better than Advanced Semiconductor Engineering
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* 

They just revealed what they believe are the ten best stocks for investors to buy right now... and Advanced Semiconductor Engineering wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of October 20, 2021

Questions and Answers:

Operator

We have a question from Mr. Gokul Hariharan of JPMorgan.

We have another question from Mr. Szeho Ng of China Renaissance.

Szeho Ng -- China Renaissance -- Analyst

Hello. Hi. Can you hear me?

Operator

Yes.

Szeho Ng -- China Renaissance -- Analyst

My first question is regarding the China power rationing. I'm not sure if there's any impact to your Q4 business guidance.

Kenneth Hsiang -- Investor Relations

Szeho, are you asking about the power rationing?

Szeho Ng -- China Renaissance -- Analyst

Yes, the power shortage in China. Any impacts to the business outlook in Q4?

Joseph Tung -- Director Chief Financial Officer

It has very, very limited impact on us. I think the shortage through some of the logistics arrangements that we can have and also the support of the local government, I think, the impact, there could be some minor disruptions on the operation, but the impact is very, very amicable. It's almost negligible.

Szeho Ng -- China Renaissance -- Analyst

Okay. Good. And my second question, given the fact that a lot of your customers are already on the long-term agreement arrangement. I just want to know if there's a -- if the arrangement is more like a take-or-pay arrangement or there will be some flexibility of every scheduling in times when the wafer availabilities or some components are in shortage.

Joseph Tung -- Director Chief Financial Officer

Well, I think the long-term agreement is really for the customers to -- it's a product of they're seeking for supply security, particularly when we are having a capacity shortage as well as material and also wafer shortages. I think the -- a lot of customers are a bit concerned with the current situation, and they want to have a more stable supply. And I think that's really the reason why we have such long-term agreements. And it does create some stability for both our customers as well as for us.

Szeho Ng -- China Renaissance -- Analyst

That is true. But what about if they are not able to get the wafers then, would you impose penalty if they are not able to load up our capacity or you will basically allow them to reschedule and lower the capacity at a later time?

Joseph Tung -- Director Chief Financial Officer

This is really the arrangement to have a better visibility or stability for our customers in terms of supply. I think there's no way it's being regarded as a tool for penalizing our customers because of the difficulty that they're facing.

Szeho Ng -- China Renaissance -- Analyst

Sure, sure. Okay. All right. And my last question regarding the Capex spending this year, is it all right to have a breakdown by location, very rough breakdown would be fine.

Joseph Tung -- Director Chief Financial Officer

Okay. In terms of...

Szeho Ng -- China Renaissance -- Analyst

Let's say, how much in Taiwan, how much in China, Korea, for example. Yes.

Joseph Tung -- Director Chief Financial Officer

In geographical breakdown?

Szeho Ng -- China Renaissance -- Analyst

Right, right, right. Yes.

Joseph Tung -- Director Chief Financial Officer

I would say about 85% is still in Taiwan and, well, 15% in China and other places.

Operator

Next question is from Mr. Randy Abrams of Credit Suisse.

Next question is from Mr. Rick Hsu of Daiwa.

Rick Hsu -- Daiwa -- Analyst

Okay. Yes, I just want to make sure because there seems to be some system issue. Okay. So my first question, again, is a housekeeping. What's your utilization rate across the board wirebond testing and free ship in Q3 and in Q4, please?

Joseph Tung -- Director Chief Financial Officer

Overall, I think packaging-wise, we are still running at full capacity basically above 85%. And that will continue into Q4. And the test is, as we mentioned, above 80% and also continuing into Q4.

Rick Hsu -- Daiwa -- Analyst

Okay. Great. The second question is, it appears to be some disconnect between the sell-in and sell-through demand, meaning that when we look at the sell-in, right, they order from customers and still very, very full and also some customers still fighting for capacity, not only at your end, but also in the foundry space. So still very strong sell-in demand. However, sell-through, I think you guys must have heard some noises recently from Android smartphone sell-through, not so good. And EV, also weak. Chromebook is coming down. So I'm just wondering, how do you guys see this mismatch between the sell-in and sell-through? And do you worry about any snowball effect going forward into Q1 next year for the inventory correction risk?

Joseph Tung -- Director Chief Financial Officer

No, I think the -- what we're seeing here or what we're hearing is that there are some appeared demand softness in some segments, but all these are very, very localized and is subject to only maybe a small portion of the overall. I think the -- in general, the whole industry is still going through a rapid growth period because we're seeing rising IC content. We are seeing many more new applications coming on stream, including AI, 5G, IoT, EV, autonomous driving and so on and so forth. So the unit continues to grow because of the pricing as the content as well as the new application coming on stream. So one, in particular, we're not seeing an overall widespread correction. In fact, we're still going through -- trying to catch up with the demand. As Ken mentioned earlier on, there's still a lot of pent-up demand that's going through, and we're still catching up kind of mode. So I don't think there's really a disconnect. It's just that because of the shortages in terms of wafer, in substrate, in all kinds of disruptions, in terms of operation around the globe, because of the pandemic, I think the -- right now, the supply is still kind of short, and we're still chasing to add capacity to meet our customers' demand.

Rick Hsu -- Daiwa -- Analyst

Okay. Great. Yes, that's good news to hear. But my last question is about your pricing power or your friendly pricing. Can you talk about this? Do you still see friendly pricing trend going forward into Q4 and Q1 this year?

Joseph Tung -- Director Chief Financial Officer

Yes. I think for -- right now, the pricing environment is still friendly, and we think it was -- when going to next year as well. I think what we meant by pricing-friendly is really the price level of the oil price environment that can help us better protect our margin and also even to improve our return going forward.

Operator

Our next question is from Mr. Gokul Hariharan of JPMorgan.

Gokul Hariharan -- JPMorgan -- Analyst

Okay. First of all, many of your peers and customers have talked about inventory mismatch in the supply chain where you have more inventory of some components and very less inventory or something in most of the supply chains. Is it consistent with what you're seeing? And in your experience, how do you think the situation resolves itself if we think about the next three- to six-month kind of time frame? Because it feels like, right now, it's not an outright shortage for every component, but it feels like -- some are in abundant supply, but some are in severe short supply. So I just wanted to hear your take. That's my first question.

Joseph Tung -- Director Chief Financial Officer

Yes. There's still a lot of mismatches going on at this point. And that's part of the reasons why we're seeing the -- our EMS business is not growing as we were expecting. And this situation will continue because in various areas, there's still shortages in terms of wafers, in terms of some of the packaging equipment or even test equipments that we're trying to add. Material is also one concerned areas. And if you look at the overall supply situation, the capacity increase for the year, at least for the OSAT part of it, I think the Capex to sales ratio continued to be maintained at about below 20% level. And that means maybe adding 10%, 15% of our capacity to meet the growing demand. And this has been -- the additional capacity has really been outstripped by the growing demand at this point. And adding capacity is not an easy thing, and this mismatch is going to be -- is going to last for quite some time. We don't see real solutions within the next six to nine months or even a year period.

Gokul Hariharan -- JPMorgan -- Analyst

Okay. I think last time we talked about 2021 growth being 2 times of logic semis, and it seems like we are pretty much on track to that. Are we going to keep that kind of momentum going into next year also? Or do you think that there will be a little bit more of a normalization in terms of growth as we look at next year?

Joseph Tung -- Director Chief Financial Officer

Yes. I think 2 times logic semi growth is still our goal, and we are very confident that we will continue to reach that goal because the overall demand is strong. And on top of the unit growth that we mentioned in the industry, we're also seeing increasing outsourcing. We're expecting to continue to gain market share. A lot of this really push for growth coming into next year. So we're very, very confident that we will continue to reach that goal.

Gokul Hariharan -- JPMorgan -- Analyst

Understood. Let's say, we -- hypothetically at least, we get a downturn at some point and utilization rates go back to be 70%, 75% from the high 80% that we have for many of the parts of the supply chain. What would happen to -- like how do you think the long-term loading agreements and price increases behave? Are there any kind of riders in your contracts with your customers where there could be some of these price increases that you have seen get rolled back. I just wanted to understand how -- I think how the next downturn will look like and how different it is going to be from previous downturn?

Joseph Tung -- Director Chief Financial Officer

Well, of course, the long-term agreement, what it means is really a more predictable volume as well as our pricing for a longer-term period. It does create another layer of buffer for both of our customers as well as us. But then I don't see we're expecting any major downturn coming anytime soon because the -- like I said, the new application is still at their early stage, and then we're seeing tremendous opportunities in terms of unit growth. Plus, our leading position today, we will get there. The -- not only the outsourcing trend is continuing or accelerating. We will get the lion's share of that. And also, given our position, we would believe that we will continue to gain market share. So all that creates a very strong support to our continuing growth.

Gokul Hariharan -- JPMorgan -- Analyst

Got it. Last question from my side. I mean, how should we think about Capex for next -- it looks like Capex is likely to go down next year. Now your EBITDA has also improved quite a bit over the last several quarters. Any indications on how you're going to be using that increased EBITDA? Are we going to see a significant increase in dividends? Or is it primarily for debt repayment? I just wanted to understand both on the Capex side and use of EBITDA as we go into next year?

Joseph Tung -- Director Chief Financial Officer

Well, I think it's a little bit too early to talk about our Capex for next year, but I can say that we will continue to make the necessary investments into -- at the appropriate capacity to meet our customer needs. At this point, it is also true that our cash flow situation continues to improve, and we're expecting further improvement into next year. At this point, we are -- we don't have a fixed trend on how do we want to utilize that cash flow, but it really depends on the opportunity. When it prevails, we will make the year sort of usage of this cash.

Operator

We have a question from Mr. Randy Abrams of Credit Suisse.

Randy Abrams -- Credit Suisse -- Analyst

Okay. Yes, I wanted to ask a couple of clarifications, two remarks. You mentioned for fourth quarter that you're still -- or I should say, overall, you mentioned you're still trying to catch up to demand for IC ATM that you're guiding fourth quarter flat. So is that a function of your supply constraints being able to ship more? Or is it a mismatch on where you have capacity? I know it's been a strong year to date. But if you're catching up to demand wise, it wouldn't be growing further into fourth quarter

Joseph Tung -- Director Chief Financial Officer

I think the -- first of all, I think the fourth quarter is really a typical quarter for us. And just also coming off a very stronger-than-expected third quarter. So I don't see -- we're not seeing anything of normal at this point. And yes, the shortage does create some problem for us, for us to continue to bring more shipments out. So I think it's a combination of coming off a stronger-than-expected third quarter as well as continue to have some material or even wafer shortages that we're seeing.

Randy Abrams -- Credit Suisse -- Analyst

And to follow up on the Capex question, should we think of it this year -- I think you still talked about a bit of moderation, like still healthy growth cycle, but moderation. Is that the view we should think on the overall spending though, that this was probably a high point for what you need to put in or add in some moderation? And then would there be a shift where it's been a huge catch-up? And I think your bonders have been up about 20%, so like a shift in mix toward advanced packaging and test or do you think pretty similar?

Joseph Tung -- Director Chief Financial Officer

Yes. I think for next year, I think the -- more of the way will be put on advance packaging as well as test. I think we'll continue to see making progress in terms of raising our turnkey ratio. So we're seeing a pretty good potential for us to grow our test business going forward. Advanced, even starting from the third quarter, we're seeing advanced packaging to start picking up their pace comparing to wirebonding, although both we're still seeing growth. So next year, I think more will be spent. This year, we kind of doubled our Capex for wirebonding. And next year, I think the pattern will be shifting somewhat to more to advanced packaging as well as test.

Randy Abrams -- Credit Suisse -- Analyst

And I'm not sure if I missed it. With the spending level be, I guess, direction, it feels like after growing a good bit this year. Maybe the -- it feels like maybe down a bit next year?

Joseph Tung -- Director Chief Financial Officer

I think it's -- we're still in the budgeting cycle, and we're seeing -- we're looking at how the business will come in, and we'll try to come up with the suitable Capex budget for the year. Right now, I think it's kind of too early to say how much down or how much up we'll have on Capex for next year. One thing is for sure that we will continue to invest. And I think there's still a lot of other pent-up demand for us to catch up with.

Randy Abrams -- Credit Suisse -- Analyst

And to follow up, two parts. One, you mentioned share gains, is there a certain part is a view generally across the business? Or is there a certain area you're seeing particular market share strength?

Joseph Tung -- Director Chief Financial Officer

I think the -- given the position that we're in, I think the -- and the outsourcing is -- we're seeing outsourcing picking up, and the reason why it's picking up is because a lot of the -- there are some market share changes or our business model changes among our customers. So some of the new products that's coming out will be outsourced rather than being done in-house. And we will get the lion's shares of that. And from that point on, I think we will continue to gain market share.

Randy Abrams -- Credit Suisse -- Analyst

Okay. I guess, in terms of -- I'm just trying to think of the products, like for -- like is there a way to think -- are these like more compute, like high-performance compute area?

Joseph Tung -- Director Chief Financial Officer

I think it's all across the board. I think in terms of automotive, I think we're making very, very strong progress, and we'll continue to gain share on that front for communication and for high-performance computing. I think the -- when the industry go into more advanced nodes, I think we will be able to grab most of the business opportunities coming out.

Randy Abrams -- Credit Suisse -- Analyst

For automotive, your sales up. I think you said 68%. What's your take in terms of -- for your business catching up on supply because there's been downstream limiting quite a bit of vehicle production or even to the point there might be a slowdown. There's a good content story, but how do you feel in terms of catching up or how you see continued growth out of automotive?

Joseph Tung -- Director Chief Financial Officer

I think the industry is really scrambled to increase the, I believe, wafer supply for automotive. And on our end, we are very, very aggressive in terms of further automating our factories to which are more suitable for automotive parts. And I think from both directions, I think the target was a very, very good opportunity to continue to expand our automotive part of the business.

Randy Abrams -- Credit Suisse -- Analyst

Great. And just a couple, the demand softness in some segments, are there particular areas you're seeing a bit of that softness show up?

Joseph Tung -- Director Chief Financial Officer

Well, I think everybody is talking about the PC, talking about the Android-based cellphones. The sell-through in China is not as strong as we're expecting. But I think, overall, in terms of units, both cellphone and PC are still growing. I mean, it's not that it's collapsing now. So we're seeing that continuing at a healthy level. And also, even with these products, that seem to have some weakness of demand. Bear in mind, the IC content of these devices continue to grow. So this will still be a very strong demand segment for us.

Randy Abrams -- Credit Suisse -- Analyst

Okay. And the last question, just on the EMS business with the pushouts and a lot of the manufacturing, I see constraints. Should that be the expectation? You mentioned IC ATM above seasonal. Is there -- are you seeing that potential shift where some production pushes out to first quarter?

Joseph Tung -- Director Chief Financial Officer

Do you mean for us, for the ATM?

Randy Abrams -- Credit Suisse -- Analyst

Yes, for your EMS business.

Joseph Tung -- Director Chief Financial Officer

Yes, there is some push out to the first quarter, and so we're expecting a better than seasonal quarter for EMS as well.

Operator

Next question is from Mr. Charlie Chan of Morgan Stanley.

Charlie Chan -- Morgan Stanley -- Analyst

So my question is about the share gain, right? I mean, apparently, starting from June, there was some lockdown for South Asia biggest facility, in particular in Malaysia. Does the company see kind of order transfer from customers there? And now it seems like in Malaysia, the fab is recovering. Do you think that you can retain those transferred orders?

Joseph Tung -- Director Chief Financial Officer

All our factories are running pretty full. So it's a bit difficult to move the volume around for us. Yes, there was a bit of a disruption in the Southeast Asia size of ours, but I think the situation is under control now. And I think they're back to normal. I think the overall impact is quite small for us.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. And then now we start to hear, as you said, the substrate is kind of a big constraint. And it seems like ASE also have your own substrate supply, right? So how soon do you think those lead frame supply can stabilize and catch up the customers' demand?

Joseph Tung -- Director Chief Financial Officer

You are referring to lead frame?

Charlie Chan -- Morgan Stanley -- Analyst

Lead frame or substrates.

Joseph Tung -- Director Chief Financial Officer

What we have is substrates, and it does create a good buffer for us to manage our overall substrate supply. Right now, we're at about some -- like 20% of our internal use is being supplied by ourselves. And we are -- I think the factories are -- substrate factories are running very full at this time. And they are also scrambled to add capacity to help solve the situation for us.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. And so the frame, you need to source from third party, right? And several IC, IDM they continue to refer to that [Indecipherable] in a bigger shortage right now. So any color on that? I mean the different supply whether they can catch up the demand.

Joseph Tung -- Director Chief Financial Officer

I hear here and there from some of our sites that there seems to be a little bit -- the difference of IC seems to be a little bit choppy. But I think, overall, the situation is still being managed quite well. I think -- I don't think there's any big progress in terms of lead frame supply.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. Okay. And lastly, I know the company maintained Capex in work under installation, right, but I'm not sure why. But previously, there was some industry cater about wider on the pushback. And if you look at -- not your major supplier, right, but the Asia Pacific, their PB ratio dropped to 0.9 for the third quarter. It seems like a booking for wirebond is coming down. Can you help us to understand what was going on here? Do you really need to push out somehow work under?

Joseph Tung -- Director Chief Financial Officer

I think we are on track with our foundry installation for the year. I think what we mentioned earlier on is that we expect to have some delivery by October, and we are getting there. We're on track on that. And we believe that will be continuous -- we'll continue to make investments. But on the boundary itself, it's more -- it's balanced now. It's more balanced now. There's the -- the line balancing equipment is still lagging. And in fourth quarter, we will continue to add those capacity or line balancing purposes. Next year, there's still quite a bit of demand that we -- quite a bit of requirement that we will have for wirebonding, particularly when we're seeing that wirebonding business will continue to grow in the -- particularly in the automotive segment. So there's going to be further demand from us.

Charlie Chan -- Morgan Stanley -- Analyst

Great. And yes, so it would be super helpful if you can provide that were on the lead time as it did over the past three quarters for those to get a sense.

Joseph Tung -- Director Chief Financial Officer

Lead time, I think it's maybe three to six months.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. Yes, it seems there's a tight sway. Okay, OK. How about those flip-chip equipment? Do you feel like it's still very, very difficult to get flip-chip related capacity? Or is it quite available, meaning the first year for cases?

Joseph Tung -- Director Chief Financial Officer

I think the overall situation is that the equipment lead time is still long because there's still a lot of mismatches in the whole value chain. So it's kind of difficult to predict how long this lead time will -- how long lead time situation will resolve itself, how long it will take.

Operator

[Operator Instructions] We have a question from Mr. Bruce Lu of Goldman Sachs.

[Technical Issues]

Kenneth Hsiang -- Investor Relations

I think we're having some technical issues with this.

Operator

Bruce, can you hear me? Please unmute your microphone from your side. We have questions from Mr. Jeff Ohlweiler. Mr. Jeff Ohlweiler, please unmute your microphone.

Kenneth Hsiang -- Investor Relations

I think we're having some technical challenges with the conferencing system. Apologies on that. I think we -- for lack of any way to get these questions, and I think we're going to have to conclude the call at this time. All right. Thank you very much for attending, and we will -- we look forward to talking to you soon. Thank you.

Duration: 64 minutes

Call participants:

Kenneth Hsiang -- Investor Relations

Joseph Tung -- Director Chief Financial Officer

Szeho Ng -- China Renaissance -- Analyst

Rick Hsu -- Daiwa -- Analyst

Gokul Hariharan -- JPMorgan -- Analyst

Randy Abrams -- Credit Suisse -- Analyst

Charlie Chan -- Morgan Stanley -- Analyst

More ASX analysis

All earnings call transcripts

AlphaStreet Logo

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.