Hello. I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our second 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. As a Taiwan based company, our financials are presented in accordance with 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. As a reminder, because ASE Holdings was jointly formed on April 30, during the second quarter of 2018, 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. 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 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 second quarters. However, the pro forma numbers are still relevant for the quarterly year-over-year comparisons. First order of business. First order of business is a quick update on our original goal set at the beginning of the year. We believe that these key measures would help define how well we performed during the year. Please evaluate these points in the context that they were achieved during what is generally been viewed as a soft loading environment. Both our Advanced Packaging and Test businesses outgrew our overall ATM business. During the first half, the Advanced Packaging business grew 6% year-over-year. The growth was driven off of increasing customer adoptions from increasing IO density and product complexity. Our Test business also continues to outperform, growing 7% year-over-year. We believe we can continue to take market share via a regeared engineering and turnkey strategy. SiP also grew by more than 25% during the first half year-over-year. We are also well on our way to achieving our $100 million incremental new SiP business for the year. Finally, we are making the appropriate investment in critical R&D areas across both ATM and EMS. Such as the various types of fan-out, the next-generation of bumping and SiP. During the first half, we have increased our R&D costs by 12% for ATM and 9% for EMS, when compared with first half of last year. We believe these expenses are a modest investment for the impact they can potentially achieve. For our second quarter performance compared to typical seasonality, our ATM business experienced a relatively mild uptick, while our EMS business entered its traditional trough period. The on again, off again, U.S.-China trade war had its impact by creating uncertainty across global supply chains. The ultimate short and long-term impacts of these actions are still unclear. And at least for a period of time during the quarter, market shares and customer relationships seemingly had been forcefully rearranged. The electronics industry in the midst of recovery showed its resilience, and things do seem to be settling down to a new norm. Even though this new norm gives us little history on how to judge our customers results, and more importantly, outlooks. With all that said, we do seem to be entering the dawn of something pretty big. We see the overall landscape beginning to shape up. As we look into the second half, things appear to be reasonably good. There are, of course, uncertainties and risks regarding the potential sell-through of any number of products. However, we don't think anyone can tell with any reasonable amount of certainty, what the appetite of global consumers will be. Nevertheless, we are hopeful about the start of the 5G promise. With at least the sub-6 GHz spectrum, propping up the promise of faster speeds. Smaller volumes of both infrastructure and handset chips are ramping now, and we are hopeful they will be filling our 2020 capacities. And as 5G adoptions become more and more common place, wider, millimeter wave infrastructure will be put into place and additional applications and devices will begin another ramp. We are also confident in the midst of the coming bills, our SiP products of -- for ATM and EMS will continue to make inroads as our design wins continue across a wider customer base. And just-in-time for all of this, we will finally be able to work together with our teammates at SPIL. So the clouds do seem to be parting, and there still may be a few rain showers here and there, but it certainly feels as if the end of the storm is near. And as a leader in electronics manufacturing, supply chain, we believe that now is the right time to invest in capital equipment. Now is the right time to invest in research projects. And now is the right time to invest in developing new product introductions. And as we mentioned in January, we're investing in the future, with higher new product development spend at both ATM and EMS. These investments right now are in the product technologies like SiP and fan-out will fuel the growth, not just for the second half of 2019 into 2020. These investments will set the table for future growth drivers, like millimeter wave and allow the likes of millimeter wave to take shape. 2019 will set the stage as the critical investing year. So let's start the financial overview. On Page 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 second quarter year-over-year results are not comparable between 2019 and 2018, because of the inclusion of SPIL in 2019, and the inclusion of only two months of SPIL in 2018. I will generally discuss the sequential and year-over-year comparisons as part of the pro forma basis slides. Let's briefly go over Page 3. For the legal entity, we recorded fully diluted EPS of $0.62 and basic EPS of $0.63. Sales were $90.7 billion, with a gross profit of $14 billion, and gross margin of 15.4%. Operating profit was $4.1 billion. Net income was $2.7 billion. On Page 4, you will find our legal entity results for our ATM business. We will discuss this in the pro forma section a bit later. Let's move forward 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 ATM and EMS businesses I will try to keep the explanations here short and provide detailed explanations during each of the business unit slides. For the second quarter, we had net revenues of $90.7 billion, representing a 2% increase quarter-over-quarter and a 1% decline year-over-year. The quarter-over-quarter increases were primarily driven by a seasonal pickup within our ATM business, offset by a larger-than-expected decline in our EMS revenue. The year-over-year decrease is primarily the result of a softer industry environment. Gross profits were up 23% quarter-over-quarter and down 5% year-over-year. Gross profit margin improved 2.6 percentage points on a quarter-over-quarter basis due to a better loading environment. Gross profit margin declined 0.7 percentage points on a year-over-year basis due to a softer loading environment. Our operating expense percentage was up 0.6 percentage points to 10.8% from 10.2% in the first quarter and up 0.9 percentage points on a year-over-year basis. The higher operating expense percentage is due to higher-than-expected EMS operating costs during the quarter. Operating profit was $4.1 billion. This represents an increase of $1.9 billion quarter-over-quarter and a decline of $1.6 billion year-over-year. Sequentially, operating margin improved 2 percentage points, and it was down 1.6 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 remaining gain was primarily from our financial instruments and foreign exchange hedging activities. Tax expense for the quarter was $1.6 billion. For the second quarter, we booked a tax charge for our annual undistributed earnings tax in addition to a onetime transaction-related tax expense. Even though we expect a lower effective tax rate for the latter half of the year, we now expect a full year tax rate to be closer to 24%. Net income for the quarter was $2.7 billion, representing an improvement of $0.6 billion from the previous quarter. On a year-over-year basis, net income was down $0.8 billion from the same period in 2018. 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 $15.2 billion, with a 16.7% gross margin. Operating profit would be $5.6 billion, with an operating margin of 6.2%. Net profit would be $4.1 billion, with net margin of 4.6%. Basic EPS, excluding PPA expenses, would be $0.98. On Page 6, is our ATM pro forma P&L. For the second quarter, revenues for our ATM business were $59.8 billion, up $5.4 billion from the previous quarter and down $2 billion from the same period last year. This represents a 10% increase sequentially and a 3% decrease year-over-year. We see the sequential revenue improvement and year-over-year revenue decline as being indicative of a mild recovery in process. We would like to note, in particular, that our Test business is leading our ATM recovery, growing 15% quarter-over-quarter and 8% year-over-year. We feel that our strategy and investment in Test is working. Gross profits within ATM were up $2.6 billion quarter-over-quarter and down $0.8 billion year-over-year to 11.8 -- $11.1 billion. The differences in sequential and year-over-year gross profits are primarily loading related. Gross margin for ATM was up 3 percentage points sequentially and down 0.7 percentage points year-over-year. The sequential improvement is again due primarily to higher loading, the year-over-year drop in gross margin is primarily the result of a softer loading environment. During the second quarter, operating expenses were $7.4 billion, up $0.6 billion from the first quarter, and up $0.5 billion from the same period last year. Our operating expense percentage was 12.4%, down 0.3 percentage points sequentially and up 1.1 percentage points year-over-year. Sequentially, even though we spent more absolute dollars on R&D, our OpEx percentage decreased as a result of higher revenues. And on a year-over-year basis, we had a higher operating expense percentage, primarily due to higher investment in R&D costs, from new project ramps, including fan-out and SiP projects. As some of these projects start entering mass production during the coming quarters, we expect our quarterly operating expense percentage to stay relatively flat during the coming quarter and take a more meaningful step down during the fourth quarter. During the second quarter, operating income was $3.6 billion, representing an improvement of $2.1 billion quarter-over-quarter and a decline of $1.3 billion year-over-year. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 20.5%, and operating profit margin would be 8.5%. Page 7, ATM operations. You'll find here are our graphical presentation of our ATM P&L. On Page 8 is our ATM revenue by market segment. As you can see here, we have a wide cross-segment of the electronics industry. We generally don't see substantial changes in segment mix, especially when compared on a year-over-year basis. Page 9, the ATM revenue by service type. You can see here, during the second quarter, not much has changed from the first quarter. The service types are substantially similar, but from a longer-term perspective, we do see more wirebonding products moving towards bump, flip-chip and other advanced packaging. For us, we continue to expect our test business to outgrow our assembly as we continue to expand our turnkey business model. On Page 10, you can see the results of our EMS business. During the second quarter, we had revenues of $31.5 billion, representing a decline of $3.4 billion, or 10% sequentially and an increase of $1.1 billion or 3% year-over-year. Our original expectations for the second quarter were based on already reduced run rates within a few of our key consumer and communication business lines. However, demand for our EMS services were trimmed during the quarter, and the revenues for the quarter came in somewhat short of our expectations. We believe the revenue shortfall ultimately does not impact our second half seasonal growth plans. The year-over-year increase was driven by higher revenues from our Industrial and communications-related products. Our EMS gross profit stayed relatively flat, both sequentially and year-over-year at $2.9 billion. Gross profit margin for the EMS business unit came in at 9.1%, representing a 0.7 percentage point improvement from the previous quarter. This improvement was driven by product mix and the reappropriation of production personnel to R&D for new product introductions. Compared with the previous year, EMS gross margin declined 0.3 percentage points. This difference was primarily the result of generational device differences and product mix. During the quarter, our EMS business unit's operating expenses were higher than anticipated. Higher operating expenses at EMS are related principally to three items. One, the reappropriation of personnel from production to address new product introductions and customer opportunities; two, non-China site ramp up costs; and three, professional fees and other transactional-related expenses. Operating profit for the quarter was $0.5 billion, which is a $0.2 billion decline sequentially and a $0.3 billion decline year-over-year. Our operating margin came in at 1.6%, which is a 0.5 percentage point decline sequentially and a 1.1 percentage point decline year-over-year. Operating margin was behind our initial expectations, primarily as a result of lower-than-expected loading and higher-than-expected operating expenses. On Page 11, you will see our product segment mix within our EMS business. Our Consumer Product segment declined 14 percentage points of segment share sequentially, while our Communications segment, increased 11 percentage points. This movement is fairly in line with our customers product seasonality. On a year-over-year perspective, the segment shares are fairly similar outside of the weaker computing and storage segments. On Page 12, you will find key line items from our balance sheet. At the end of the quarter, we had cash and cash equivalents and current financial assets of $66.3 billion. Our interest-bearing debt remain unchanged at $201.4 billion. Our unused credit lines amounted to $218.5 billion, and our EBITDA for the quarter was $18.1 billion. On Page 13. You'll find our pro forma equipment, pro forma equipment capital expenditures page. Machinery and equipment capital expenditures for the second quarter totaled $444 million of which $233 million were used in packaging, $184 million in testing, $21 million in EMS and $6 million in interconnect material operations. We now expect a moderate step-up in the amount of capital expenditures we will be spending during the year. Our capital expenditures are now on pace to be somewhat higher than 2018. As we invest for 2020 business and beyond. The extent to which capital expenditures will be pulled into 2019 or be pushed out to 2020 is currently unclear as we attempt to align our near term needs. We hope to have more clarification available next quarter. So business definitely appears to be picking up. The third quarter is traditionally supported by a slew of differing product launches vying for a spot on consumers holiday season wish list. It is the time when inventories are built in anticipation of forthcoming consumer demand. So for us, as products get launched throughout the third and fourth quarters, good sell-through will lead to sustained manufacturing after launch. The interesting problem we have with the latter half of this year is that, in a normal year, we would be incredibly excited with the customer outlooks we have. This year, though, is not a normal year. It is a year in which we have a trade war between the 2 largest GDPs in the world. There may be some tariffs or there may be a lot of tariffs or there may be no tariffs at all. Supply chains may have to be shifted. Customers may have substituted vendors or components in their products. There are so many moving pieces in this environment. And no one really knows if consumers in any given geographical region will become more or less likely to buy any particular product. Though, we are incredibly confident in the longer term, we really have no basis of extrapolation for the situation we are in right now. We can just make a call on what we have in front of us and wait for further clarity as the quarter develops. We are looking for our ATM business to be returning to our previous year peaks, albeit with a different product mix composition. We are targeting our margins to get close to or be similar to that peak. But for the sake of simplicity, we're just saying, we will be similar with the previous third quarter and revenue and gross margin. We are looking for our EMS business to be on a pace slightly ahead of where it was in the third quarter last year, but not yet to its peak in the fourth quarter. The business should get to be somewhere in between. For us, with these types of large ramps, it's a bit more difficult to gauge, where exactly in that ramp will be by the end of the third quarter. It's a bit like trying to guess the exact finishing time of a racehorse. For the sake of simplicity, midway between the 2 quarters would be a reasonable approximation of where our EMS business will get to and as our EMS business continues to invest in R&D for new product introductions during the latter part of 2019 into 2020, operating margins will be a little bit below our target levels. We are looking for EMS operating margins similar to first quarter 2018 levels. Do we have questions on the floor? Q - Unidentified Analyst: Yes, still digesting everything. I guess, the first question, just on the third quarter, getting back to prior peak maybe discuss a bit more details on how the ramp looks this year? If it's still driven by the normal mobile mix or how you're seeing from the other segments given the trade war. Just if you look at like consumer, auto, industrial, compute? Or if you think it's just mobile led. And if you could give an early view on sustainability. It usually seems like based on that your fourth quarter can swing up or down. But at this stage, if you could give a follow-on view into fourth quarter.

I think the same. I think in the second half or particularly in the third quarter, I think, in terms of segment, communication seems to be performing stronger than the other from a whole year perspective, the communication this year will continue to be the strongest segment. Where the computing, if we're excluding crypto, I think it's going to be sliding a little bit compared to last year, whereas consumer and others industrial will be flattish or slightly down from last year. I think in this year, we're still continuing to look at our revenue on a sequential growth on a quarterly basis. For the whole year, both for ATM and for EMS. In ATM, we are still targeting some mild growth on a full year basis, where EMS will continue to grow.

Maybe just quantify on the CapEx. You mentioned a step-up, so if you can give a bit of detailed magnitude and priorities for the CapEx. And it's still coming in at the end of the year, just how are you looking at combined, you're stepping up an investment this year. But just a rough sense, after the merger, if you think proceeds investments will go back to some consolidation? Or if you could give a rough view of how CapEx could change after the merger?

I think we are looking at some step-up on our CapEx reasons. And I think the increase will by and large mostly coming from more test businesses that we are going in, I think, in the earlier part of the year, we have already indicated that we will be increasing our investment in test, and we are making quite a bit of progress, and we're seeing the -- in the second half, the incremental ATM business, mostly upcoming in turnkey by nature. And so we are increasing investment into test as well. So that's really as a result of how our business combination is shaping up.

If I could ask on the China business. You -- sorry, you recently consolidated your China JVs again, could you talk about the motivation buying back to get to 100% on the China JV. And second part on the mix from China. Just how are you seeing trade war in terms of -- we've had a lot of disruption with the Huawei supply chain. How do you think your position? -- Traditionally you have been very strong there. But you also face local China OSATs. So how do you see your market share and opportunity? Just looking at the Huawei supply chain. And how do you see leverage to their strength coming back in smartphone and infrastructure?

Well, the first part of the question is?

On the JV consolidation of the China JVs.

Okay. I think in the beginning -- at the beginning, we were -- our partner was looking at our capacity as it is in China, where they still has -- have a sizable logic operation or logic design house. And that part of the business, from their perspective, is dropping quite significantly, and they are putting a lot more focus or resource into memory, which doesn't fit with the existing capacity that we have in China that much. So I think, considering the situation, they will rather put out of that investment. And for us, it gives us better control of the operation we have in China. So it's a win-win situation for us so we've decided to buy back the shares that they hold. In terms of the overall China situation or Huawei, of course, we don't discuss customers a particular situation. But as a whole, I think the -- we maintain a very diversified customer base, as there will be ups and downs between different customers but as things seem to balance it off having a diversified portfolio of customers. And I think whatever is happening at this point has actually very little impact on our overall business. And in terms of our China operation, I think the -- there are some requests, specific requests for us to move some of the capacity over to China. And that's the reason why we are actually ramping up selective sites in China to meeting the customer demand. And I think whatever move we do, looking at this ever-changing dynamic situation with the trade war going on I think our strategy is really to stay as flexible as possible and try to relocate our resources per customers requests provided that the -- whatever move that that we make to make economical sense for both parties.

This is Rick Hsu from Daiwa Securities. The first question, again, is a housekeeping question about your utilization in rate across your wirebond, testing and bumping in Q2? And how do you see that progressing into Q3?

In Q2, I think, across the board, our utilization is around 75% give and take a percentage or 2. In third quarter, I think, with the growth in our revenue, the overall demand in the utilization will be above 80% across the board, including wirebond, flip-chip, dumping, also test.

Okay. So I think you guys used to provide your gross margin breakdown in between packaging and testing, but I can't find the numbers this time. So can I have your gross profit margin number for your packaging and testing?

We don't release those anymore. We can tell you that test historically is higher than the overall group.

Okay. So this is becoming the new norm for your coming quarterly comps?

We find that the industry doesn't seem to give nearly as much detail as we do, and a lot of analysts find our releases having too much information. So we're trying to reduce the number of numbers that you guys deal with.

Well not for me.

Okay -- it has something to do with the -- when dealing with our customers, we rather be somewhat more conservative than plotting too much information.

Third question is, your -- one of your peers Encore has also released their guidance. I think their Q3 revenue is going to grow as high as almost 20% quarter-on-quarter. So I think, my question is, do you guys feel any pressure of market share reshuffle to your peers? Or it is just kind of one-off for Encore?

Well I don't think they have any growth in the second quarter. I don't know. I think we have a different style in terms of giving our information, I think, with the guidance that they're giving is providing a very, very wide range, a range more than above10% range. So whether that is meaningful or not, I'm not sure. I think they're taking that same approach for quarter 3 guidance as well. So -- but in a nutshell, I think, by the way, we're looking at our own business, we believe, as we were gaining share instead of losing share to one of the competitors.

I would recommend that you look at year-over-year type comparisons.

One, just a quick follow-up to end this question. I missed one little part. I think Joseph you said for your ATM business this year, you're still targeting for year-on-year growth? And what about EMS, is it the same or? Your ATM business, you're targeting year-on-year growth, right? And what are your EMS?

EMS will definitely grow as well.

Year-on-year?

Year-on-year, yes.

Additional questions on the floor? We have one question online. Mr. Gokul, are you there?

Yes. I hope I am audible. My first question is on 5G. I think you did mention 5G as a key product driver for next year. Could you give us a little bit more detail in terms of what do you expect on 5G side, both for ATM as well as for SiP-related business in terms of more details in terms of how that is going to influence growth? And for SiP specifically, could you talk a little bit about what are the kind of pipeline of products, kind of what kind of products are made that you're working on 5G-related SiP products, especially for 2020. If you could give us some directional indicator there? And I have one more question.

In terms of SiP related product-related to 5G, I think, we're not necessarily being particularly specific about the products itself but we do believe that our SiP technologies provide a very unique way to manufacture devices that usually cannot be manufactured together on dye per say and it also provides a lot of space savings. So there are a lot of different applications. But I think we would prefer not to talk about the specific devices at this time.

I think, as Tien mentioned the last time, heterogeneous integration is really the trend in our space. And I think 5G, the emergence of 5G is really one of the forces that's pushing that. And so the strategy that we have is really to maintain as deep a coverage as possible as why the coverage is possible with all the major 5G players in the world, regardless of what application areas. And I think that's exactly what we're doing. We have been maintaining that leadership position for a while already. And as you can see, we are also picking up quite a bit of our R&D. I think a lot of the efforts that we are putting in is really to address this emerging 5G. Although, at this point, without actually quantifying what we have in terms of 5G, I think we are seeing that in 5G deployment, seem to picking up speed. Regardless of the handheld devices or infrastructure itself, going forward into our automotive as well. So we are seeing this coming out. We are preparing for it. And we'll be expecting 5G to really become one of our mainstream business that we have getting into 2020 and then beyond.

Okay. So maybe just if I could ask a little bit about SiP itself. Is it fair to say that the increase in number of project engagements that you have in SiP next year, 5G is a major driver for that? Or this is just one of many?

It is one of the potential things we can address with the SiP. SiP doesn't just address 5G. We think that SiP is definitely a TAM expander for us. It addresses all things beyond 5G, all electronics manufacturing.

Okay, fair enough. Second question I had, now that we are getting closer to the SPIL consolidation, could you talk a little bit about what are the areas where you would collaborate better with SPIL now that SPIL has been consolidated at least in the Company for over a year now. And our utilization that SPIL lower than say ASE ATM business? Or are they largely similar? So just wanted to understand where are the potential low-hanging fruit in terms of consolidation benefit as we look into next year?

We are still in the restriction period. And this thing does -- we don't graduate until end of November this year, provided we do graduate. And one of the key factors that prevent us from not graduating is, really we don't talk about whatever integration that we will have going forward, I think. But on -- at this point, we are allowed to align our R&D activities, and we are doing that. Going forward, I think it's very obvious that the synergies will be coming from a lot of the overlapping investments that we have been doing in all aspects of our operation. But without getting into detail, I think that's the general direction that we're going to head. And what exactly -- what are the steps or when or how exactly we're going to do that? It really depends on the situation at that point.

Would you characterize more of the potential benefit at operational level and manufacturing level? Or more in terms of corporate expenses, R&D, SG&A in those kind of areas?

I think it's still a little bit too sensitive to really discuss this in detail. So I think, like I said, the general direction is really to try to eliminate or to reduce at least. Allow the current duplications that we made in all aspects of our operations, that includes the operating expenses, including the manufacturing, including capacity and so on and so forth.

Okay. Maybe if I can squeeze in one more question. Could you talk a little bit about the progress that you're seeing on the fan-out side, I think we've been putting up investment since last year. And I think meaningfully this year as well. Could you give some kind of indicator of how big fan-out could be next year, as we ramp some of the businesses? I think you mentioned that this year could be specific for some customers and it can broaden out in 2020. So is it possible to get some kind of quantifiable numbers in terms of what fan-out could represent? Especially since you mentioned some of the wirebonding is also starting to move to greater level packaging even for more entry-level kind of chips.

So I think you're referring to our panel fan-out, right? Our panel fan-out is exclusive to one customer this year. But during next year, I believe it's Q3 next year, it should be released to multiple customers. At this time, we do have a sizable queue of customers looking to see whether panel fan-out would work for their products. Given the size of such demand, I think we hope to be able to drive fan-out costs down and be able to create more penetration across existing package types, not just high end. Is that good enough?

So should we expect the fan-out more than 8% of ATM revenue next year? Or is it too high to expect that, that kind of progress next year?

We don't have a set percentage at this point for our panel fan-out outlook. Fan-out, in general, we are looking to grow relatively quickly. I think we were looking for about 2% to 3% of packaging, targeting that for this year. I don't have a progress report on that at this point.

I think we've mentioned this to everyone here that we are looking at equivalent revenue coming from fan-out on an annual basis of $50 million a year. And we are still on track on this, and we're continuing our investment and also R&D efforts in to fan-out trying to reduce the cost further by moving from the $300 million to panel and things are moving along, and we are reaching our revenue growth target as well at this point.

We have 3 more callers on the line. I think the next caller is Sunny Lin from UBS. Sunny, are you online?

Sure. So I have a few questions for Bill. So number one, so if you look at Q3, how much of the growth is from China? And how is that split between communication and high-performance computing? So I guess, we are just trying to figure out upside from Huawei in total and how sustainable that is? So the second question is about 5G AIP. So I understand you guys cannot talk too specifically, but can we have some direction about gross margin on ASP and market share?

So in terms of China operation, I think the revenue generated out of our China operation is about 13% of our overall in terms of ATM. In terms of Huawei situation, as I mentioned earlier on, we actually don't prefer to discuss any customer in particular situation. But as a whole, I also mentioned that the incident that's happening at this point, has very, very limited impact on our overall revenue or the pace of our sequential movement in terms of our business. The reasons for that is really that we're still holding a very, very diversified customer base. And any particular customers movement as long as we're serving the whole industry, it doesn't really have a very significant impact on us. And in terms of you were mentioning AIP, of course, as I mentioned, we are engaging ourselves with all the major players in the 5G arena and AIP is certainly one of the up coming product than that will be seen. So we do have quite a bit of engagement in this, but we're not about to discuss any details on this.

Any more questions, Sunny?

So for Q3, are we able to quantify the upside from cryptocurrency?

I don't think we have anything, in Q3, you mean?

Yes.

Yes. We are seeing cryptocurrency customers are coming back, but I think our exposure to that, we want to maintain a very limited exposure with that. And I think the kind of business tends to fluctuate a lot and it's kind of more difficult to manage. And therefore, we want to be cautious with it.

Got it. That's very helpful.

Thank you, Sunny. Next caller is Roland Shu with Citi.

Just one question. You said, in the second quarter, you have a higher-than-expected operating expense from EMS side. From China side, a ramp-up cost. So is that a one-off expense or this difference will continue in 3Q and 4Q?

In terms of the operating business in, of course, the OpEx in quarter 2 was this particular reason, the OpEx number is quite a bit higher than previous, and also kind of drove down the operating margin that we have achieved in the third quarter. I think going forward, as EMS revenue going into or actually quite substantial growth going into the second half. I think, adding the operating expenses on the EMS side will actually come down a bit because of the lot of the upfront investment had already been made. So the overall OpEx ratio will come down. And then the operating margin will come back to much more satisfactory level. Although for this year, from EMS perspective its really a year of investment for us. Hopefully, lot more R&D efforts and also in the midst of ramping up some of our non-China sites to meet our customers' requests. So there are a lot of things going on at the same time. So this year, for EMS, I think it will be tough for us to reach our targeted operating margin of 4%, but we are making -- we are taking measures to better control the OpEx and then we believe, we are very confident that going into 2020, we will be -- we will reach, it if not exceed, the target operating margin of 4% at EMS side. For ATM, I think we are also going through phases, actually, in terms of increasing our overall R&D efforts. I think the OpEx ratio, per say, third quarter, although we have revenue growth, I think, in the third quarter, the R&D activity will continue. So the OpEx ratio will be similar to quarter two. But that will come down in quarter four as we -- at as our control measures are taken, and we believe that with all these efforts that's been put upfront going into 2020, we will see quite a bit of improvement in the OpEx ratio, and therefore the operating margin on the ATM part of the business as well.

Could you explain, is there any ramp-up costs for this ATM capacity going forward?

We didn't get that question. Could you repeat your question?

I think, for ATM actually, you are increasing R&D expense for ATM side. My question is, are you going to consider -- relocate capacity out of China. And that actually will induce some ramp up cost for ATM side. Do you see the speed of increasing cost from ATM side?

Right now, we are -- we are not being asked or we don't see the real need of moving out of China, because we're not at the end of the value chain. But in fact, we are -- actually, there is some ramping up that we're doing in China for a customer's request and that's part of the reason why this year, aside from R&D, our operating expenses actually came up a little bit because of the new sites that we are setting up and also expanding the existing size capacity in Suzhou in particular.

Okay. Okay, that's all my questions.

Last caller is Sebastian Hou of CLSA. Seb, are you there?

Yes. Couple of questions. The first one is, third quarter, I wonder what's driving the -- what application particularly is driving the ATM and EMS growth?

Can you repeat the question?

For third quarter, which applications are growing -- are the major drivers for the sequential growth for your ATM and EMS business?

It's a pretty widespread broad-based growth at this point. You've your typical -- you have your typical drivers, at this point, for product launches and such, but I don't think there's any particular customer or customers that I would single out as being particularly different.

And regarding EMS, based on your guidance, it looks like the EMS growth will likely to be 40% Q-on-Q in 3Q, and that's pretty strong, I think, stronger than the past few years seasonality. So is there any particular reason to track this? Or is it simply because the second quarter base is too low?

Well, I think it's a combination of both and we are seeing new products coming out. We are bringing -- we are -- we are entertaining or starting mass production of some of the new projects that we engage ourselves with. And also -- first -- second quarter is a little bit softer than we were expecting. So I think it's a combination of both.

And based on your OpEx ratio guidance that Q2 will stay flat Q-On-Q and 4Q to come down more meaningfully, can we interpret that as the -- that implies the fourth quarter revenue growth will be higher than the third quarter revenue growth?

Can you repeat that again, Seb? You mean the ATM?

Yes, the OpEx guidance is for the whole company or just for ATM?

We had -- on ATM we did say that we would look for OpEx -- the operating expense percentage to maybe decline slightly or stay relatively flat and then take a step down in the fourth quarter.

Okay, great. And we just -- and your ATM business is guided to grow like 10% plus Q-on-Q in 3Q. And if the OpEx ratio is coming down, does that imply in the fourth quarter your revenue growth for ATM will be stronger than the third quarter sequential basis? So that will make your OpEx ratio come down.

OpEx in itself as an absolute number, we believe will be coming down in the fourth quarter.

Okay. So is in -- probably little of both, all right, so the absolute numbers come down, but the ratio also impacted by the revenue scale.

Is your question regarding to fourth quarter, operating expenses will come down? Or...

Yes. I'm trying to get a sense that because you are saying that the fourth quarter OpEx ratio will come down. So I am just wondering how much of that is driven by the revenue scale or absolutely decline of the OpEx?

Okay. Yes, it's mostly the OpEx had come down. As I said, a lot of the front-end investment that we are making will lapse into the third quarter. But it will [indiscernible] in fourth.

I have 2 more questions. The next one is on testing. You say that this year the CapEx focus would be mainly for testing. So I wonder how much of this is driven by the organic longer testing time by the chip you are testing. So that's why the business is going up, so you need to invest more and/or how much is driven by the increase of your turnkey business as a total ATM business?

That's too technical for me. All I know is, we need to invest more in to test because, I think the bulk of the incremental revenue that we have is in the second half comes with turnkey requests. And also given the complexity of these chips that we're testing it is becoming higher and higher. So the test time is longer per device. Therefore, we need to make more investment into testers. I think another factor that we need to consider is really as we continue to invest in to test to increase our capability and so forth I think we are actually gaining share in the overall test business as well.

Okay, cool. Last one for me is regarding your brain on the 5G, how else you can see your content in 5G smartphone, particularly on the SiP. Do you expect your SiP contents opportunity is much greater in a 5G phone than 4G? And I will specially separate that into 2 parts, in the first phase, sub-6 GHz 5G and millimeter wave for 5G. So to be more specific, I wonder, if on a 4G LTE phone to 5G sub-6 GHz whether your SiP opportunity increase? And then for sub-6 GHz, the millimeter wave whether there will be a another leg up?

I think the real driver is really 4G in to 5G, or if we are limiting ourselves to cell phone application alone. I think what we're seeing is really the adoption of SiP in different applications, different areas are starting to increase. And that's what we're looking at. So as Ken mentioned, the growth of our SiP business is not just coming from communication and cell phone alone, but we're seeing other areas starting to adopt the SiP packagings as well.

Okay. So let me just do this simpler. So do you expect your SiP contents to go up in 5G?

With my limited knowledge I think so, yes.

For both sub-6 GHz and millimeter wave phase, right?

Yes. So the way I would put it is, there are more customers and more products adopting SiP, right? And because of that and because of the need for incremental functionality within 5G type devices, we should see a higher likely hood of SiP being part of that. Now for any given product or any given 5G device whether that will contain a product, we don't know, right? That's not entirely up to us but the SiP platform does give our customers a unique way to put extra functionality instead of trying to put -- pack it all into one dye, right? I think -- does that help you?

Yes, yes.

We don't have any more questions online. On the floor? Robin? Yes, will get his first shot.

Robin Cheng from Bank of America Merrill Lynch. Just want to clarify, I know a lot of conversation has been about OpEx. So the guidance for flattish OpEx for Q3 and a step-down -- OpEx ratio for Q3 and a step down for Q4 is at corporate level? Or is it ATM business only.

For ATM.

ATM only. Okay.

For EMS, it will definitely come down quite a lot.

Okay, okay. So that is because of the revenue scale, et cetera. So if I read this correctly, you spent a lot of R&D upfront cost this year, and then you'd be graduating in November. So theoretically, next year, you would be getting some sort of expense or cost benefit, would it be too bold to say that overall 2020 OpEx ratio for the whole entity could be lower than 2019. Is that the expectation that we could be seeing?

Yes. I think with all the -- I would say, the front end type of investment that we're making this year. Although, we said the OpEx will increase. And then the OpEx ratio will go up, but the holding level or on a consolidated basis, we're still controlling this increase to not more than 30 basis points from last year. And as I said, the -- most of the front end investments that we're making, actually, will only go into third quarter. And then when things are start to -- all the projects start to take off, then that ratio will actually come down and the exact amount will also come down. And going into 2020 because a lot of the investment already made in this year. And also, if we are successful in bringing out a lot of the synergies that we can come with after the restriction period is lifted. I'm pretty confident that, yes, the overall operating expense ratio will be lower than this year.

Okay. The second question is about the new SiP project. I think you mentioned last quarter that was specifically for a region or a market. How is that going? And do we anticipate that gets adopted into different -- like Brazil, South American market? Do we have like another area like India or somewhere with a similar type tariff structure that makes the downstream operation a bit easier? Would that be a logical assumption?

No, I don't think our geography is really one of the factors. It really is -- I think the effort is, overall, in different applications, but not on a geographical expansion of that part. What we're seeing is that we are -- we're seeing lot more adoption now in different areas and different customers. At this very moment, for my own last count, I think we actually have 13 projects that are going at this point, and we believe that going into 2020 that number will continue to increase, and we will be doing a lot more. And we set ourselves a goal that we will have incremental SiP revenue over $100 million a year, was certainly on track this year. And with the momentum that we are building through a lot of the project engagement we believe that we will continue to achieve that goal in 2020 and beyond.

Randy has another question. We've added all the way around..

Actually, I wanted to go back to fourth quarter for ATM, because last year, it did decline a few percent. To grow this year, the ATM would have to grow a few percent in the fourth quarter. So just wanted to understand, is it just a different view on the market, like last year, was decelerating towards the end of the year. So you're taking a different market view? Or are there certain areas you think you're gaining market share or new projects for the fourth quarter to grow in ATM?

I think what we're seeing is really just looking at the forecast from our customers. We are looking at a sequential growth type of situation in terms of ATM as well for the year. And with that, we will be -- we will be looking at an annual growth in terms of our revenue on the ATM side as well. But having said that, there's still, of course, there's a lot of uncertainties in front of us because, as Ken mentioned, the trade war is still going. We are not particularly sure whether the sell-through of the end products is really going to be successful or less successful. But just looking at the overall, I think we're still kind of comfortable in saying that we will be expecting sequential growth and annual growth as well. And I think that's largely because there are so many products that are going to be launched. And also, some of the -- our own projects are starting to getting into mass production in the second half. And that will last two quarters going forward for these new projects. So that kind of gives us some confidence in what we are projecting at this point.

And the related part of that question, the EMS division, third quarter is already coming above last year? Is that also the expectation fourth quarter comes above last year? And for these SiP projects it would also carry ATM revenue? Or is it mostly pure EMS? So it would also help the ATM revenue.

I think we don't actually try to divide our SiP business between ATM and EMS. I think it's an overall situation, I think for overall SiP second half, this does have a much stronger momentum than first half. Because in wholesale consumer, in terms of communication, there are all new products coming out and also the -- in India's new project, we also have new products. We also have new products. We also have new SiP modules that we're making for these new products. So I think it's safe to say that in the second half, both ATM and EMS will have SiP growing at above corporate average growth rate.

And the last one, just to circle back to the operating margin on EMS, you talked about a lot of investments that will improve margin next year. But is there any element of competition or product mix impacting the second half gross margin for EMS?

For EMS?

For EMS.

I don't think any of the statements today are trying to apply anything towards gross margin at this point.

You're referring to gross margin?

Yes. Just for the EMS, if there's any pressure. It seems like a lot of companies want to target SiP. So if you're having a bit more competitive and because the operating margins guided back to first quarter. Part of that is investment. But is there any element of gross profit, just the product mix or competition affecting the profitability at the gross margin level?

Well, that's very hard to say. I think it's different product or projects, it's very different. It has different material plough through it, different technology requirement involved. So I don't think it's really relevant to just look at gross profit margin of the operation. It's really set out to say, we want to set our goal at the operating level, and we set that 4% operating margin goal. And we're pretty confident that going into 2020, we will be reaching or if not exceeding that.

All right. I think that's all the questions. Thank you, everyone, for attending. Next quarter, I think we may have a different venue. So please keep on the look out for the time and place, just for next quarter.