ASE Technology - Q4 2020
February 4, 2021
Transcript
Ken Hsiang (Head of Investor Relations)
Hello, I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our fourth quarter and full year 2020 earnings release. Thank you for attending our conference call today. Please refer to our safe harbor notice on page 2. All participants consent to having their voices and questions broadcast via participation of this event. I would like to remind everyone on this call that the presentation
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 results using other accounting standards, including those presented by our subsidiary using Chinese GAAP. I am joined today by Dr. Tien Wu, our COO, and Joseph Tung, our CFO. For today's call, I will be going over our financial results. Tien will be providing a business recap, and Joseph will provide financial highlights and our guidance. We will have a Q&A session following the prepared remarks.
Please turn to page 3, where you'll find the fourth quarter's consolidated results. Intercompany transactions between our ATM and EMS businesses have been eliminated during consolidation. For the fourth quarter, we recorded fully diluted EPS of TWD 2.30, and basic EPS of TWD 2.35. Consolidated net revenue increased 21% quarter-over-quarter and 28% year-over-year. We had a gross profit of $23.2 billion, with a gross margin of 15.7%.
Our gross margin declined by 0.3 percentage points sequentially and 1.4 percentage points year-over-year. Both margin declines are principally the result of higher EMS business mix. Our operating expenses increased by TWD 1.5 billion during the fourth quarter to TWD 12.1 billion, as a result of higher profit sharing expenses issued during the strong quarter.
Despite the absolute dollar increase, our operating expense percentage declined 0.5 percentage points sequentially and 1.5 percentage points year-over-year to 8.1%. Operating profit was up TWD 2.1 billion sequentially and TWD 2.5 billion year-over-year. Sequentially, operating margin increased 0.2 percentage points to 7.6% and increased 0.1 percentage points year-over-year.
During the quarter, we had a net non-operating gain of TWD 1.4 billion. This amount primarily consists of gains related to the sale of our Fujian plant of TWD 0.8 billion, gain on sale of operating assets of $0.5 billion, and net foreign exchange and investment income of TWD 0.2 billion. This amount was offset in part by net interest expense of $0.6 billion.
Tax expense for the quarter was TWD 1.8 billion. The effective tax rate for the fourth quarter was 15%. The decline in the effective tax rate this quarter was the result of research and development tax credits that are able to be recognized during the quarter. Net income for the quarter was $10 billion, representing an improvement of TWD 3.3 billion sequentially and an improvement of TWD 3.6 billion year-over-year.
At the holding company level, we estimate that the strengthening NT dollar had a 0.9 percentage point negative impact to gross margin sequentially, and a 2.3 percentage point negative impact year-over-year. As a rule of thumb, for every percent the NT dollar appreciates, we see a corresponding 0.4 percentage point impact to our holding company gross margin.
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 TWD 24.2 billion, with a 16.2% gross margin. Operating profit would be TWD 12.4 billion, with an operating margin of 8.3%. Net profit would be TWD 11.2 billion, with a net margin of 7.5%. Basic EPS, excluding PPA expenses, would be TWD 2.63. Please refer to page 4. Here you will find the 2020 consolidated full year results. Fully diluted EPS for the year was TWD 6.31, while basic EPS was TWD 6.47. For 2020, consolidated net revenues grew by 15% as compared with 2019.
The ATM revenues grew 10%, while EMS revenues grew 23% annually. In 2020, our gross margin improved 0.7 percentage points to 16.3%, principally as a result of stronger loading. This margin improvement was achieved despite higher EMS product mix and negative impact from the strong NT dollar. Operating expenses increased to TWD 2.3 billion for the year and came in at TWD 43.1 billion.
We were able to lower our operating expense percentage by 0.9 percentage points to 9%. Operating profit for the year was TWD 34.9 billion, improving by 48% to TWD 11.4 billion. Operating margin improved by 1.6 percentage points as a result of increased gross profit margins with a lower operating expense percentage. Total tax expense was TWD 6.5 billion.
The effective tax rate for the year was 18.1%. During the year, we confirmed the deductibility of certain holding company level expenses for tax purposes. This resulted in a catch up of tax assets during the year, leading to a lower effective tax rate. For ongoing purposes, we believe our current effective tax rate to be about 22%. Net income increased by TWD 10.7 billion to TWD27.6 billion. On a full year basis, we estimate that the strengthening NT dollar had a 1.8 percentage point impact to gross margin. Removing the effect of PPA depreciation, our gross margin would be 17.1%. Our operating margin would be 8.3%. Our EPS would be TWD 7.60. On page 5 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. During the quarter, we did see three major challenges. First, the most important challenge was the strengthening NT dollar, appreciating 2.3% from Q3 to Q4. A strengthening NT dollar environment is generally negative for us.
As a rule of thumb, for every percent the NT dollar appreciates, we see a corresponding 0.5 percentage point impact in our ATM gross margin. Second, the strength in the current market has created tightness across large parts of the semiconductor manufacturing chain. We are seeing longer delivery times for many products, including lead frames, substrates, components, capital equipment, as well as upstream wafer supply from our partner foundries.
As a result, we have seen some higher manufacturing costs, but for the most part, with the positive ASP environment, we have been better able to pass along these cost increases. Finally, the current COVID environment continues to make operations and logistics difficult. However, being mostly Asia-based, we have been less impacted than many operations elsewhere in the world, and to a certain extent, because of our ability to provide supply chain stability during COVID, our businesses have been performing relatively well.
From the business perspective, throughout the entirety of the fourth quarter, most business lines within our ATM business ran pretty much at full capacity. Strength was across the board in all product categories: wire bond and advanced packaging, consumer communications, and computing. Even our test business recovered more rapidly than expected. Heading into the first quarter, things are loaded and running fairly smoothly.
We continue to see a strong loading pattern with a positive ASP environment. More on this from Dr. Wu a bit later. For the fourth quarter 2020, revenues for our ATM business were TWD 17.8 billion, up TWD 1 billion from the previous quarter and up TWD 3.5 billion from the same period last year. This represents a 1% increase sequentially and a 5% increase year-over-year. Our ATM revenues came in ahead of our expectations due to higher than expected loading and a more positive ASP environment, offset in part by a stronger NT dollar. On a US dollar basis, our ATM revenues grew by 3.7% sequentially. Gross profit for our ATM business was TWD 16.5 billion, up TWD 2 billion sequentially, and TWD 0.8 billion year-over-year.
TWD 0.9 billion of this increase was due to a one-time inventory-related write-off during the third quarter. The remaining sequential and year-over-year improvement in gross profit are primarily the result of higher loading levels. Gross profit margin for our ATM business was 22.6%, up 2.4 percentage points sequentially, and down 0.1 percentage points year-over-year. The inventory write-down in the third quarter accounted for 1.2 percentage points of gross margin improvement in the fourth quarter. The remaining improvement was the result of stronger loading and a positive ASP environment, offset in part by the strengthening NT dollar. During the fourth quarter, operating expenses were TWD 8.5 billion, up TWD 0.7 billion sequentially, and TWD 0.2 billion year-over-year. The sequential and year-over-year increases were primarily driven by higher employee bonuses tied to corporate performance.
Operating margin was 11%, improving 1.5 percentage points sequentially and 0.4 percentage points year-over-year. We estimate that the strengthening NT dollar had a 1.2 percentage point negative impact to our ATM gross margin sequentially, and a 2.9 percentage point impact year-over-year. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 23.9%, and operating profit margin would be 12.6%. On page 6, we have our ATM full year P&L. We're fairly proud of our 2020 full year ATM results. On this page, you can see that we saw significant improvement in all aspects of our business. Bear in mind, all of this achievement was done despite the loss of a 20% run rate customer in September.
Revenues for our ATM business increased by 12%, with our packaging business and test businesses up 12% and 11%, respectively. At the outset of the year, we did expect to see our test business to significantly outgrow our assembly business. However, the EAR impact was much more harshly felt by our test business, and as a result, we did have to rebalance our tester capacity. Gross profit for the year improved 19% to TWD 59.4 billion.
Gross margin was up 1.3 percentage points, primarily as a result of higher loading, offset in part by NT dollar appreciation. Operating expenses were up for the year by TWD 0.9 billion. The increases in operating expenses are related to bonuses tied to ATM business performance. Meanwhile, our operating expense percentage declined 0.9 percentage points.
Operating income improved 45% to TWD 27.6 billion, with operating margin improving 2.2 percentage points to 9.8%. On a full year basis, we estimate that the strengthening NT dollar had a 2.3 percentage point impact to gross margins. Without the impact of PPA expenses, gross profit margin would be 22.5%, and operating margin would be 11.5%.
On page seven, you'll find a graphical representation of our ATM P&L, and despite the significant impact of the U.S. EAR, we took a hit on our third quarter margins and have recovered. However, we do believe the appreciating NT dollar has flattened out our recent year margin performance. Without such NT dollar appreciation, gross margin would have otherwise made a more pronounced move up and to the right of this chart.
On page eight is our ATM revenue by market segment. We understand that this may run contrary to recent interpretations of the overall market environment, but we would like to point out here that our communication segment has actually been trending down as a percentage of our overall business. Though communications demand is healthy, what we are actually seeing is our automotive, consumer, and other business segments rebounding.
On page nine, you will find our ATM revenue by service type. As mentioned previously, we rebalanced our test capacity after the U.S. EAR went into effect. Here you can see the negative impact that the U.S. EAR had on our test business, with its revenue share declining two percentage points. As expected, our wire bond business has picked up. Meanwhile, our advanced service type declined two percentage points.
On page 10, you can see the fourth quarter and full year results of our EMS business, USI. The information we provide in regards to USI may differ materially from the information directly provided by our subsidiary, as they report independently using Chinese GAAP. For our EMS business, demand was stronger than anticipated, driven by strong SiP demand. During the quarter, we completed our acquisition of the Asteelflash Group, or AFG.
Their results are being fully consolidated as of December 2020. Currently, AFG represents about 10% of our ongoing EMS revenues. We do not expect to report AFG details in future earnings. During the fourth quarter, EMS revenues increased 49% sequentially, primarily because of our seasonal business ramp and strong demand for SiP products. EMS revenues increased 62% year-over-year as a result of stronger demand for SiP products.
Gross profit margin for the EMS business unit came in at 8.8%, which is a decline of 0.9 percentage points sequentially, and 0.1 percentage points year-over-year. The market declines are primarily the result of product mix changes. Our EMS business unit's fourth quarter operating expenses were TWD 3.5 billion, increasing TWD 0.7 billion sequentially, and TWD 0.8 billion year-over-year.
Operating expenses increased primarily as a result of increased employee profit sharing. Our operating expense percentage was 4.5%, down 0.8 percentage points sequentially, and 1.2 percentage points year-over-year. Our EMS operating profit improved TWD 1.2 billion sequentially and TWD 1.9 billion year-over-year. These improvements were primarily due to increased seasonal demand for SiP products.
Our EMS operating margin was 4.4%, which is flat sequentially and up 1.2 percentage points year-over-year. On a full year perspective, our EMS business delivered a better year, driven by strong SiP sales. On a full year perspective, our EMS business revenues increased 23%. Gross profit increased 29%. Gross profit margin also improved 0.4 percentage points to 9.2%.
Operating margin increased 0.9 percentage points to 3.8%. On page 11, you will find a graphical representation of our EMS revenue by application. With sales increasing 49% sequentially, interpreting this chart gets a bit tricky. What is fairly straightforward to see is that our communication segment increased by 5 percentage points as a result of product seasonality. Other categories generally grew in absolute dollars.
However, their growth was not as pronounced as that of the communication segment. On page 12, you will find key line items from our balance sheet. At the end of the quarter, we had cash, cash equivalents, and current financial assets of TWD 56.4 billion. Our interest-bearing debt decreased TWD 15.5 billion to TWD 209.1 billion. Total unused credit lines amounted to TWD 275.2 billion. Our EBITDA for the quarter was TWD 26.1 billion. EBITDA for the year was TWD 90.9 billion. Our net debt-to-equity ratio for the quarter dropped to 65%, the higher end of our targeted range. As of the end of 2020, our ownership of USI, listed on the Shanghai Stock Exchange under the ticker number 60231, is 73.4%.
On page 13, you will find our equipment capital expenditures. Machinery and equipment capital expenditures for the fourth quarter totaled TWD 379 million, of which TWD 296 million were used for packaging, TWD 16 million for testing, TWD 19 million for EMS, and TWD 4 million for interconnect materials. For the full year, machinery and equipment capital expenditures were TWD 1.7 billion. TWD 1.1 billion was spent on packaging, TWD 0.4 billion on test, and TWD 0.2 billion on EMS. We continue to provide our EBITDA in US dollars here as a reference. We believe that the company's EBITDA relative to our equipment CapEx serves as a key financial performance metric for the company. I would like to turn the floor over to Dr. Tien Wu.
Tien Wu (COO)
Hi, everyone. To begin with, I would like to wish all of you a happy Chinese New Year. Here, I would like to provide two updates. The first part will be a business recap, mainly addressing some of the comments which I made in our Q3 earnings call back to October 30 of last year. First item, the EAR-affected ATM business has been recovered by Q4 of last year, versus our previous commentary and expectation to be fully recovered by end of Q1 of this year. So that is good news. Second item, capacity remains tight. Last time, I made a comment that the wire bond shortage will be at least to Q2 of this year. Right now, we're slightly adjusting our view. We believe the wire bond shortage will be throughout the whole year of 2021.
The machine delivery schedule, last time we talked about between six to eight months. Right now, we're slightly elongated. The machine delivery lead time now is more like six to nine months. CapEx. The HoldCo 2020, our machinery CapEx was $1.7 billion, versus our previous estimate of $1.8 billion. The $0.1 billion was mainly due to the machine delivery schedule tied to the machine lead time. For this year, we believe our machinery CapEx will not be lower than $1.7 billion. The actual number will depending on the business landscape and how do we collaborate with our customers, as well as the machine delivery schedule. 2020, the group SiP business grew nicely, 50% year-on-year, to $3.5 billion. We made a comment, target, our incremental SiP revenue from new customers or new projects should exceed our target of $100 million.
In Q3 timeframe, we made a comment that it will be 3 times of $100 million target. The actual came in $386 million. That is, in year 2020, from new SiP customers and projects, we have accrued $386 million of revenue. I would like to make a comment on the SiP momentum. For 2021, this year, we do believe the momentum will continue, and we will have new SiP customers and new SiP projects in the north of $400 million. That will be a very, very nice momentum and ramp. With that note, I would like to turn to the next page. I would like to give you highlight for the 2021 business outlook. For this year, we expect quarter-to-quarter growth at a whole core level.
In other words, after Q1, we expect sequential growth in Q2, followed by Q3 and Q4. The second message here is, for this year, we expect, at a group level, our operating margin will further expand by 1.5-2 percentage points. Next, let me make some comment on the ATM and also the EMS separately. The semi logic market growth, we estimate between 5%-10%. We're seeing a very strong ATM run rates. As a matter of fact, we just closed our January. In our Q1, our run rate actually is the same as Q4 of last year. Just for your information, we have never seen this kind of run rate in the last 30 years in semiconductor industry. The ATM 2021 full year growth, we were targeted at 2 times of semi logic market growth in U.S. dollar terms.
This is the current expectation. The 2020 ATM operating margin that Ken just went through with you has improved 2.2-2.3 percentage points. For 2021, we expect this margin expansion will continue. As a matter of fact, our margin expansion in 2021 will be better than the 2.3 percentage points, mainly from SPIL synergy, economies of scale, efficiency improvement, as well as technology leadership, despite the foreign exchange impact for NT against U.S. dollar. The EMS business should have a higher year-on-year growth rate than our ATM business, with operating margin targeted at 4%, another slight improvement. Future growth engines to drive the rising trend into the next five years. I put five years here with some optimism. From where we stand right now, I think the 2021 loading is very strong, and we're quite confident of that.
Right now, our optimism has expanded into 2022. I would like to make a comment about our next five years with our growth strength and growth strategy. I think in 2020, as well as in 2021, we will demonstrate efficiency in ramping up and the overall supply chain management to all of our key customer and to our shareholder and our investors.
In 2020, we have pandemic, as well as supply chain constraint at all levels. The ramping up at such a dramatic rate was not a simple challenge. Also, we have replaced one of our high runner due to the EAR effect. The retooling, recalibration, readjustment of our manufacturing portfolio, as well as re-qualification for many of the products asked by our customers, was not an easy task.
So in 2020, we have clearly demonstrated our capability to ramp up as well as procure necessary materials in a very adverse and challenging environment. We're confident we will repeat the same thing in 2021, and that will give a boost of confidence to our key customers and securing the future business based on that performance.
Following that comment, we do see very strong loading agreements, mostly 2 years, as well as very strong NPI pipeline, which covers a wide variety of applications, namely 5G SiP, sensors, and very strong ramp in automotive, as well as smart devices and Edge devices. We made a comment previously, talk about our LiDAR factory or the fully automated line. At the end of 2020, we have a total of 18 LiDAR factories. In this year, we have more than 25.
The comment I would like to make here is, those LiDAR factories proven to be very efficient and very usable in ramping up new volume, particularly with customers who have to do this remote. All of the light-off factory or the automated lines are in very, very high demand from two types of customers, either high reliability seeking or data seeking for a variety of reasons.
Our LiDAR factory can provide real-time information in a very detailed manner to our customers, either in medical, automotive, or high reliability applications. We're seeing more volumes demanding multiple dies and sensors, and we believe this will fall into ASE's sweet spot. In other words, since 2013, we have been building a portfolio covering multiple dies as well as different packaging algorithm, methods, process, material set for all kinds of sensors.
And we're seeing huge demand due to the IoT Edge device and smart device enabled by the 5G. In net, what ASE is trying to do is to build a pervasive foundation and to be the preferred choice for all high-volume applications. We do see that the pandemic, learn from home, play from home, work from home, has created a slight uptick on the overall semiconductor demand.
With the high-performance computing, the cloud, e-commerce, as well as the 5G low latency and high data rate, we're seeing more application released into the smart device, electric vehicle, and all of the IoT application. With that, the traditional packages will be expanding to multiple die and sensors. We believe the OSAT market, we're taking a clear leadership.
Also, because of our performance in economies of scales, we have better traction with all of our key customer, and this describes why we're having such a demand curve in 2020 as well as 2021. With that, I would like to pass the floor to our CFO, Joseph. Joseph?
Joseph Tung (CFO)
Okay. Happy New Year to everybody. Before I go into our financial highlights, let me give you the guidance for our first quarter. Like, Ken just mentioned, fourth quarter last year was a very exceptional strong quarter for us, and we were able to recuperate whatever business loss that we had from the EAR impact. And this strong momentum will continue into first quarter, so we're going to have a unprecedented first quarter performance. And from the ATM perspective, in US dollar terms, ATM first quarter 2021 business should be similar with fourth quarter 2020 level. Consequently, the gross margin should also be kept at a similar level with fourth quarter of 2020 as well.
In terms of EMS, in US dollar terms, EMS will follow the seasonality. First quarter 2021 business should be similar with third quarter 2020 levels, whereas EMS first quarter operating margin should be slightly below the whole year 2020 level. That is the guidance that we're providing. Now, let me move into some of the financial highlights we have going through 2020. In the beginning of the year, in 2020, we set out to say that we would set a operating expense ratio. We want to lower it to 2018's level, which is 9.4%, and we have actually achieved ahead of that target. In 2020, our whole year operating expense ratio was managed to be held at 9%.
And we will continue to put a very tight control over our OpEx ratio, and we are expecting to maintain the same, same OpEx ratio for 2021 as well. Also, in 2020, we also set a target to say we want our operating margin to improve by 2%. From the reported operating margin we stood at 7.3%, which is 1.6% higher than previous year. But still, if in all fairness, we have to look at the FX impact. In 2020, the operating if we net out the currency impact, the operating margin would have been 9.2%, which is 3.5 percentage point higher than 2019 level.
Therefore, we believe that we have, we have actually achieved our, our goal to have, for, the operating margin improvement. For 2021, with the strong business momentum, we are targeting another 1.5-2 percentage points operating margin improvement for the year. And also, to support the, the strong business momentum in 2021, in last quarter, we were saying that we were expecting the, our CapEx for the year to be lower somewhat from, 2020's level. But with the, strong business momentum, we are actually raising that expectation in our CapEx to be similar to, to 2020's level, which is, was at, $1.7 billion.
Having said that, I think we want to dive a little bit more in, deeper into the CapEx number. As we mentioned, in 2020, because of the EAR restriction, we actually disposed some of our capacity up to the amount of around $300 million. And for this year, we need to recuperate that capacity. So part of the CapEx that we're gonna spend in 2021 will be to recuperate that capacity that we sold, and we will reconfigure the capacity to fit the current demand. Also, in 2020, we set a goal to have our net debt-to-equity ratio down to 60%-65% level.
I think we have reached that goal ahead of time. In fact, at the end of 2020, we already reached the 65% or the high end of the target. And this, we will continue to monitor very closely, and hopefully we can drive it further down in 2021. In terms of dividend, we are raising, actually raising our dividend payout. We expect to raise that from not less than $3 a share, as I previously mentioned, to no less than $4 a share. So to give our shareholders, have our shareholders to share more of the benefit that we coming out of this strong performance that we had for 2020. With that, I'm opening the floor for questions.
Operator (participant)
Thank you very much. Ladies and gentlemen, we are about to begin our Q&A session. If you wish to ask questions, please press zero one on your keypad, and you will enter the Q&A queue. Please ask your questions after your name is announced. If you wish to cancel your question, please press zero two. Thank you. Now, please press zero one if you would like to ask questions. Thank you. The first to ask questions, Randy Abrams, Credit Suisse.
Randy Abrams (Managing Director and Head of Taiwan Research)
Okay. Yes, thank you, and congratulations on the results and outlook. I wanted to ask the first question on the Wire Bond tightness, the change in view from midyear to full year. Just how much? You mentioned the equipment lead time pushout, but just how much a factor of demand, and maybe what demand changes you saw to push that out to end of year? And if you could talk about how much wire bond or capacity you'll be adding to keep up to that demand?
Tien Wu (COO)
So the first question is the demand has not slowed down at all, and the machine lead time is getting longer. That's why we're confident that the Wire Bond capacity will remain to be tight to the end of this year, at least, if not longer. In terms of the number of wire bonder we're adding, I think last year we add 1,800, and this year we believe we will add to a similar number of units. Right now, we have confirmed delivery of 1,200, and we're working on the other. But in terms of the wire bond tightness, it's a combination of demand has not slowed down, as well as the machine lead time. And it's not just Wire Bond, it's the whole line balance.
Randy Abrams (Managing Director and Head of Taiwan Research)
Okay. And if I could follow up on the demand for wire bonder, just the application, is it more PC consumer related? But also the other side, automotive, I think since you last reported, got even more tight. If you could remind us just how big the automotive sector is and how you see that coming, and whether you need to even prioritize some capacity with that market, it seems like picked up quite a bit into your end.
Tien Wu (COO)
Right now, we have very high demand in automotive, mainly from the automated line, as well as some high quality wire bonding process. The demand is actually getting to be very strong. In terms of the percentage, it is actually very difficult to estimate because we do have specific customer who are 100% engaged in automotive business. But what we're seeing today is, because of the advent of electric vehicle, we have more customers getting to the design team with the automotive guys, and therefore, it will take us a while to really comprehend exactly where the end application is.
Randy Abrams (Managing Director and Head of Taiwan Research)
Okay. Okay, fair enough. And if I can ask on the pricing, where you talked last quarter about raising price, how should we see the pricing in terms of magnitude? Like, how much, and then how it's taking effect? Like, because it looks like your expectation will be tight through the year. So would it be like sequentially, you see ability to take up pricing, so we'd see it coming throughout the year? And I think you talked a bit about even two-year, some two-year contracts. If you could talk a little more about what that involved, like, how much of your business, or what that's doing, what you're contracting in for pricing on those?
Tien Wu (COO)
Well, the comment that I made the last quarter caused a lot of confusion and complaint, so I'm not going to comment on that anymore. The only thing I, the only thing I can tell you is we do have a very friendly pricing environment, and the pricing adjustment, it's not. It's a science, it's art. You have to really look at the business dynamics and how do you really collaborate with your customers, and how do you really support them in their total business portfolio. I think we have struggled the second half of last year and all the way to now, trying to accomplish what I've seen last in the balances. The two comment that I made last time caused a lot of confusion.
First, I give a very quantitative number on the Wire Bond shortage, and I'm not going to do that again. And then I talk about the pricing environment, and I won't do that again either. So, apologize.
Randy Abrams (Managing Director and Head of Taiwan Research)
Okay. The last question I was asked for now. On OpEx, I just want to clarify. I think Joseph, you made a comment about manage the OpEx to keep at 9%. But I think the sales you're guiding up double digits. So is it expectation the OpEx would be growing in line with the revenue run rate?
Joseph Tung (CFO)
I will say that, you know, there's still room for further improvement. But, you know, with the growing profitability, I think the bonuses and the salary adjustments will start to kick in a little bit more. So at this point, I want to stay a bit conservative, although I'm not precluding any possibility of further improvement in our OpEx ratio.
Randy Abrams (Managing Director and Head of Taiwan Research)
Okay. Is the bonus expense tied to a percent of net income, or is there a way to think how we should model that structure?
Joseph Tung (CFO)
The OpEx?
Randy Abrams (Managing Director and Head of Taiwan Research)
With the like the bonus expense, like, back when bonus expensing first started, it was a percent of net. Is it a percent of, like, pre-tax income, or is there a way to think how that, or that goes up with more profit sharing as you get more profitable?
Joseph Tung (CFO)
Yeah, it goes up with the profit that we're making in terms of the profit margin.
Randy Abrams (Managing Director and Head of Taiwan Research)
Okay. All right, great. Thanks a lot, Joseph.
Joseph Tung (CFO)
Yeah.
Operator (participant)
Next one to ask question, Gokul Hariharan, JPMorgan.
Gokul Hariharan (Managing Director)
Yeah, hi. Congrats on the good results. Thanks for taking the question. First of all, could we talk a little bit about advanced packaging and testing? How was the kind of backfill and recovery from the impact? I think we did have some impacts in Q4 for both these areas. I think it was lower than Q3. How should we think about those areas? If you think about double-digit growth for IC ATM this year, if we were to rank Wire Bond versus advanced packaging versus testing, how should we think about the growth ranking for these three components of IC ATM?
Tien Wu (COO)
Okay. 2020, especially Q4, was kind of painful process for us, mainly because the EAR affected customer, which happened to be very high run rate on our the fan-out and some of the advanced packaging facility, as well as the advanced testing facility. We have fully recovered that. We have disposed some of the asset, as Joseph already talked about it.
The remaining asset, we have to retool, recalibrate, reconfigure to to accommodate the other customer, who might not have exactly the same configuration requirement compared to our EAR affected customers. That has been largely done. In terms of the - now after that recalibration, in 2021, we do expect the advanced packaging, as with testing, to resume the growth curve.
Gokul Hariharan (Managing Director)
Do you feel that it will grow faster than overall average, or probably still going to be in line with the overall average or slightly lower?
Tien Wu (COO)
It will be in line with our overall growth.
Gokul Hariharan (Managing Director)
Understood. My second question, okay, you mentioned work from home, stay at home, and some of the new demand drivers that have emerged as a result of the pandemic. When you think about your increased confidence in demand not just for this year, but also for next year, and that is kind of reflected in your CapEx increase as well, do you feel, or do you kind of bake in some kind of mean reversion here in terms of the demand going back once we get into some kind of a recovery? Or you think that this is a new normal and your customers are basically expecting the demand to basically stay at these levels or even grow from here rather than mean revert back?
Tien Wu (COO)
Sorry. Of course, that is an educated guess. Assuming the vaccination and also the pandemic situation is largely under control, the question now is, will we still see the current demand curve to continue? My belief is the answer is yes, mainly from the following reasons. Now, once you're accustomed to using a Wi-Fi, using the smart device, using multiple computer, there is no turning back. And also, I think for you, myself, as with many of the semiconductor veterans, we're used to travel, flying around. I think 18 months, 24 months of time, is enough to change a lot of the human behavior.
For example, all of our customers who have not been traveled since the last 12 months, in future, there will be increasing percentage of people working from home, having conference at home to replace some of the travel face-to-face meeting. In that regard, I think the IT equipment, the bandwidth and the quality, and also the number of units people are willing to stand by, as well as the age group, which covers the older age group as with the younger age group, I think that effect is there. Of course, we actually do not know how much that slope is going to change, but I believe the slope will be better than pre-pandemic days.
Gokul Hariharan (Managing Director)
Understood. That's very helpful. Maybe if I could ask one more question to Joseph. This is when you talk about margin expansion on the looks like a lot of the margin expansion is going to still come from gross margin, given you're expecting OpEx to remain largely flattish, at least the starting point of your expectation. Is it, given that, except for maybe one quarter, we were reasonably fully utilized all through last year, is it mainly a pricing translating into gross margin expansion because of capacity tightness and the different kind of pricing? Or are there any other variables? Is it more of the SPIL synergies starting to kind of come in when we think about the gross margin in 2021?
Joseph Tung (CFO)
Well, I think it's a combination of many different factors. So, of course, a friendly pricing environment certainly helps. But I think we will continue to improve our efficiency through further automation in our factories. Also, the synergy that we can be creating with the cooperation with SPIL will continue to benefit us in terms of margin improvement. There are other measures that we're taking at this point to, like, Tien just mentioned. There are a lot of the ways that we do business will be different and will be more efficient. So all these and plus the continuing technology investment that we're putting in our factory in terms of making new products and, you know, creating new projects, particularly in the SiP area, those all put together will definitely have a positive impact on our margin.
Gokul Hariharan (Managing Director)
Got it. Maybe one last question. Could you also talk a little bit about how much of our EMS revenues were SiP last year? And, could you talk a little bit about what are the new projects, like, what kind of products are they still, products that we are looking at in terms of this, new $400 million revenue stream coming in this year? Are we also seeing some diversification of this into other verticals? Thank you.
Tien Wu (COO)
We're seeing a whole wide variety of new SiP projects that covers the optical, the audio, and silicon photonics, as well as a lot of the smartphone edge devices. We're kind of pleased to see that finally the SiP project start to gain momentum. And one of the thing I always like to tell people is, when I talk about the heterogeneous integration, I'm really not addressing the silicon on silicon type of integration. I think the ASE sweet spot for the SiP will be the traditional silicon on silicon, multiple die, as well as optical sensor integrated in a very packaging manner. I think that, you know, we are looking at a huge growth rate ahead of us.
I can't really give you a number, but over the last few years, we have been faithfully collaborating with a lot of our key customers and trying to come up with design applications that can improve the efficiency, leverage the success of the HPC bigger brain, and also the success of very powerful network and cloud with the 5G data rate and low latency. I think we're seeing more application in all areas. But all of the little devices for the mass market, that is really the sweet spot that ASE has been designing for. With our key customers, with our early success, I think ASE today almost become the first choice.
For example, in the 5G, in most of the unique SiP, the ASE has always been the first one to engage with our key customers. And I think that trend hopefully will repeat in 2021, that we'll have an even higher confidence, and maybe we'll be able to give you a projected market size based on the effort. But in the last few years, we couldn't give you that number because we're primarily working with few customers. But now we're seeing a broader, more diversified portfolio, and we gradually understand the design rule, the value, the physical, electrical, the cost performance, so we're just building the database to that.
Our fully automated factory really was part of the overall architecture to accommodate that, because if you don't understand how the sensor interact physically and electrically with one another, it's very, very difficult to build high multiple die, high level integration with all variety of sensor using different material and different configuration. And I think that is something it become more obvious to us through the effort of the last few years. It's a long answer, but I think it's a key answer. It is the key message I would like to deliver to, to all of our partner investors.
Gokul Hariharan (Managing Director)
Got it. Thank you very much. That's very helpful. Thanks.
Operator (participant)
Now, the line is open to Roland Shu from Citigroup.
Roland Shu (Director and Head of Regional Semiconductor Research)
Hi, good afternoon. I think the first question still for the gross margin. So look at your IC ATM gross margin in fourth quarter. It improved by 2.4 percentage points with the overall IC ATM revenue was in a fairly better than particular last year. However, I look at this testing revenue actually been declined a lot in 4Q. So, but still, you know, your gross margin has been improved a lot. So, Joseph just said you have a lot of this efficiency improvement and some also with this better pricing environment.
Question is, you know, is this improvement on gross margin one-off or are we expecting the gross margin improvement for this IC ATM will be continue, even though our testing business, you know, declined in 4Q?
Joseph Tung (CFO)
With the higher loading that's continuing with a very strong business momentum and the continuous effort that we're putting in terms of improving our overall efficiency, and also with the closer collaboration with SPIL to create further synergy, I do believe that in this year, we will continue to see margin improvement at the growth level.
Roland Shu (Director and Head of Regional Semiconductor Research)
Okay. Yeah.
Joseph Tung (CFO)
Although there are some headwinds in front of us, including the strong NT dollar. And also, as you mentioned, we're in the process of recuperating some of the lost test business, which tend to have a higher gross margin. But putting all these together, I think there are some plus and minuses, but we're still very confident that we will continue to see margin improvement going forward.
Roland Shu (Director and Head of Regional Semiconductor Research)
Understood. Yeah, and for your testing business, actually, in past couple years, you had a big amount of the testers, and then you also would like to increase this testing business. However, I think in 4Q, the revenue for the testing was the lowest quarter in last year. It was even lower than 4Q last 2019. We think, you know, the EAR probably was the reason for this lower testing revenue. Except for this EAR, you know, is there any other issue caused this testing revenue decline in 4Q last year?
Joseph Tung (CFO)
No, I think that is really the main reason why we're... Because of this customer that is impacted by the EAR, it unfortunately has a very high turnkey ratio with us. And now that this part of the business will take some time for us to bring back. But I think fortunately, I think the current market environment does allow us to have more capability in terms of raising our overall turnkey ratio with our customers. I think by second half of the year, we should be seeing a full recovery of our test momentum.
Roland Shu (Director and Head of Regional Semiconductor Research)
Second half this year, 2021.
Joseph Tung (CFO)
Right. And, you know, it does take some time, not only to bring in new business, but also to re-equip ourselves with the suitable testers. It does take some time for us to fully recover.
Roland Shu (Director and Head of Regional Semiconductor Research)
What is the utilization for the testers at this moment?
Joseph Tung (CFO)
For fourth quarter, starting from fourth quarter, I think the overall test utilization has come down a little bit to below 80%.
Roland Shu (Director and Head of Regional Semiconductor Research)
Mm-hmm.
Joseph Tung (CFO)
It was around 80% before.
Roland Shu (Director and Head of Regional Semiconductor Research)
Okay. Yeah. How about the for IC ATM and for packaging?
Joseph Tung (CFO)
Packaging? For packaging was well, you know, we're running at full capacity. I think typically, we'll say it's 80%+.
Roland Shu (Director and Head of Regional Semiconductor Research)
Okay. Yeah, so in fact, in first quarter, this utilization for packaging and testing in first quarter probably be similar as 4Q?
Joseph Tung (CFO)
Yeah. To go in the, like I mentioned, the run rate of our business remains the same as in the fourth quarter, so the utilization should be very similar.
Roland Shu (Director and Head of Regional Semiconductor Research)
Okay. So, previously, you have the target for testing revenue to be, to reach, 1/4 or 1/3 of the total IC ATM revenue. So, now, do you still keep the same goal for this testing revenue? And when do you think you will reach this goal?
Joseph Tung (CFO)
Yes, I think the test business is still a very, very lucrative business for us to build further. And we're setting a high goal for us, and we'll continue to work very hard on this.
Roland Shu (Director and Head of Regional Semiconductor Research)
Okay. So you don't have the time frame for when to reach this one-fourth or one-third of the total IC ATM revenue?
Joseph Tung (CFO)
Oh, we'll take one step at a time. Yeah.
Roland Shu (Director and Head of Regional Semiconductor Research)
Okay. Okay, lastly, for you said, you have this two-year loading agreement with customers. Just would like to know, is this for all customers, all application, or this is just for some specific customer's product? And, is this, you know, loading agreement fixed price or fixed volume, you know, for two years? Thanks.
Ken Hsiang (Head of Investor Relations)
We have 90% of the customers covered two years.
Roland Shu (Director and Head of Regional Semiconductor Research)
Ninety percent?
Ken Hsiang (Head of Investor Relations)
Yeah.
Roland Shu (Director and Head of Regional Semiconductor Research)
90% of all IC ATM customers, right?
Ken Hsiang (Head of Investor Relations)
Wire Bond.
Roland Shu (Director and Head of Regional Semiconductor Research)
Mm-hmm. Sorry, I'm sorry.
Joseph Tung (CFO)
Wire Bond.
Ken Hsiang (Head of Investor Relations)
I thought you were referring to Wire Bond.
Roland Shu (Director and Head of Regional Semiconductor Research)
Okay, 90% of the Wire Bond customers.
Ken Hsiang (Head of Investor Relations)
Right. That covers the NPI volume as well as pricing.
Roland Shu (Director and Head of Regional Semiconductor Research)
Mm-hmm. Okay. So this is a fixed pricing and a fixed volume for two years?
Ken Hsiang (Head of Investor Relations)
Yeah.
Roland Shu (Director and Head of Regional Semiconductor Research)
Okay. Thanks.
Operator (participant)
Next one to ask question, Rick Hsu from Daiwa.
Rick Hsu (Director and Senior Equity Analyst)
Yeah, hi. Good evening, guys, and thank you so much for taking my question. I just have one simple question. Could you run through the details again about your Q4 non-operating gains? Because I kind of missed this part at the beginning.
Ken Hsiang (Head of Investor Relations)
Oh, Rick, we - hang on. Let's get to the page here. The majority of the gain relates to disposition of the Fujian plant. That's about TWD 800 million. We also saw some asset disposition gain. So, you know, we did have to reshuffle testers and such, so we did sell testers, but we did get gains off of those.
Rick Hsu (Director and Senior Equity Analyst)
Mm-hmm. How much is gain of cap.
Ken Hsiang (Head of Investor Relations)
Yeah, TWD 0.5 billion of that.
Rick Hsu (Director and Senior Equity Analyst)
TWD 0.5 billion.Okay.
Ken Hsiang (Head of Investor Relations)
And then we have net interest expense.
Rick Hsu (Director and Senior Equity Analyst)
Right.
Ken Hsiang (Head of Investor Relations)
TWD 0.6 billion.
Joseph Tung (CFO)
And we also have some Forex.
Ken Hsiang (Head of Investor Relations)
Yeah. We have Forex and investment related income this time around, so it's about TWD 200 million, so TWD 0.2 billion.
Rick Hsu (Director and Senior Equity Analyst)
Okay. All right. Thank you so much. Yeah, that's all I have. Thank you.
Joseph Tung (CFO)
Thank you.
Operator (participant)
Now, we're having Charlie Chan from Morgan Stanley for questions. Go ahead, please.
Charlie Chan (Executive Director and Technology Research Analyst)
Thanks, and congratulations for the great results and, Happy Chinese New Year. So my, my first question is really about your Wire Bond capacity expansion. So first of all, can Dr. Tien go through, you know, your strategic thinking behind it? Because if you expand a capacity, maybe that kind of jeopardize your pricing power. And if you don't expand, you know, maybe you cannot capture the business opportunity. So that is a question number one. And secondly, I'm a little bit curious about your machine lead time, right? Last year you added 1,800 units, and this year is the same.
But why, last year there was not a shortage, and now you have such a lengthy lead time for those machines? I know you probably more depend on Kulicke & Soffa as the major wire bonder vendor. Is that kind of a long lead time only applied to the K&S, and do you consider to also buy more wire bonders from K&S in the future? Can you talk about those topics? Thank you.
Tien Wu (COO)
Okay, we have reported we added 1800 wire bonder last year, and some of the PO that we placed in the second half of last year has not been delivered yet. Some of the PO that we issued last year will be delivered throughout this year. We are also issuing new POs based on the loading agreement and also the requirement, as well as many of the other equipment that were composed to the full manufacturing line. So it's not just wire bonder, you also have all of the other equipment that go with the Wire Bond requirement in a different configuration based on the product. When I talk about the longer machine lead time, you have to go back to the machinery CapEx of the whole industry.
If you go back to 2018 and 2019 and 2020 number for the whole OSAT, you will see that ASE was one of the company that spent more money in 2019 and 2020, compared to all the other OSAT. So some of the orders that we placed in 2019 and 2020 and the capacity we built up, and that was the leverage we had versus a lot of our customer in the delivery, in the capacity crunch. We do have a better negotiation position based on our spending power as well as our strategic alliance to all the customers. However, given the 2020 capacity crunch, I believe all of our competitor are placing order for all the equipment that are required to meet customer demand.
So in 2021, we do believe the delivery will not be as smooth comparing to 2019 and 2020. And this explains why we don't believe, but I will not be able to comment on the particular vendor that we use and also the number, because this will cover a lot of the instrument and equipment that we need. We also need to cooperate with the substrate, the lead frame, and all the other mature supplier. It's just not Wire Bond.
Charlie Chan (Executive Director and Technology Research Analyst)
Yeah.
Tien Wu (COO)
I'm pretty sure you know how tight everything are.
Charlie Chan (Executive Director and Technology Research Analyst)
Okay. That's, yep, that's actually very, very helpful. So I guess the, you know, that, you know, kind of long lead time or timing is kind of across the board, maybe not just a single equipment or single vendor. But, Dr. Tien, would you think this kind of, you know, aggressive spending, not just your company, but also just as you mentioned, your competitors, would ruin the discipline of the, you know, wire bonding markets, and next year, you probably see a kind of some pressure from customers on the wire bonding price?
Tien Wu (COO)
There, there's something we learned in 2020 that's slightly different than before. Before, we talk about capacity, and the customer will come in, they leverage the underutilized capacity versus pricing. But in 2020, I believe a few things have changed.
Charlie Chan (Executive Director and Technology Research Analyst)
Right.
Tien Wu (COO)
People cannot travel. Therefore, the customer needs to arrange capacity qualification via remote somehow, relatively speaking. So for the company that have a track record of consistent delivery, as well as plenty of data to demonstrate the integrity of the process, will give higher confidence to the key customer and their end customer to use our capacity. Now, in 2020, I do not have the detailed number of all our competitor, but I do not believe our competitor were as full as ASE. Having said that, we still have a lot of customer who need high reliability or consistency in delivery, or more so in the speed of ramping up or the so-called time to market.
So in 2020, even though we're very, very tight, but we have more customer coming to ASE demanding a longer term service agreement, such that we can provide the data, the serviceability, the fast ramp-up, as well as the quality expectation or the reliability that go with the high quality requirement. Now, you have to understand that we were running full in 2000. In a running full and another 10%, 20% ramp-up is a huge challenge. Without a fully automated line, without a careful landscape planning for the last few years, you simply cannot achieve this kind of time to market.
So I think 2020 is a very good confidence boost to my sales team, to my manufacturing team, and based on all of the dialogue I have with my key customer, they really appreciate how Taiwan was managed throughout the pandemic, how the Taiwan Semiconductor companies were managing the delivery in a very adverse supply chain environment throughout the whole 2020. And I believe that will carry us far. For the partner that we support, they're gaining market share, and I think this is another reason that I believe not only we will grow, we'll capture a huge chunk of the semiconductor growth in logic space, we will also force and enable more outsourcing for IDMs. That's I believe that in the next few years, we will enjoy a higher growth rate as a result of all of these factors.
Charlie Chan (Executive Director and Technology Research Analyst)
Thanks for the insight, Dr. Tien. I think that's very clear. So, may I also follow up Roland's question about your gross margin trend? Sorry, I'm not sure if you did, you know, give the gross margin guidance for this year. Can you kind of break down by your ATM business and EMS business gross margin trend in 2021? And also, I know you no longer comment about the pricing, right? But, may I know for flip chip and testing, do you expect price to go up this year?
Tien Wu (COO)
Joseph, you will comment on the gross profit.
Joseph Tung (CFO)
As I mentioned earlier, I think for 2021, I think we will continue to see margin improvement at the gross level. With the steady or improving OpEx ratio, I think also on the operating margin, we will continue to see improvement. That comes from, you know, a lot of the effort that we put in, in terms of improving efficiency, creating synergy with SPIL. Also the higher loading, of course, it helps. A friendlier pricing environment also help. I think all of these put together give us a very high confidence that we will be improving our margin going forward, for ATM.
As far as EMS perspective, I think the more relevant margin is at the operating level, because of the different product mix, it will create quite a bit of fluctuations on the gross level. So the more relevant or more meaningful benchmark is really on the operating level. For that, we are targeting a 4% operating margin for EMS business. That's slightly up from what we achieved in previous year, which was at 3.8%.
Tien Wu (COO)
Okay. For the - for the other line of business, flip chip, the fan out and all of the others, we're also seeing a more friendly environment, but not as friendly as Wire Bond, but, you know, they're friendly. Okay, I will not comment any more on that.
Okay. Thanks, gentlemen. It's very helpful. Thank you.
Operator (participant)
Next one to ask question, Sebastian Hou, CLSA.
Sebastian Hou (Managing Director and Head of Technology Research)
Thanks, thanks for taking my questions. So just follow on, the pricing and the margin, that part. If I look at your Q4 2020 margin, that has improved. I think there is a combination of the utilization rate improved, synergies and pricing. But looking now into your 1Q guidance, revenue and margin will be similar to last quarter. So, can we say that the pricing is not a factor anymore in this quarter to drive the margin further improvement?
Joseph Tung (CFO)
I think, it's, you know, to have a similar margin quarter is quite a bit of a challenge in itself already, because we are facing further NTD appreciation, which will have an over 1% impact on the margin. We are going through Chinese New Year. And some of our factories are going through annual maintenance, so we will have less working days. And also, throughout the, there's a lot of hóngbāo that needs to be passed out. So the overall conversion expense is gonna be higher for the quarter.
So all the things put together, I think we're doing a pretty good job in maintaining our margin at a similar margin from fourth quarter.
Tien Wu (COO)
I mean, just for clarification, the so-called seasonality is due here. In other words, some of the key customer running very high volume device for consumer or wireless application. And this to go through seasonality in Q1. As you can see in our EMS business, you know, we'll go through some sort of a seasonality pattern. So to offset the vacuum created by the seasonality of loading, we have to go figure out how do we add capacity, how do we enable other customer, and ramp up that volume. In Q3 of last year, when I made a comment that our high run rate year, our customer who got affected, we expect the end of Q1 to fully recover that vacuum. So in fact, we have the air vacuum.
We also have the normal seasonality vacuum in Q1. So what we're making a statement is, you know, we actually replenish 2 vacuums created by the unavoidable forces. Now, how much of that is through efficiency, the product mix, and also pricing environment? I cannot get into the detail. But what we're telling you is, at a macro level, given that we have three to four days shorter working days, because February as well as the annual maintenance, on top of that, we have foreign exchange, that hopefully we can deliver a very strong Q1, which will be a new record in my career time, at a revenue level in Q1, as well as the margin level. I hope that clarifies our current view about how unique Q1 is.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay, thanks. And the second question is on the two-year contract you have with the wire bonding customers. So, if I may just want to understand the pricing schemes you have, it is that the customers already agree with you have to elevate the price one time, and from now on, in the next 24 months, the customer will sit on that fixed price already, or the schemes also cover some price increase this year, another part of the price increase will happen next year, within the next 24 months.
Tien Wu (COO)
I will not comment on that. I can only tell you that we have elevated the baseline, and then there will be other calibration based on business dynamics. I will not comment any more details on that, because everyone is different.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay. But, so it's fair for us to assume that I think the every customers have different scheme, and, so which means that the price adjustment may not end yet?
Tien Wu (COO)
I won't comment on that. You know I won't.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay. And then another part of the question is that I think that you, Dr. Liu, you have mentioned that aside from wire bonding, the other business, the pricing environment, also getting more friendly right now. So do you see the possibility that customers will also get on board with maybe some long-term agreements, like bumping or flip chip business?
Tien Wu (COO)
So I won't comment on that right now.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay.
Tien Wu (COO)
Sorry.
Sebastian Hou (Managing Director and Head of Technology Research)
No, no worries. The next question I have, in terms of the wire bonding equipment availability, I know that the lead times get extended because everybody wanted to buy those equipment right now. But do you see there's any intrinsic bottlenecks or intrinsic limitation of the wire bonding equipment for the industry or for you to buy?
Tien Wu (COO)
I don't think there is any other, just, it's just over delivery. You need to have a line balance. You know, you don't buy one type of equipment in excessive way. It will come in with a line balance optimization, as well as the substrate, the epoxy, and all of the other material supply. And I mean, the floor space, the training, IT system, I mean, I can just go on and on about what do you need to do. On top of that, the wastewater, the air, there's a whole lot of things that you cannot react just in time. The manufacturing floor takes years of planning to do.
We're just giving you, at a macro level, what the estimated number in terms of increment that we will be able to achieve.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay. All right, that, that's fair. Last question from me is for the EMS business. I think the company comment that I think this year, the EMS business growth will be higher than IC ATM this year's. So, can you give us some examples of the, or give me more colors about what's driving that? Thank you.
Tien Wu (COO)
Well, you have the Asteelflash acquisition.
Sebastian Hou (Managing Director and Head of Technology Research)
Oh, if we - if we exclude that?
Tien Wu (COO)
Well, then you will have a combination of growth in all sectors, you know, in a highly constrained environment, the traditional EMS business will grow because everyone is looking for parts.
Sebastian Hou (Managing Director and Head of Technology Research)
Oh, okay. Thanks, thanks for mentioning that. If we exclude the acquisition, would EMS still be growing above IC ATM or below?
Joseph Tung (CFO)
I think the overall organic growth of. The overall EMS growth comes from both organic growth as well as the addition of Asteelflash, which represents about 10% of the overall EMS going forward. So, we did mention that we are expecting the ATM to grow two times of the logic semi market growth, so you can do the math from there.
Sebastian Hou (Managing Director and Head of Technology Research)
Okay. All right. That's all for me. Thanks.
Operator (participant)
Next one to ask question, Bruce from Goldman Sachs.
Bruce Lu (VP and Equity Analyst)
Hello, good afternoon, and thank you for taking my question. I think my question is for the overall ATM growth in 2021, which is, like, two times higher than the semi growth. So for the midpoint, it's about 15%. Which is very, very good. You know, can you give us a little bit breakdown in terms of, like, which one will grow faster, or what other growth driver is coming from? How much is coming from the share gain, how much is coming from SiP, or, you know, you know, how big is Wire Bond, future testing, what kind of rank in terms of their growth rate for 2021?
Tien Wu (COO)
All right. 5G is at the onset. So we're seeing a lot of the 5G volume, and then. You probably know the number better than we do. So our key customer in the 5G space that cover the whole slew of applications, front-end module, power amplifier, and the 5G chipset, the PMIC that go with it, as well as, because of 5G and a lot of the customer need to upgrade their infrastructure, Wi-Fi. So the Wi-Fi is there. We're having a lot of demand from the automotive and the electric vehicle. And I talked about the smart devices and the edge device. So we're seeing more SiPs.
I just comment, in year 2000, we have $386 million of new SiP business, and we believe in 2021, on top of that, we get another $400 million of SiP business. And they're mostly audio, optical-oriented, and all of these are new. And, honestly, I think we're the first mover in the, I think in all of these applications. So I don't think it's a market share gain. It's just a brand-new market enabled by the pandemic, or more specifically, enabled by the brainpower, the HPC and AI, the cloud data center and the e-commerce... and you're seeing a lot of the smart devices in IoT being enabled.
Now, I will not comment any more details, but I think over time, you will see a higher semiconductor growth rate reported by many of the semiconductor companies. And the, I think ASE's got the right infrastructure and the know-how and the reputation to facilitate those high volume ramp up and time to market in a very, very timely manner, particularly in a challenging environment. So I think 2021, at this point in time, we're very, very optimistic about a baseline that covers all of the loading agreement, as well as NPI, and we look at the pipeline and their end market application. So our internal judgment is that, the, those volumes are very real, and they will have longer life and stronger leg in the next few years.
Bruce Lu (VP and Equity Analyst)
I see. Okay. Can I dig a little bit more into the SiP business? I mean, you know, you just mentioned that SiP, the total group revenue is about $3.5 billion. But, well, as an analyst, we have difficulty right now to break down, you know, how much is coming from EMS, how much is coming from ATM business, because some of the projects is a bit confusing from our perspective.
So can you give us a breakdown between the SiP business, you know, between the EMS and ATM? And also for the growth rate, if the SiP business, the new project is about like $400 million in the course of this year, most likely it's for like 10%+ of the year-wide growth for 2021. So which is somehow slower than the overall corporate growth rate. Does that sound right?
Tien Wu (COO)
Well, if I can give you the breakdown, which I'm pondering, I don't think I would give you the breakdown this time. No, the growth rate is much higher than our corporate growth rate, because a lot of the growth rate are in the ATM range. Sorry. My apology, I don't have the breakdown right now. We will think about it, how do we give you a better breakdown for better clarity, but not this round.
Bruce Lu (VP and Equity Analyst)
Okay. Okay, one last question for me is that if the whole year's revenue growth is 2x, then the semi growth, which is about like, you know, 15% for the midpoint, but your first quarter ATM business is that the year-on-year growth is somewhere around 6% or, you know, high single digits. Does that imply that you have a very strong second half seasonality?
Tien Wu (COO)
We already commented that we are expecting quarter-to-quarter growth for the whole year of 2021. So yes, it's 1Q, 2Q, 3Q, 4Q. Each quarter is better than the previous quarter.
Bruce Lu (VP and Equity Analyst)
I see. Okay, thank you.
Tien Wu (COO)
Thank you.
Operator (participant)
Now, we're taking the last question Szeho Ng from China Renaissance. Go ahead, please.
Szeho Ng (Managing Director)
Oh, hi there, gentlemen. Congratulations. Two quick questions from my side. First one, regarding the net gearing target, which you've achieved ahead of schedule. So are you happy with the current 60%-65%, or internally, you're looking for a more aggressive target right now?
Joseph Tung (CFO)
Short answer is yes, I'm happy with it. 65% is a reasonable number that we've already achieved, and particularly when we achieve it ahead of schedule. In terms of whether we want to further improve that, I think it really depends on how the market shapes up going forward. I think there are plenty of different opportunities in front of us. You know, it could be something organic, it could be something that's external. So, I would rather leave it open at this point or leave it some flexibility for myself.
If by the way, if we look at the current forecast that we have for the year, I think there's gonna be further improvement in terms of the equity ratio.
Szeho Ng (Managing Director)
Okay, definitely. And second question on the ATM and GPS gross margin. Given the company's very upbeat outlook for the next few years, is it fair to assume that the ATM gross margin can be back to, let's say, the mid-to high-20% level, like what we saw back in 2014 and 2015, when the company was dominating the copper wire bonding market?
Joseph Tung (CFO)
Well, that's certainly the ideal level that we want to go after, I think. But, you know, we're gonna be patient. We're gonna take one step at a time and just checking it from all angles of our operation, see how much improvement we can continue to have. So yes, I think that's a longer term... From a longer term perspective, that is something we want to pursue.
Szeho Ng (Managing Director)
Okay. Sounds great. Okay, thank you very much, and congratulations again.
Joseph Tung (CFO)
Thank you.
Ken Hsiang (Head of Investor Relations)
Okay, thank you everyone for attending our call. We'll see you next quarter, hopefully at a earlier time slot. Talk to you soon. Bye.
Tien Wu (COO)
Thank you. Happy New Year.