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Edited Transcript of ATS.VA earnings conference call or presentation 2-Aug-19 7:00am GMT

Q1 2020 AT & S Austria Technologie & Systemtechnik AG Earnings Call

Leoben Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of AT & S Austria Technologie & Systemtechnik AG earnings conference call or presentation Friday, August 2, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andreas Gerstenmayer

AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO

* Gerda Königstorfer

AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Director of IR & Communications

* Monika Stoisser-Göhring

AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Deputy Chairwoman of the Management Board & CFO

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Conference Call Participants

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* Benjamin Pfannes-Varrow

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Daniel Lion

Erste Group Bank AG, Research Division - Analyst

* Philip Saliba

HSBC, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I'm Sheena Ryan, your operator. Welcome, and thank you for joining the AT&S conference call on the results for the first quarter 2019-2020. (Operator Instructions) I would now like to turn the conference over to Gerda Königstorfer.

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Gerda Königstorfer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Director of IR & Communications [2]

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Thank you, Sheena, and welcome to the conference call of AT&S. Today's call representatives are Andreas Gerstenmayer, CEO; and Monika Stoisser. We will open the presentation with an executive summary of the first quarter highlights. And also we will give you an update about the investment for the future and the outlook of 2019-'20. Monika Stoisser will give you a deep insight on the financials of the first quarter. After this presentation, we will open the Q&A session and hand over then to the operator.

Thank you, and now I will hand over to Andreas Gerstenmayer.

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [3]

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Good morning also from my side for our Q1 call. As always, we will start with some overview and some update about the market environment. I'm sure everybody's aware that we are facing a challenging environment in the entire global markets.

Going a little bit into the details, what is happening in our relevant market segments, starting with the computing segment. From the market data, we see quite some expected decline for the running year 2019. Overall, the expectation is that 2019 will show a decline especially in notebooks and tablets. Overall, market is expected to grow again afterwards. So midterm expectation is that recovery will take place, and the turnaround should come in somewhere 2019-2020.

A similar picture we've seen in the communication area, which is not a big surprise as everyone is now preparing for the 5G. But still 5G did not really enter the market with significant volumes, neither in the infrastructure nor in the mobile device business. So therefore, the expectation is with 2020, growth will come back. And also there, we see midterm nice growth rates year-over-year.

In the consumer segment, the expectation for 2019 is more or less a flat development. Similar restrictions in the market due to a more negative sentiment from consumers worldwide due to the market and political conflict. But also there, the expectation is that afterwards in 2020, growth will come back.

In Automotive business, we have seen some corrections in the predictions for the market. Originally, it was expected that the market should grow 20 -- for 2019 by 5%. Latest information we received from our research is that now more or less flat or a very slight decline is to be expected in the electronics market and PCB market. We see it from the cars sold already. There is a decline visible quite a while already, but this is also compensated in terms of electronic content increasing in the Automotive business. And therefore also we foresee for the future despite the expected certain decline in the cars number sold, that the electronic contents will continue to rise and to grow.

Medical is just a very, very stable market. We see continuous growth there. But you also see here in the market figures, it's the smallest market in the entire environment. But for AT&S, we can constantly grow above-market figures. And for us, it's further opportunity to develop our business in that area and to use -- utilize our available technologies to position ourselves better and better.

Coming to the -- I'll skip the Industrial business, sorry for that. This is somehow following the trend of the automotive industry. Industry and automation equipment is also -- shows also a very, very slow demand. Therefore, we expect a similar development over time for 2019, quite challenging situation. Somewhere in 2020, certain recovery is expected.

Coming to the IC substrate business. This is the strongest growing market already now. So for 2019, it's expected to grow by more than 11%. And in the subsequent years, the growth rate is expected to come in by 11.4%. This growth is mainly driven by value of the component, not so much by the number of units. This means the applications, the technical requirements for the components are constantly increasing, which increases also the value of the substrates. This is driven by all these advanced applications in the future coming from the artificial intelligence area, coming from autonomous driving, big data and all these kind of applications.

So overall in 2019, the entire market is expected to decline by 1.4%. As you can see later on from our guidance, we expect our development to stay stable. This is already quite some achievement. And in future, the market is expected to grow by 5% -- 5.6% year-over-year for the subsequent 4 years. So this is a nice outlook in a nice environment where we can continue to grow with our strategy.

Moving on to Slide 3, coming to the results of the first quarter. Also here, you can see despite we have this already described challenging environment, we could keep our revenues at the same level like we have generated last year. Main drivers for that was, on the one hand side, our diversified product and technology and customer portfolio. This definitely supported to compensate some of the fluctuations. We had a very strong demand for IC substrates, very robust development in Medical & Healthcare. And in Mobile Devices and Industrial, Mobile Devices, we have the seasonality to consider and to digest. In Industrial, it's definitely lower than expected and we also saw a significant decline there.

EBITDA is definitely lower on a level of 35 -- almost EUR 35 million. Last year was EUR 52 million. The main impacting factor is, on the one hand side, the product mix which was in the first quarter quite unfavorable and subsequently from the seasonality mainly in the Mobile Devices. And to a certain extent in the Industrial business, we had also to deal with a certain level of underutilization of our installed equipment and which also came in with a lower manufactured value for the first quarter of the fiscal year.

The second part was -- which was also impacting the EBITDA that we started initiating quite some R&D projects to prepare for our future growth. And also what already has been communicated, recall it will be More than AT&S strategy entering the module integration business over time. So therefore, we also started to add new technology capabilities and others to the portfolio. And this is some impacting factor also which is reducing the EBITDA margin in the first quarter.

So EBITDA margin came in with 15.7% compared to last year's margin of 23.4%. And the EBIT was slightly negative of minus EUR 0.6 million but in line with the development of the EBITDA.

So I will hand over to Ms. Stoisser now to run you through the latest figures. And I will come back to go into a little bit more details about the future strategy and the investment we have recently announced.

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Monika Stoisser-Göhring, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Deputy Chairwoman of the Management Board & CFO [4]

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Thank you, Mr. Gerstenmayer. Welcome also from my side. I will start at Slide 5 with the revenue and EBITDA development overall. We see now, as Mr. Gerstenmayer already mentioned, a revenue of EUR 222.7 million compared -- or a flat revenue development compared to the last Q1 '18-'19. EBITDA decrease is to EUR 34.9 million, and also the margin decreased to 15.7%.

If you look at the revenue split, it's nearly the same as it was: 65% Mobile Devices and 35% Automotive, Industrial and Medical. If we look at the average last fiscal year, this was slightly higher within Mobile Devices, but it's natural that Q1, especially in Mobile Devices is a weaker one.

The revenue split, also this one is rather the same as it was in the past. 2/3 of our revenue is -- the [side] there is coming from Americas, 18% from Germany, the rest Asia and other European countries.

If we now look at the development segment-wise, for segment business unit Mobile Devices & Substrates, we see an increase of 4.4% within the revenue with external customers ending up at EUR 143.8 million. Main driver there was the higher-value portfolio and the rising sales volume within the IC substrate.

On the other side, we see a strong seasonality and a lower demand within the Mobile Devices and therefore a market-related underutilization. And if we look at the EBITDA, then we see a decrease to EUR 23.8 million compared to EUR 39.3 million in the Q1 '18-'19. And thereof, the EBITDA margin ended up at 14.3%. And main driver therefore was unfavorable product mix. And due to the lower visibility, this also had an impact on our Q1 earnings. Compared to that, in the Q1 '18-'19, we had a very positive product mix and therefore very positive EBITDA, EBITDA margin, which was rather a very high one in '18-'19.

If we now look at second segment business unit Automotive, Industrial and Medical, here the revenue is rather flat, a slight decrease. If we look at the revenue with external customers of EUR 78.9 million, positive was the development or still is the development within the Medical & Healthcare segment. We see a weaker demand in the Industrial segment. And overall, we see a very challenging market environment especially in the Automotive sector also for the upcoming months. This leads to an EBITDA of EUR 10.9 million, which means an EBITDA margin of 12.4%. Both figures are slightly above the figures we have shown in Q1 '18-'19.

Now coming to the statement of profit and loss, Slide 8. For those who cannot see the presentation, probably I will now only focus on those figures that we did not report so far. So we discussed revenue, there's less revenue, the decrease in the EBITDA and therefore also the EBITDA margin. And coming out of that, the EBIT of minus EUR 0.6 million. So you can see that depreciation was the same as it was in the last Q1.

The finance costs are less because we had -- or the effect is a negative one because main reason therefore was the ForEx effects -- negative ForEx effects. Respectively, in the last Q1, we had positive ForEx effects in the finance costs. Outcome is that profit for the period was minus EUR 6.2 million.

Coming to the balance sheet. Also here in the equity, we see negative ForEx effects especially the equity is at EUR 759 million. Now we have more or less EUR 36 million ForEx -- negative ForEx effects here, and this impacts negatively the equity.

The net debt rose to EUR 208 million. The one factor is the higher CapEx and the other effect is the IFRS 16, which we had to start to implement with beginning of this fiscal year. This means that our equity ratio ended up at 42.8%, which is still a comfortable one but it decreased from 45% to 42.8%. Main reason as mentioned is ForEx effects.

Coming to the cash flow. The operating cash flow is a positive one with EUR 28 million. Reason is increase in trade payables. We have a negative investing cash flow was EUR 63 million. Thereof, approximately EUR 50 million are coming from investment. Higher CapEx than we had in the past Q1. Therefore, we ended up with the operating free cash flow of minus EUR 21 million and a free cash flow of EUR 35 million.

If we now look at the development of the net CapEx, in the last Q1, we had EUR 17.1 million CapEx. Now we have EUR 49.7 million. Main driver is the first investments in the capacity IC substrate, what we have communicated in November 2018. The CapEx expansion also has an impact on our head count which increased to nearly 10,000 now. We have an increase in Chongqing but also in other sites due to the increase of capacity.

This is for the short overview of all the figures. And I will now hand it over to Mr. Andreas Gerstenmayer for his part within the strategy and outlook.

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [5]

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Thank you very much, Ms. Stoisser. I think it's worth to use a little bit of time today also to talk a little bit more about the details of the recently announced investment in IC substrates. Therefore, we prepared a brief presentation. And I will run you through that now, mainly on Slide 14, which is the biggest drivers we see in the business for IC substrates and why IC substrates will become an important part of the AT&S portfolio. What is very visible already is that the future high-performance computing, which is used in various applications like I mentioned already before, big data processing, artificial intelligence, autonomous driving, whatever you have there in the future, this is heavily impacting the technology needed for the components in future.

This is the main reason why we decided to do the next step. And this is also the reason why we also decided to establish a new production site for these kind of components in our location in Chongqing. This will expand the capacity and technology significantly there, but also our plant in Leoben will benefit from that because some of the preproduced components are coming from this plant.

Basically, what we also could achieve is a very close collaboration with one of the leading semiconductor players in the world, which is again a very important part in terms of technology development because we need a very close link between the silicon development and the substrate development. And we also need a very close collaboration in terms of ramping such a factory and running such a factory on a high-yield level.

Such kind of close collaboration is definitely also the support to mitigating the investment risk. If you have a very close collaboration, it always helps mitigating the investment risk and making somehow sure that the technologies and the capacity will be used in future.

The investment in total is up to EUR 1 billion for the next 5 years. The majority will be worth for the location in Chongqing. The minority will be invested in Hinterberg. Start of production of the new plant is intended to be at the end of 2021. Also there, you can see it's a very fast project, a very fast ramp into production. Just consider that we need to build a completely new building, do all the investments in equipment, qualifying the equipment and starting to ramp. It's quite a rush through. But again, with this close collaboration with our partner, we are quite confident that this will be achievable.

Coming in more details about the drivers behind the investment on Slide 15. First of all, the bigger driver in the computing industry will mainly be the generated data. So what we see is from the market research, it is expected that the generated data will grow by more than 30% per year until 2025. And you also can digest a little bit how this development will look like on the graph on the left-hand side below on the slide.

This is significantly impacting the components. On the right-hand side below, you can also see some pictures. The last -- the left component which is the IC substrate for mobile application processes, which is used today in smartphones. The middle one is the IC substrate for PCs and servers. Here, you can also see it's just 4 to 6 layers. This is the type of substrate we are producing now in Chongqing.

For the future, on the right-hand side, you can see how large the form factor will become and also the layer count will significantly increase. And you can imagine that simply due to the value of materials, of the value add in production, the value of the component will increase significantly. But also by having larger footprint and higher layer count, the capacity consumption will be significantly higher in future.

What is driving this trend? It's called heterogeneous integration, which means that more than 1 piece of silicon will be used in such kind of packages. So far, it was mainly the CPU or the GPU and the -- and some other components inside. In future, you will have also a combination of different functional components inside of a processing package.

Just to give you impression of what AT&S achieved over the previous period of time and how successful AT&S was in implementing and ramping high-end facilities in China, we'll try to collect kind of a history on Slide 16. And it should also give you more confidence that AT&S will again be capable to ramp this new factory because the experience and the capabilities are there, and our team in China is a very experienced one when it comes to ramping high-end new factories.

So we started in 2001 with a new factory in Shanghai for high-end HDI, which was the first HDI factory in China at all that time. And we ramped it up through a very successful production place, which is quite famous in China and well recognized as the most professional and the most productive plant in China.

Since 2013, we started developing the plant in Chongqing. As you know, we have been successfully starting in the IC substrate operations. We were quite a benchmark for the industry because we did ramp the factory and qualify the factory within the timeframe of 3 years. Nobody else in the history could ramp such a factory in such a short time. And we added new technologies in the second plant. And also there, we had somehow kind of technology and quality leader in the substrate like PCB area and well considered for it. Both of them are now an important pillar for the further future development.

SLP definitely triggered our development to become the #1 in high-end PCBs, which was achieved in 2018 already. And you know we have a quite experienced and large labor force in China, which is above 7,000 employees already.

On Slide 17, you also can see the very fast development and very successful development of our business in the segment Mobile Devices, which is mainly generated out of the Chinese factories. We started 2014-'15 with a revenue stream of EUR 380 million and came up to EUR 684 million in 2018-'19 already. So this is a significant growth, and it should also show that we can manage fast growth rates very well also with new technologies.

The new plant in Chongqing on Slide 18 will be one of the most advanced IC substrates plant in the world. We already know what we need to implement at the technology level. And also with the size, it's quite impressive. The manufacturing floor space will be 65,000 square meters, which is the same size almost what we had in both existing plants in Chongqing already. We will also implement technologies and equipment to produce this very advanced high-performance computing modules, which I already mentioned will consist out of several new technologies, also use a certain level of embedding of components inside of the substrate in future. And the environment we need to prepare there is the highest design standards we can imagine for this kind of industry.

Just to give you a glimpse about what is necessary to be produced. One of the substrate panels will show more than 30 million laser-drilled holes on a panel, which is significantly more than we see in the existing products. And the structure will come down to 3 micron already in the future, which is considered in the design of the equipment but also in the design of the environment of the factory.

Subsequently, we also adjusted our mid-term guidance now by investing this huge amount of money in the new business or in the additional business of IC substrates in new technologies. We are moving on to implement our More than AT&S strategy. And we expect that our revenue will in 5 years around -- will be around EUR 2 billion, which is doubling the revenue from today's point of view and will be generated out of our annual growth rate of roughly 15%. The expected EBITDA margin is also increasing to a level of 20% to 30% (sic) [25% to 30%]. And for us, the important target will be the ROCE which will -- or is expected to come in on a level of above 12%.

About the financing capabilities, we see ourselves in a very solid financing structure. We have still very strong operating cash flows, and we also expect them to stay for a while. The high level of existing liquid funds we have in place is supporting the investment. We have constantly issued promissory note loans very successfully. And we also drive forward to continuously optimize our financing structure as we always did over the last period of time, which I think we can show also certain successful track record in.

Summarizing the strategy part on Slide 20. Here, you can see how AT&S somehow took up speed since 2013. Until 2013, we were a traditional PCB company. 2013, we started implementing IC substrates then become already one of the technology-leading companies in this area. Very soon later, we started the substrates like PCB business. We're already a technology leader there.

Now we start PCB substrates for modules as communicated last quarter. This is also taking up speed. The next step now is integrating the substrates business and technologies for the high-performance computing modules. And some of the next steps is already visible and under preparation with the module integration services strategy. All this is driven by very strong capabilities in terms of technology, the AT&S innovation power and a very clear focus on dedicated applications, what we call application-based strategy. And this is very much supporting implementation of this strategy.

Last but not least, on Slide 22, the outlook for the running fiscal year also is already communicated in our press release. We can stay for -- we can stay with the outlook for 2019-'20. Definitely, we have a very volatile and in some areas weaker market environment. For Mobile Devices, we see more a seasonal effect. In Automotive, Industrial, we need to see how the development will go on. Expectation -- latest expectation from the market research is that it will most likely stay weaker until 2020 [December]. But we also expect that our EBITDA margin should come in, in our range of 20% to 25%.

And our CapEx is slightly adjusted due to the announced investment program, the maintenance investment space on the already announced EUR 80 million to EUR 100 million. Also the additional project investments stay on a level of EUR 100 million for capacity and technology expansions in the other areas of the business or the core business. And the investment for IC substrate, which was already increased last year by the announcement that we start filling up the Chongqing I plant, there will be EUR 80 million worth in this fiscal year. And we will add now additional EUR 100 million effective in the running fiscal year of the new project -- coming out of the new project already.

So this was a brief rush through our first quarter's results figures, market environment and also our new investment program. And if there's any question from your side, we are now open to receive your questions.

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Gerda Königstorfer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Director of IR & Communications [6]

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Thank you, Andreas Gerstenmayer and Monika Stoisser, for the presentation. Now we will open the Q&A session. I want to hand over to the operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Daniel Lion of Erste Group.

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Gerda Königstorfer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Director of IR & Communications [2]

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Okay. Maybe -- we. Okay. Maybe there's a technical problem. Maybe we go to the next question?

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Operator [3]

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Absolutely. The next question is from Philip Saliba of HSBC.

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Philip Saliba, HSBC, Research Division - Analyst [4]

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I hope you hear me and my question.

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [5]

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Very well.

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Philip Saliba, HSBC, Research Division - Analyst [6]

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I was wondering your push to what's the next generation IC substrates. I understand you to be clearly the first mover in this respect. Are you also seeing indications from the other, let's say, a handful of IC substrate producers thinking about the same?

And obviously, also if you look at the PCB market then at the HDI, PCB market and then moving on to IC substrates, the number of competitors is decreasing. Do you believe, over the mid- to long term, there will be even a lower amount of competitors on the, let's say, advanced IC substrates side? That's, yes, my first question. And then I have another one.

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [7]

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Okay. Regarding the competition, it's already some announcements available that also others are starting doing some investments, some significant investments. We did a very deep dive analysis in the market. And what we have seen is that to support the future demand of capacities and output requested for this significantly growth of the market, it's not only -- AT&S needs to be -- needs to invest because the capacity needed in future are significant.

In terms of technology, AT&S is, with some few competitors, the only company moving very fast into this segment and using and utilizing certain technologies which will support these high-performance computing modules.

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Philip Saliba, HSBC, Research Division - Analyst [8]

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Okay. Then I was wondering -- I mean obviously, the IC side -- in the IC -- on the IC substrate side, this is the only business which you don't do with an OEM but really with a semiconductor company. Just to understand it more clearly, I mean in the future, on your IC substrate, you will have logic processors, you will have graphic cards and so on.

So is it right to assume that sort of your -- this major semiconductor client that you're having also is acting as an integrator then in the end that integrates the -- let's say its own logic chip then also the graphic processor on your IC substrate and so on? Or how does it work? Or does -- or is it finally the data center assembler that is doing the final integration? Just to understand the process a bit.

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [9]

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Yes. This is what I meant before with the wording heterogeneous integration. What is to be expected that the integration will take place inside of the package in the future. So you will have several dies, silicon dies inside the computing package. And this is the reason why we are talking about high-performance computing modules.

In the past, it was just the CPU and the memory inside. In future, there will be the graphics inside, there will be other components inside. So more than 1 piece of silicon will be integrated, and this is driving the complexity of the IC substrates significantly.

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Philip Saliba, HSBC, Research Division - Analyst [10]

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Okay. Sorry, just one last question. On the mSAP side, I mean you briefly touched upon 5G in the next year. I understood that next to one of the major smartphone makers globally, you also were able to win another one earlier this year. What's the progress there in terms of client wins, so to say, and then client works on the 5G side?

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [11]

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Basically, it's expected that next year, almost all of the smartphone OEMs will introduce 5G in their products. If all of them will need to use mSAP, to a big extent, needs to be seen how the architecture of the devices will be.

For AT&S, probably we did not communicate it so clearly. For us, the mSAP capabilities we have established especially in Chongqing II factory enables us also to enter this module business. And the module business is for us at least the same strong driver for using and utilizing mSAP in these kind of applications.

So we have 2 opportunities there. The one is the mainboard business, which is already running to a -- on a high level. And the second opportunity is using mSAP in modules, which is not completely new. This is somehow developed market already. But to the level we can support it with the technology of A level, it would also provide new opportunities to our customers. And we see also there a strong interest in running into that direction.

Daniel Lion is back.

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Operator [12]

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The next question is from Daniel Lion of Erste Group.

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Daniel Lion, Erste Group Bank AG, Research Division - Analyst [13]

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I hope it works now. Can you hear me?

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Gerda Königstorfer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Director of IR & Communications [14]

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Yes.

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Daniel Lion, Erste Group Bank AG, Research Division - Analyst [15]

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Yes. Very good. So thanks for the details already so far. There's still many questions. I will try to focus on the most important ones, so I guess maybe starting with the running year. And of course, you confirmed the full year outlook. But what kind of dynamics are you seeing now starting with the second quarter? Of course, you're -- some of your peers have already commented on the ramp for the major client has obviously already started, maybe slightly earlier than in the last year.

Maybe initially you said that the first half year might be somehow weaker. But now as we move into this second quarter already, do you see this confirmed? It obviously seems that the units to be produced is around similar to last year. So it seems to be a pressing issue to some extent if you're going to judge from the outside. So maybe you could comment a little bit on the dynamics you are seeing in this respect and to what extent maybe your other large client is capable of compensating this also on a profitability level.

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [16]

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Okay. As you know, we cannot comment on any single client. I think you're aware -- well aware of that already. But I can give you some overview how we see the market now. This is also the reason why we talk about seasonality in the mobile device business. So the expectation is that now the stronger season should kick in. The new products should start to ramp. And while we said it could be a weaker first half year, it's on the group level. So we are not commenting on smartphones only or communication and mobile devices only. It was also including the other businesses like industry and automotive.

So in total, it's like we said it already today. So we see the seasonality as it was in the first quarter, probably a little bit stronger than in the past, which was mainly driven out of lower visibility of the business. So we -- in the past, we always communicated we could over the year and over the quarters balance our production capabilities -- capacities by doing kind of prestarts in the low season to utilize the capacities and also generate revenues later on in the year, when the peak season kicks in and the capacity is quite short.

This is due to the low visibility. We have only very limited opportunity this year to do this kind of prestart. And this was resulting in the low manufactured value and finally also in the lower profitability. This is one very significant driver to the profitability.

The second one is definitely there was kind of mix issues also in the first quarter, so not so favorable mix, and also in utilizing our capacities well. And on the other hand side, also unfavorable mix always ends up in lower margins. But this is expected to reverse once the seasonality goes away and we see the new products kicking in. So expectation is as we said already. If we would not see a positive development for the upcoming quarters, we could not confirm our full year guidance.

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Daniel Lion, Erste Group Bank AG, Research Division - Analyst [17]

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Okay. I understand. And to what extent is, let's say the -- your flexibility in terms of supplying your clients with the mSAP or SLP already in place now? Or by when would you think that you would be able to come up with such a flexibility?

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [18]

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What do you mean with flexibility? I don't...

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Daniel Lion, Erste Group Bank AG, Research Division - Analyst [19]

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Of choosing basically if you want to supply basic -- mSAP sort of the full board or if you're going to -- into SLP, which I suppose would be rather using variables as the diversification -- technological diversification of the end supplies that's...

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [20]

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I think this -- as I commented before for Mr. Saliba already, this is already running. So we already have projects in place using our mSAP capacities in both ways.

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Daniel Lion, Erste Group Bank AG, Research Division - Analyst [21]

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Okay. Okay. Very good. Okay. And then I would like to focus a little bit on the new investments. You already mentioned the EUR 100 million earmarked for this year already. How should we think about the CapEx for the Chongqing III plant going forward in the coming years?

And maybe in light of that, what would be a CapEx level or a CapEx level -- invested CapEx already that would give you the opportunity to somehow come into -- towards breakeven levels? Or -- yes, some of -- over the course of the investment, maybe can you give us some kind of an overview or indications of what you think in terms of investment speed and amount and how we should think about utilization and then profitability levels once you start production by the end of '21? So just to get a feeling and then idea of how to model it.

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Monika Stoisser-Göhring, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Deputy Chairwoman of the Management Board & CFO [22]

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Maybe we can model it together more or less. We have announced that we will have CapEx of up to EUR 1 billion. We will see where we will end up really because the negotiations with our suppliers is ongoing, but let's assume this is EUR 1 billion. And we also announced that this fiscal year, up to EUR 100 million CapEx will be needed thereof.

Secondly, what we announced is that our -- over the mid-term, we will have EUR 2 billion of sales. There, you can see when sales will come in starting end of '21, 2021 production -- start of production will be. So the main CapEx will arrive within the next 3 fiscal years. And then the remaining for the EUR 1 billion more or less will be then '23, '24.

So this is approximately the way as it always is when ramping the factory. In the first year, you have lower CapEx. Then you have the peak CapEx over 2, 3 years. And then it's the remaining CapEx to be seen.

And we also have announced previously that we have the mid-term guidance of a EUR 1.5 billion revenue, mid-term bias, and 20% to 25% EBITDA, which is still well for the time being and then the additional CapEx, additional revenue and higher EBITDA margin in the upcoming years. Then you can also derive the business or the impact of the new business thereof. As we had in the past, we expect maintenance CapEx of approximately 8% of the revenue. So these we consider as stable also for the future.

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Daniel Lion, Erste Group Bank AG, Research Division - Analyst [23]

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Okay. So what would be then a minimum investment level -- or let's say the investment level you would expect until you start ramping the new factory? And does this also mean that you will be profitable from the very beginning?

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Monika Stoisser-Göhring, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Deputy Chairwoman of the Management Board & CFO [24]

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We cannot be profitable from the very beginning before we start with the revenue. But the rest is a very steep one. So profitability will come very -- in a very short time frame from production start onwards.

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Daniel Lion, Erste Group Bank AG, Research Division - Analyst [25]

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Okay. But the leverage until the -- your new mid-term guidance can realize will come from the additional investments I guess? Or would you already be in a position with the ramp to generate the new profitability range that you gave us?

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Monika Stoisser-Göhring, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Deputy Chairwoman of the Management Board & CFO [26]

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I mean the profitability range will increase also if we now let aside the new plant Chongqing III. We already announced the EUR 1.5 billion revenues within the mid-term guidance, and we stayed with the 20% to 25% of EBITDA. So this stays until that. And an increasing EBITDA will come in then with the addition of new business.

It's always the way that's new business. So then you can also assume from EUR 1 billion to EUR 1.5 billion revenue will have a positive impact on our EBITDA range because new technologies which we implement in each new capacities will always have a positive EBITDA percentage, positive effect on the percentage. That's why it's growing also in the next year -- or should grow also in the next year if the market is as we assume.

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Daniel Lion, Erste Group Bank AG, Research Division - Analyst [27]

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If the utilization is at the perspective level, of course, yes?

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Monika Stoisser-Göhring, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Deputy Chairwoman of the Management Board & CFO [28]

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It's the underlying...

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Daniel Lion, Erste Group Bank AG, Research Division - Analyst [29]

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And then maybe one last question, also a strategic one. I'm not sure you -- in the coming years, you want to move up and broaden your position in the supply chain. And what -- these investments that you just announced does not cover the packaging and testing. I guess that's what's missing to some extent -- or the only thing missing in order to reflect this business.

How do you think of investing and going towards packaging and testing within this investment or in -- or within the coming years? But when would you expect to be capable of supplying the full range of products that you generally aim to? So meaning we need the full scope that you're targeting in the medium term. And what kind of investments would you -- would we need to expect from still the missing parts in the strategy?

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [30]

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Yes. I think this is a very good question, but I think it's a little bit too early to comment on that. So we are working towards that. You can probably imagine we focus over the past months heavily on these investments programs for IC substrates, which is again one step towards this topic. And as I said before already, we started with the first entrance level for a module business that we are supplying substrates like PCB, sometimes also with embedding for modules already.

So this was keeping us busy. And we will continue to investigate what would be the best direction entering the full scope of module integration business a little bit later. So we will come back to you once we have the clear picture about that, and we'll communicate about that on time.

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Operator [31]

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The next question is from Benjamin Varrow of Berenberg.

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Benjamin Pfannes-Varrow, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [32]

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Just one follow-up question on the new investment program into Chongqing. You mentioned the close cooperation with the semiconductor player. I was wondering if you could give a bit more detail on what measures are included in that cooperation agreement to mitigate the investment risk on your side.

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [33]

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Yes. This is a tricky question. Good question but tricky to answer. I need to ask for your understanding that this we cannot disclose because we have about that definitely very strict NDA in place and we cannot communicate on that.

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Benjamin Pfannes-Varrow, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [34]

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Okay. Sure. And then in terms of investment, I mean can you talk about the mix from their side? Or is that mainly coming from your side? Or can you not comment on that as well?

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [35]

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What do you mean about the mix?

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Benjamin Pfannes-Varrow, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [36]

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In terms of -- is there a joint effort?

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [37]

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Sorry. Also on that, I cannot. Sorry for that.

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Benjamin Pfannes-Varrow, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [38]

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Okay. Sure. No problem. And then just one follow-up just on the increased R&D expenses that happened in the first quarter. Can you quantify that roughly? And do you expect an increase also in that ahead of obviously the ramp of the new plant?

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Monika Stoisser-Göhring, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Deputy Chairwoman of the Management Board & CFO [39]

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Regarding the R&D within this quarter, it's around -- less than EUR 5 million for this quarter. You can calculate it for R&D. Yes, for sure for the project for new development, this will state that we have increasing R&D costs. And for sure, always we have to look -- we have to capitalize some of those for some projects or not. This is then to be defined as per IFRS. But so far, it's in the -- you'll see it in the P&L.

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Benjamin Pfannes-Varrow, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [40]

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So the normalized run rate, we can assume on a quarterly basis is roughly EUR 5 million?

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Monika Stoisser-Göhring, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Deputy Chairwoman of the Management Board & CFO [41]

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Yes. For the time being, yes.

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Benjamin Pfannes-Varrow, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [42]

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Yes. Okay. All right. And then just on the Automotive, Industrial side. Obviously, earnings has taken a slight hit there in the first quarter. Can you give a bit more detail what you see there and whether you see any sign of a trough there? Or do you really expect that to continue throughout the year?

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [43]

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You're talking about any opportunity for recovery in Automotive business? Is that the question?

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Benjamin Pfannes-Varrow, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [44]

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Yes. Have you seen any changes perhaps in the market? Or is that really still persisting for some time?

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [45]

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We are closely observing the market. And the latest data and information we received that now everyone is -- there was the first announcement, sorry, that the -- in the beginning of the calendar year, the expectation was that the second half of the year should be improved. The latest information we now see from the market that everyone is somehow expecting that it stays there until 2020, probably already until mid- of 2020. So the weakness should remain for a longer period of time.

But for AT&S, I need to state also we did quite well in the Automotive business because, as you see from our communication, we did not talk about volume decrease in the Automotive business for AT&S. So for us, so far, it was quite stable.

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Benjamin Pfannes-Varrow, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [46]

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Okay. So from here on, you expect rather a kind of continuation but not the deterioration? Is that a fair assumption? Or is that the right...

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Andreas Gerstenmayer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Chairman of Management Board & CEO [47]

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This is what we see today -- here today. But frankly speaking, visibility is lower and also volatility is high. So we need to observe very closely the further development. And as you also see from the announcement of some of the Tier 1s and OEMs, every day, there's new information available. So there's -- the crystal ball is not there.

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Monika Stoisser-Göhring, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Deputy Chairwoman of the Management Board & CFO [48]

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I just would like to add because you ask -- because you're asking maybe also -- or I assume you also ask regarding the margin of the R&D because I talked about the additional R&D, what we have within this quarter. Within last fiscal year, we had approximately 7% R&D, a percentage of 7% reflecting the revenue. And this was, with the EUR 5 million now, up to 9%. With this, you can calculate, but not to confuse because EUR 5 million only would be too less.

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Operator [49]

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(Operator Instructions)

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Gerda Königstorfer, AT & S Austria Technologie & Systemtechnik Aktiengesellschaft - Director of IR & Communications [50]

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As you see, there are no more questions. I say thank you for your questions and the interest to the conference call of the first quarter 2019-'20. And we wish you a nice day and a nice weekend.