ASE Technology Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 31, 2025

Key Takeaways

  • Positive Sentiment: H1 2025 revenues rose 9% YoY with ATM revenues up 18% and leading-edge advanced packaging & testing now >10% of ATM revenues (vs 6% in 2024).
  • Positive Sentiment: Testing business surged 31% YoY in H1 and is expected to maintain strong momentum into H2 alongside expanding turnkey and leading-edge test services.
  • Neutral Sentiment: ASE invested heavily in H1 with NT$128 billion in machinery CapEx (NT$65 billion packaging, NT$24 billion testing) and NT$53 billion in facilities to support advanced packaging, testing and smart factory initiatives.
  • Negative Sentiment: Forex headwind: NT$ strengthened 4.9% vs USD in Q2, causing a ~1.5 pp sequential and ~1 pp annual drag on gross margins and misaligning costs vs revenues.
  • Positive Sentiment: Management expects to return to a mid-20s % structural gross margin range in 2026 as FX impacts abate and operational efficiencies, pricing and scale benefits take effect.
AI Generated. May Contain Errors.
Earnings Conference Call
ASE Technology Q2 2025
00:00 / 00:00

Transcript Sections

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Kenneth Hsiang
Head - IR at ASE

Hello, I am Ken Shiang, Head of Investor Relations for ASE Technology Holdings. Welcome to our second quarter twenty twenty five earnings release. Thank you for attending our earnings release today. Please refer to our safe harbor notice on page two. Thank you. All participants consent to having their voices and questions broadcast in this event. If participants do not consent, please do not ask questions or you may leave the session at this time. I would like to remind everyone that the presentation that follows may contain forward looking statements. These forward looking statements are subject to a high degree of risk risk and our actual results may differ materially.

Kenneth Hsiang
Head - IR at ASE

For the purposes of this presentation, dollar figures are generally stated in New Taiwan dollars unless otherwise indicated. As a Taiwan based company, our financial information is presented in accordance with Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiary using Chinese GAAP. I'm joined today by Doctor. Tian Wu, our COO and Joseph Teng, our CFO.

Kenneth Hsiang
Head - IR at ASE

For today's presentation, Doctor. Wu will go over our mid year update. I then will go over the financial results and Joseph will deliver the company's guidance and closing remarks. Attendees. With that, I'll hand the presentation over to Doctor. Wu.

Tien Wu
COO & Director at ASE

Good afternoon. We have not had a live one for quite a few years. Welcome back, and thank you for coming. To begin with, I would like to give you the a recap for the 2025. Everything will be U.

Tien Wu
COO & Director at ASE

S. Dollar terms. The unconsolidated revenue grew 9% year on year in 2025 with ATM revenues up 18% year on year. Leading edge advanced packaging and overall testing outpaced growth while the general segment saw some recovery. The leading edge advanced packaging and testing revenue were over 10% of ATM revenues in the 2025 comparing to 6% for the full year of 2024.

Tien Wu
COO & Director at ASE

Our testing business grew 31% year on year in the first half. The momentum will continue into second half, our increased turnkey and expanding leading edge test. Machinery CapEx was billion Building factory facility automation was billion dollars in the 2025, driven by advanced packaging and testing. So that is the first half recap. It has been quite busy for ASE team.

Tien Wu
COO & Director at ASE

The second half will be busier. Let me give you the outlook. For the ATM business, we expect momentum to carry into Q3. As of now, we also believe Q4 will have a quarter to quarter growth comparing to Q3. The leading edge advanced packaging and testing revenue, we target to increase by billion We made this statement at the early beginning of this year, contributing 10% of the whole year growth, while the general segments to grow by mid to high single digit year on year in 2025.

Tien Wu
COO & Director at ASE

We maintain this view as of now, even with all of the uncertainties that we have gone through, this view has not changed. We expect revenue uptrend continue into 2026 and beyond, driven by leading edge solutions and broad based semiconductor demand related to AI proliferation, also general recovery that we believe will happen in 2026. Investment in R and D, human capital, advanced capacity and smart factory infrastructures are key support a multiyear growth. This is putting a lot of pressure on ASE team. However, with detailed conversation discussion with our key partners and all of our key customers, we believe this is the best thing that we can do for ASE, for the Taiwan ecosystem as well as for the industry.

Tien Wu
COO & Director at ASE

With that, let me go over to the third page. The third page, I only have bullet form. I would like to talk about three items, market dynamics, operations and also the challenge. I might not go over things in the right order, but these are the bullet points I would like to cover. To begin with, I want to talk about the how do we see the market heading and what is the current dynamics and also the future opportunities for ASE as well as for many players in our industry.

Tien Wu
COO & Director at ASE

I want to touch on the technology focus because that is related to the market trend, also related to the ASA position. Then I'll cover the operation where the leading edge capacity and all capacity in general in Taiwan is very full now. That's why we have to continue to expand into the second half. The overseas, we still have some idle capacity. Therefore, how do we manage the expansion in Taiwan as well as outside of Taiwan and the resource optimization becomes key.

Tien Wu
COO & Director at ASE

And lastly, all of the challenges, I will touch base on that. Okay, with that, let me just go over the mega trend. Everybody talks about AI, hyperscaler, data center. We're well into, I would say, the second or the third year of this trend. The recent announcement outside of U.

Tien Wu
COO & Director at ASE

S, you're seeing the announcement of mega data center worldwide. We believe that two things are happening. The first is expansion of hyperscaler data centers worldwide. The second thing is in the middle of that expansion, the upgrade cycle are ongoing right now with the technology provider as well as the infrastructure provider. We have not touched base on the AI edge applications yet, but we believe there will be multiple waves in the next ten years, starting with the hyperscaler data centers and then go through the inference and then go through the AI edge applications.

Tien Wu
COO & Director at ASE

What are important is in this AI paradigm shift, what has become clear to us by talking to our foundry partner and also talking to our key customers. Some of the foundational technology requirements are identical. I'm going to give you four. The first one is integration. I think the three d IC packaging, the density, that is an example of the heterogeneous integration that we've been working on this for a long time.

Tien Wu
COO & Director at ASE

The focus offered by ASC, the cost offered by TSMC are examples of that integration. That trend will continue with the expansion as well as the upgrade cycle. The second thing is the power management. We have not touched base on the power management. We believe power management is going to be a key hurdle that industry needs to address.

Tien Wu
COO & Director at ASE

The third one is the silicon photonics. I think we have been talking about very vocal on the importance of silicon photonics. We have not seen the revenue uptick yet, but this is a foundational technology that will provide the bandwidth, the speed, latency and the efficiency. It needs to happen in order to trigger even more applications such as humanoid. And lastly, will be the cost.

Tien Wu
COO & Director at ASE

In the cost, not only when you think about capacity, what do you think about the material configuration, more importantly, we have to think about throughput and also the flexibility in designing the footprint. And that's where the large panel come in. If we have gone through all of the foundational requirements, then we're going back to the ASE position. And there are three things I want to share with you on how I view the ASE positions, how I articulate ASE's position to our key partner and clients. The first one is the scale.

Tien Wu
COO & Director at ASE

I think from the news report, you can look at the ASC scale, margin model as well as our cash flow and also the amount of CapEx investment we are making on behalf of the industry. The second item is speed. Because AASE is well positioned within the Taiwan ecosystems that we will execute expansion, it is second to none. In other words, it's very difficult to imagine in 2025 alone, how much CapEx we have put in, how much more revenue we are going to introduce. The third one will be the synergy.

Tien Wu
COO & Director at ASE

So between scale, speed and synergy that pretty much aligned the ASE position in this new paradigm AI shift. We're at the beginning of the data center hyperscaler. In the future, there will be multiple cycles of expansion, upgrade, inference as well as the AI edge. That's where the real volume and the real application is going to emerge. Because all of these future opportunities, we're seeing the leading edge capacities in Taiwan is very, very full right now.

Tien Wu
COO & Director at ASE

We do see the disparity between AI as well as the other general sectors. And that pretty much all lined to twenty twenty five first half scenario. In the second half, the disparity will improve. In 2026 and beyond, we believe that cycle will start showing less of a disparity. That is why it is putting a lot of pressure on our ASE to accelerate on the capacity growth in Taiwan, especially in the leading edge packaging and testing.

Tien Wu
COO & Director at ASE

At the same time, it prompt us to look at resource optimization between Taiwan overseas. We have plan to looking at expansions in other countries of the world. With all of the recent updates and changes, it prompt us to start looking at the business opportunities versus how do we deploy our capital and resources based on the new paradigm as well as all the new variables. And lastly, foreign exchange. Foreign exchange, I think Kenshong and Joseph will give you much, much more details on the impact of foreign exchange on ASCs performance for last quarter and maybe for Q3.

Tien Wu
COO & Director at ASE

However, I want all of you to keep in mind, we are here for the long term. In the long term, we will have execution issues, we'll have regulatory control issues, we will have product mix issues, we have a customers changing order issues. Of course, we will also have machine delivery execution issues. When the management team is busy worrying about all of the detail operational issues, let's not forget the future opportunities here and the speed execution we would like to take all of the ASE partner and our customer to a much higher ground for this uptick ten years of AI cycles. With that, thank you.

Kenneth Hsiang
Head - IR at ASE

Thank you, Doctor. Wu. Now I will go over our prepared remarks in regards to our financial results for the second quarter. We are trying to be more environmentally friendly. We are no longer providing printed copies of our slides. If you have not done so, we have a QR code, the QR code please.

Kenneth Hsiang
Head - IR at ASE

Here for the attendees to scan. After scanning, you'll be forwarded to our Investor Relations landing page where you can download materials related to the presentation today. The slide deck currently does not include our guidance section. After the presentation has concluded, the slide deck will be updated to include our guidance section. During the quarter, we saw a material move in the NT dollar to U.

Kenneth Hsiang
Head - IR at ASE

S. Dollar exchange rate. The NT dollar moved from an average exchange rate of NT32.8 dollars to NT31.2 dollars per U. S. Dollar, strengthening by 4.9%.

Kenneth Hsiang
Head - IR at ASE

With our revenues generally based in U. S. Dollars and a large percentage of our ATM expenses being NT dollar based, the foreign exchange fluctuation was detrimental to our financial performance. The impact of currency fluctuation will differ each quarter. However, on a simplified basis, we estimate that for every percentage point appreciation of the NT dollar relative to the U.

Kenneth Hsiang
Head - IR at ASE

S. Dollar, we see a corresponding 0.3 percentage point negative impact to our gross and operating margins at the holding company level and a 0.45 percentage point negative impact to margins at the ATM level. Using this simplified approach, we can estimate that on a sequential basis, foreign exchange had impacts to our holding company and ATM margins of one point five and two point two percentage points respectively. On an annual basis, we estimate impact store holding company and ATM margins of one point zero and one point five percentage points respectively. As doctor Wu stressed, our businesses are healthy and are generally on track to hitting most of our targets stated at at the beginning of the year.

Kenneth Hsiang
Head - IR at ASE

However, foreign exchange movements have created a temporary misalignment between our costs and revenues. And as a result, we believe that our current financial results may not fully portray our underlying accomplishments. From a strategic perspective, we believe the current negative currency impact to be a near to midterm phenomenon financially. We fundamentally believe our businesses support a certain level of financial return. Such return expectations are intrinsic within our business evaluation and capital investment processes.

Kenneth Hsiang
Head - IR at ASE

The exchange rates we encounter are variables used within these calculations. As such, in time, we believe our margin structure can and will return to previously stated structural levels. With that said, we are examining and considering the timing of a number of strategic initiatives. We are also reconsidering whether future business opportunities still align with our return goals. There is much to accomplish, but it does present an opportunity to reexamine our businesses in more detail.

Kenneth Hsiang
Head - IR at ASE

With that, let's go through the financial results. Please turn to Page seven, where you will find our second quarter consolidated results. For the second quarter, we recorded fully diluted EPS of $1.7 and basic EPS of $1.74 Consolidated net revenues were $150,800,000,000 representing an increase of 2% sequentially and 7% year over year. On a U. S.

Kenneth Hsiang
Head - IR at ASE

Dollar basis, our sales increased by 7% sequentially and 11% year over year. We had a gross profit of $25,700,000,000 with a gross margin of 17%. Our gross margin improved by 0.2 percentage points sequentially and improved by 0.6 percentage points year over year. The sequential improvement in margin is primarily due to higher loading efficiency in our ATM business offset in large part by foreign exchange. The annual improvement is primarily due to higher utilization and beneficial product mix offset by foreign exchange.

Kenneth Hsiang
Head - IR at ASE

We estimate that foreign exchange fluctuation had a negative 1.51 percentage point impact on gross margins on a sequential and annual basis respectively. Our operating expenses increased by $300,000,000 sequentially and $1,500,000,000 annually to $15,500,000,000 The sequential increase in operating expenses is primarily due to higher consumption of factory supplies as our R and D activities ramp. The year over year increase in operating expenses is primarily attributable to increases in R and D staffing, factory supply consumption and other labor related costs. Our operating expense percentage stayed flat sequentially at 10.3% and increased annually by 0.3 percentage points. Operating profit was $10,200,000,000 up $500,000,000 sequentially and $1,200,000,000 year over year.

Kenneth Hsiang
Head - IR at ASE

Operating margin was 6.8%, up 0.3 percentage points sequentially and improved 0.4 percentage points year over year. During the quarter, we had a net non operating loss of $900,000,000 Our non operating loss for the quarter primarily consists of net interest expense and net foreign exchange hedging activities, offset in part by profits from associates and other non operating income. Net interest expense for the quarter was $1,200,000,000 Tax expense for the quarter was $1,600,000,000 Our effective tax rate for the quarter was 17%. Net income for the quarter was $7,500,000,000 representing a decrease of $100,000,000 sequentially and a decrease of $300,000,000 year over year. On the bottom of the page, we provide key P and L line items without the inclusion of PPA related expenses.

Kenneth Hsiang
Head - IR at ASE

Consolidated gross profit excluding PPA expenses would be $26,200,000,000 with a 17.4% gross margin. Operating profit would be $11,000,000,000 with an operating margin of 7.3%. Net profit would be $8,300,000,000 with a net margin of 5.5%. Basic EPS excluding PPA expenses would be 1.91 On Page eight is a graphical presentation of our consolidated quarterly financial performance. On Page nine is our ATM P and L.

Kenneth Hsiang
Head - IR at ASE

The ATM revenue reported here contains revenues eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses. For the second quarter twenty twenty five, revenues for our ATM business were $92,600,000,000 up $5,900,000,000 from the previous quarter and up $14,800,000,000 from the same period last year. This represents a 7% increase sequentially and a 19 increase annually. On a U. S.

Kenneth Hsiang
Head - IR at ASE

Dollar basis, our ATM revenues were up 13% sequentially and 23% annually. Gross profit for our ATM business was $20,200,000,000 up $600,000,000 sequentially and up $3,000,000,000 year over year. Gross profit margin for our ATM business was 21.9%, down 0.7 percentage points sequentially and down 0.2 percentage points year over year. The sequential and annual margin declines were primarily due S.

Kenneth Hsiang
Head - IR at ASE

Dollar appreciation and to a lesser extent, higher utility rates offset in part by efficiency from higher loading. On a constant currency assumption, we estimate our gross margin would be roughly 2.2 percentage points higher during the quarter, within our original margin expectations for the second quarter. During the second quarter, operating expenses were $11,400,000,000 up $100,000,000 sequentially and $1,500,000,000 year over year. The sequential increase in operating expenses was related to slightly higher labor costs from workdays. The annual increase is primarily the result of R and D ramp up and labor related expenses.

Kenneth Hsiang
Head - IR at ASE

Our operating expense percentage for the quarter was 12.3% decreasing 0.7 percentage points sequentially and down 0.5 percentage points annually. The sequential decrease was primarily related to higher revenues on relatively stable operating expenses. We continue to target to lower our operating expense percentage. However, given the foreign exchange environment, the level of anticipated decline in percentage may be somewhat impacted. During the second quarter, operating profit was $8,800,000,000 representing a sequential increase of $500,000,000 and an annual increase of 1,600,000,000 Operating margin was 9.5%, down 0.1 percentage points sequentially, while up 0.2 percentage points year over year.

Kenneth Hsiang
Head - IR at ASE

Without the impact of PPA related depreciation and amortization, ATM gross profit margin would be 22.4% and operating profit margin would be 10.3%. On Page 10, you'll find a graphical representation of our ATM P and L. On Page 11 is our ATM revenue by three C market segments. You can see here that the computing segment continues to become a relatively larger component of our business. This was largely driven by a higher percentage of LEAP based revenues.

Kenneth Hsiang
Head - IR at ASE

From a wider perspective, it is representative of AI's growing share of the electronics market. On Page 12, you will find our ATM revenue by service type. Here you can see the two service types containing LEAP services, bump and flip chip and testing. Both are becoming a larger component of our overall business. We continue to expect growth in these areas.

Kenneth Hsiang
Head - IR at ASE

It should be noted that we are starting to see a more visible pickup in our wirebond business. There are signs that this is related to a more general market recovery. On an absolute dollar basis, our wirebond business grew on a U. S. Dollar basis, but was outpaced by LEAP and testing.

Kenneth Hsiang
Head - IR at ASE

On Page 13, you can see the second quarter results of our EMS business. The annual seasonality of our EMS business has been inconsistent over the last couple of years due to differing device ramp schedules. As such, we believe the annual comparability of our second quarter results may be impacted. During the quarter, EMS revenues were $58,800,000,000 declining 6% sequentially and 7% year over year. The sequential decline was primarily the result of underlying device seasonality.

Kenneth Hsiang
Head - IR at ASE

Sequentially, our EMS business' gross margin improved 0.5 percentage points to 9.4%. This change was principally the result of product mix. Operating expenses within our EMS business increased slightly by $100,000,000 sequentially and declined $100,000,000 annually. Our second quarter operating expense percentage of 6.9% was up 0.6 percentage points. Annually, our EMS operating expense percentage was up 0.4 percentage points on lower revenues.

Kenneth Hsiang
Head - IR at ASE

Operating margin for the second quarter was 2.6% flat sequentially and down 0.5 percentage points year over year. The annual decline was primarily due to lower revenues. Our EMS second quarter operating profit was $1,500,000,000 down $100,000,000 sequentially and $400,000,000 annually. On the bottom of the page, you will find a graphical representation of our EMS revenue by application. As you can see, the second quarter mix of application revenue was relatively steady sequentially.

Kenneth Hsiang
Head - IR at ASE

On Page 14, you will find key line items from our balance sheet. At the end of the year, we had cash, cash equivalents and current financial assets of $76,900,000,000 Our total interest bearing debt increased by $8,500,000,000 to $240,100,000,000 We continue to anticipate increasing our debt outstanding throughout the year. Total unused credit lines amounted to $355,300,000,000 Our EBITDA for the quarter was $27,400,000,000 Our net debt to equity this quarter was 52%. As a reminder, we anticipate that our net debt to equity will be peaking this year during the third quarter. On Page 15, you will find our equipment capital expenditures relative to our EBITDA.

Kenneth Hsiang
Head - IR at ASE

Machinery and equipment capital expenditures for the second quarter in U. S. Dollars totaled $992,000,000 of which $690,000,000 were used in packaging operations, $251,000,000 in testing operations, 49,000,000 in EMS operations and 2,000,000 in interconnect material operations and others. In addition to spending on machinery and equipment, during the quarter, we also spent $531,000,000 on facilities, which includes land and buildings. We continue to see the complexities of semiconductor design requiring step ups in our LEAP offerings.

Kenneth Hsiang
Head - IR at ASE

Progressing device memory, thermal and power requirements in addition to traditional bandwidth expansion continue to necessitate advancements in our capabilities, equipment and facilities. Our packaging products are now more than ever on the critical path of chip design. As we get closer to 2026, we are seeing a number of initiatives starting to activate. Aligning with customer requests, we are trying to be more aggressive with timelines. And as a result, we are potentially seeing some of the capital expenditures slated for 2026 being accelerated into the 2025.

Kenneth Hsiang
Head - IR at ASE

At this point, the delivery and installation schedules are still fairly dynamic, but we are potentially looking at a bump up in 2025 capital equipment expenditures by a few $100,000,000. With that, I'll hand the presentation over to Joseph to give the outlook for the coming quarter.

Joseph Tung
CFO at ASE

Thank you, Ken. Let me give you the guidance for the third quarter. Based on our current business outlook and the exchange rate assumption of a U. S. Dollar $1 to dollars The management projects overall performance for the 2025 to be as follows.

Joseph Tung
CFO at ASE

This time, the guidance will be given in both U. S. Dollar terms as well as in NT. So it's a little bit more complicated, So please bear with me. At the whole call consolidated level, in U.

Joseph Tung
CFO at ASE

S. Dollar terms, consolidated third quarter revenue should grow by 12% to 14% quarter over quarter. Whereas in NT dollar terms, our consolidated third quarter revenue should grow by 6% to 8% quarter over quarter. Our consolidated third quarter twenty twenty five gross margin should decrease by one to 1.2 percentage points quarter over quarter. Our consolidated third quarter twenty twenty five operating margin should decrease by 0.1 to 0.3 percentage points quarter over quarter.

Joseph Tung
CFO at ASE

Now coming down to ATM. In U. S. Dollar terms, our ATM third quarter twenty twenty five revenue should grow by nine to 11% quarter over quarter, while in NT dollar terms, our ATM third quarter revenue should grow by 3% to 5% quarter over quarter. Our ATM third quarter gross margin should decrease by 0.9 to 1.1 percentage points quarter over quarter.

Joseph Tung
CFO at ASE

EMS, in U. S. Dollar terms, our EMS third quarter twenty twenty five revenue should grow by 18% to 20% quarter over quarter. In NT dollar terms, our EMS third quarter revenue should grow by 12 to 14% quarter over quarter. Our EMS third quarter twenty twenty five operating margin should increase by 0.3 to 0.5 percentage point quarter over quarter.

Joseph Tung
CFO at ASE

That is the overall guidance for third quarter. And with that, I would like to also making a very short comments on our margin. Well, on top of the overall higher cost environment that we're working in today, the NT dollar appreciation since early May put further pressure on our margin and will have a five percentage point negative impact on ATM third quarter twenty twenty five gross margin. If excluding such currency impact, our ATM gross margin should be around 26% or near the midpoint of our structural margin gross margin as originally targeted during our last earnings call. Now looking forward, as we continue to improve our costs through efficiency improvement, leveraging our scale and capabilities to align our pricing and investment strategies with our value proposition and to aggressively expand our leading edge packaging and testing business and start easing up on our early stage ramp up costs.

Joseph Tung
CFO at ASE

We are very confident that we will get back to our structural margin range in 2026. With that, thank you very much.

Kenneth Hsiang
Head - IR at ASE

Thank you, Joseph. During the Q and A session that follows, we would appreciate if questions can be kept concise and asked one at a time. I will be receiving each question and repeating the asked question to Joseph and Tian. Again, we will be limiting the number of questions asked to two per turn, but asked one at a time. We will start off by taking questions from the attendees on the floor.

Kenneth Hsiang
Head - IR at ASE

After some of those, we will look to the virtual queue to see if we have some questions online. Thank you. I want to go with one to Charlie.

Charlie Chan
Charlie Chan
Analyst - Technology & Semiconductors at Morgan Stanley

Joseph. Great to see you and thanks for hosting the fiscal meeting. I believe it's going to be much more interactive. So my first question is about Doctor. Tien, your comments about your fab is going to be very busy in second half.

Charlie Chan
Charlie Chan
Analyst - Technology & Semiconductors at Morgan Stanley

And actually your ATM guidance is pretty good, right? How do we kind of reconcile with the sort of comments about PCs, smartphone, automotive rooms to be very slow. Is that because of ACs share gain or any other factors that we don't consider? Thanks.

Kenneth Hsiang
Head - IR at ASE

Charlie, you're asking about the general dynamics of variable markets or? Yes. So end

Charlie Chan
Charlie Chan
Analyst - Technology & Semiconductors at Morgan Stanley

market seems to be pretty slow. I mean, excluding the AI, right? But your guidance and also the comments about your fab utilization seems to be very busy. I just want to get a sense how do we reconcile the your performance and also the end market weakness? And you want some consolidate or some reconciliation

Kenneth Hsiang
Head - IR at ASE

between what people believe and how what we're experiencing?

Tien Wu
COO & Director at ASE

We're in a much better position to look at our forecast with our customers. We're providing the guidance based on the customers' input. Those orders are firm and it covers the AI. It also covers other area, for example, the wireless, also the industrial and automotive. So I'm not going to go to the second half forecast on the segments.

Tien Wu
COO & Director at ASE

And I don't think we're in the position to do that. But right now based on the forecast committed order And we do see a very strong I wouldn't use the word very strong, we do see a word strong or as strong as Q2 outlook.

Kenneth Hsiang
Head - IR at ASE

Right. Charlie, your second question?

Joseph Tung
CFO at ASE

Actually, if I may add, I think we are seeing a very strong demand for HPC and AI, of course. But on the general market, we're also seeing healthy recovery in second quarter. Actually, in all sectors, we're seeing actually double digit kind of growth quarter on quarter each different segment. So we are seeing a recovery in the general market as well, along with the hyper growth in terms of the leading edge.

Charlie Chan
Charlie Chan
Analyst - Technology & Semiconductors at Morgan Stanley

You. Thanks, Dao Quien and Joseph. And my second question is more focused on your advanced paging testing business because foundry TSMC revised at a full year and they kind of attribute that our revision to the trends in AI and HPC. So why company doesn't revise out your kind of additional CNY 1,000,000,000 revenue guidance?

Kenneth Hsiang
Head - IR at ASE

Charlie, you're asking for actually, I don't understand what you're asking for. Can rephrase this question?

Charlie Chan
Charlie Chan
Analyst - Technology & Semiconductors at Morgan Stanley

Yes. So TSMC revised at a full year, right? Yes. Attribute to AI strength. But you maintain your kind of revenue increase from the advanced pages remains to be at billion dollars So is that because of any conservatism or why TSMC revised that and you don't?

Kenneth Hsiang
Head - IR at ASE

Charlie is asking about whether we can comment on a leading edge advanced packaging outlook for the year.

Tien Wu
COO & Director at ASE

We're in a very interesting position because our capacities are full. The incremental capacities are new capacity that we put it in. I hope that answers your questions. They're capacity constrained right now.

Charlie Chan
Charlie Chan
Analyst - Technology & Semiconductors at Morgan Stanley

So why don't you revise all the CapEx in?

Tien Wu
COO & Director at ASE

There's a little thing called execution, operation, human talent, land, space, facility and machine delivery. We're doing the best we can. I think I already made a comment that the Q4 well into 2026, many of the customer pipeline require similar foundational technology capacity. So it's not a matter of we are reluctant to put in more CapEx. But we also be mindful, like any machines, you don't want to overstress it on top of the we do have to put in some buffer for typhoon for all of this, right? So hopefully, we can do a better job, but we're very, very busy.

Kenneth Hsiang
Head - IR at ASE

Next question, Bruce. Bruce, raise your hand. Name and company please.

Bruce Lu
Bruce Lu
VP Asia Technology at Goldman Sachs

Bruce Lu, Goldman Sachs. I think I want to the first question I want to clear by something that, Ken, when you do the prepared remarks, you were talking about certain like prioritize initiative, talk with the customer. Last time when I remember when ASE was talking about this, low bother SIB project by then, try to prioritize those projects. Given the current currency environment, given do we expect a new pricing strategy or do we expect to get a different set a different bar for the future project. For the future business discussion, does that only goes to like SiP new SiP business or the existing business with the foundry partner or the existing new business when we need a better pricing, otherwise you might not want to do the business. So can we expect the margin upside moving forward?

Kenneth Hsiang
Head - IR at ASE

So Bruce, you're asking for us to elaborate strategic initiatives.

Tien Wu
COO & Director at ASE

Yes. There are many aspects on the strategic initiatives. Some of the items I cannot go over in detail because once I said it, you understand exactly what I'm talking about. That's what I want to talk I think the SIP project as well as many, it becomes a resource recalibration. We're looking at the floor space.

Tien Wu
COO & Director at ASE

We're looking at the cash flow capacity investment. And most important, we're looking for the resource deployment. Now in the resource recalibration, obviously will come in the optimization. And the optimization by default will improve the end results, which will be a margin improvement. So that's one aspect.

Tien Wu
COO & Director at ASE

The second thing, the pricing strategy that has always been on the table. That really depends on the customers, also the future product as well as the timing, for example, for the RFQ, new product, old product, investment requirement, each one will be different. The third large item will be the overseas expansion. We were thinking about expanding in many strategic area. But given the dynamics on the tariff as well as the exchange rate, we have to rethink priority and also the dollar amount.

Tien Wu
COO & Director at ASE

So our approach is going to be instead of going to multiple places, we will focus on one or two overseas area and make a much, much bigger investment just to make sure whatever we do counts, right? So those are the recalibration that we're going through right now. Why? While we're very, very busy investing in Taiwan and trying to build up with speed, scale as well as synergy with the Taiwan ecosystems. But the important thing is whatever we put in, we understand the fluctuation of the market, but we tend to look at the basic characteristics.

Tien Wu
COO & Director at ASE

What are the foundational requirements we would like to put in capacity that we believe will run for seven to ten years and that's what we're building up now.

Bruce Lu
Bruce Lu
VP Asia Technology at Goldman Sachs

My second question? The second question is for your AI related business, which is highly skewed to testing business for this year. Do we expect packaging will account for a larger portion of the business in 2026 and onwards? And if that would be the case, can the margin maintain a similar level with both packaging and testing for the Eletics AI business?

Kenneth Hsiang
Head - IR at ASE

Bruce, you're asking about our LEAP services heading into 2026?

Tien Wu
COO & Director at ASE

The concept is to grow our turnkey business that covers the AI related leading edge. If you only look at the growth rate, it tends to be very misleading because the testing business has a larger base. We talk about the thirty one percent first half and will probably be a better number in the second half. That will be the overall testing growth rate. If you just look at the leading edge packaging and the growth rate is much higher.

Tien Wu
COO & Director at ASE

But the concept is to grow this in tandem. However, you cannot look at it because the base is different. But just to answer you briefly, we do intend to make investment on packaging as well as testing, because the requirement tend to go in tandem. For example, once you go to chiplet, silicon photonics or any kind of HPC or AI related, then the thermal fluctuation, then you have to deal with a whole lot more variables for the testing arena. And the lead time tend to be multiple cycles, much longer.

Tien Wu
COO & Director at ASE

You also have to deal with the interim testing to guarantee yield. With all of this practical concern, I think AESE has a very good position to run the leading edge assembly, packaging as well as testing, just the nature of logistics and also the technology and the cash flow.

Bruce Lu
Bruce Lu
VP Asia Technology at Goldman Sachs

Can I have a quick follow-up, because we were guiding for RMB1 billion additional business for this year, given the huge CapEx we invest this year, the incremental revenue will be a lot bigger than RMB 1,000,000,000 for next year?

Tien Wu
COO & Director at ASE

Is that right? You're jumping way ahead of me.

Kenneth Hsiang
Head - IR at ASE

Yes, I don't think we have any comments out on '26 yet.

Bruce Lu
Bruce Lu
VP Asia Technology at Goldman Sachs

But, you know, Joseph uses used to comment about, you know, capital to, you know, CapEx per revenue. Right? You know, if you use the similar terminology or similar math methodology,

Tien Wu
COO & Director at ASE

you can provide some color.

Kenneth Hsiang
Head - IR at ASE

There are nothing that have, means yes.

Joseph Tung
CFO at ASE

I'm not sure I understand what you're asking now. I'm nodding my head just to show my appreciation to your question. Anyways, I think we do have we have been pretty aggressive in terms of investing into tests. And the growth rate that test is showing is actually shows the or demonstrates the progress that we're making. For this year, we're still expecting growth of tests to be twice the pace of packaging.

Joseph Tung
CFO at ASE

And in terms of tests overall to ATM, we will be approaching 20% of ATM revenue being test by fourth quarter this year. And going forward, I think aside from the right now, the leading edge part of the test is about over 20% of the overall leading edge revenue. And I think that ratio will continue to grow because right now, we are expanding our test mostly for leading edge at the wafer level. And in the later part of the year, we will be starting getting into final test, burn in included. So I think there's still a lot of potential for us to grab going forward, particularly in the test, which overall will bring up our margin as well. So it's a very

Kenneth Hsiang
Head - IR at ASE

Does that answer your question, Bruce?

Bruce Lu
Bruce Lu
VP Asia Technology at Goldman Sachs

I got to say yes, right?

Kenneth Hsiang
Head - IR at ASE

If we could switch it up and maybe take a question from virtual.

Operator

Yes. We have a question from Mr. Gokul Hariharan.

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

Yes. Hi. Thanks, Doctor. Wu, Joseph and Ken. Sorry, I couldn't be there in person.

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

First question is on gross margins. So you mentioned that gross margin can get back to the structural gross margin levels mid to high 20s next year. Is that assuming that currency stays at this level? So if so, what are the variables that are contributing to that? Do you assume that there is a big increase in non leading edge utilization?

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

Or is it just a function of better mix of LEAP, better testing and potentially better pricing?

Kenneth Hsiang
Head - IR at ASE

Gokul, you're asking what levers are available to get back to our structural margin levels. Is that correct?

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

Yes, especially for next year. I think Joseph mentioned, I think it's for next year we hope to get back there, right?

Joseph Tung
CFO at ASE

Okay. Yes. I was talking about our margin for next year, and we are very confident about coming back to our structural margin range in 2026. I think through several different directions. One is we of course, we will continue our effort in improving our efficiency.

Joseph Tung
CFO at ASE

That includes further automation of our overall operation to bring down our costs. And I think a lot of the early stage ramp up costs will start to see that easing up. And we're actually saying last time that our operating expense ratio will start to level off because initially, we have we're putting a lot of R and D dollars into our investment. So as we continue to grow or expand our leading edge, I think, and we're going out of the ramp up stage, I think that part of the expense can be more controlled. And of course, the all the leading edge businesses, including tests, are margin accretive.

Joseph Tung
CFO at ASE

So all these put together, I think, it give us a high confidence level that going into next year, we will be able to get back to our structural margin range. And the of course, that's based on the assumption that the currency doesn't further appreciate from the 29.2% or 29% level at this point.

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

And just follow-up, how much of a lever can be pricing given for LEAP, you are pretty much the only vendor out there spending so much money, your competitor doesn't really seem to be spending much CapEx, your foundry partner seems to be a lot more aggressive about selling their value So just wanted to understand how you are thinking about this, given your market position today seems to be a lot better than maybe five years back.

Kenneth Hsiang
Head - IR at ASE

Gokul, you're asking about our what we perceive as our market position within LEAP. Is that correct?

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

And leverage on pricing as a result of that market position. Thank you.

Tien Wu
COO & Director at ASE

The pricing power is what the every company wants to have. The pricing power includes your design attachment rate, long term loyalty, trust as well as your technology and overall solutions. I think you talk about the current scale and speed and synergy of ASE being in Taiwan as well as being supported by many ecosystem players and foundry partners. I think we need to clearly demonstrate our trust and also the overall solution support to our key customers. Pricing is always an option.

Tien Wu
COO & Director at ASE

However, we prefer to use technical strength, offer, long term growth prospect, which I think is much, much longer lasting. However, everything is being considering. And by recalibration and resource the optimization, that by itself is one pricing strategy.

Kenneth Hsiang
Head - IR at ASE

Goku claims that that's a follow-up question. Do you want to let him on for his second question?

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

Thanks for being generous, Ken. Thank you. The second question is on the LEAP platform. Doctor. Wu, can you talk a little bit about application of 2.5D, three d packaging, whether it is CoVOS like, Focus, Focus Bridge, etcetera, for applications beyond AI accelerator?

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

It definitely looks like 'twenty six, 'twenty seven, you start to see a lot more of these applications coming to you for CPU or other HPC applications. Could you talk a little bit about what you are seeing and how important these are going to be in terms of the growth going into 2026 and 2027 given this year mostly it seems for AI accelerators only?

Kenneth Hsiang
Head - IR at ASE

Gokul, you're asking for Doctor. Wu to expand upon our LEAP offerings.

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

Yes, beyond AI accelerator, yes.

Tien Wu
COO & Director at ASE

Great, thank you. Well, I talked about the first wave is the accelerator. I think the second wave, you will see more infrastructure people, you'll all see the ASIC people start coming in. But however, they all share the same characteristics. They would like to have a very, very tight configuration and very, very large design footprint and also very efficient power delivery systems and also the transmission high bandwidth, low latency.

Tien Wu
COO & Director at ASE

I do see this round of AI accelerator that will cascade it to the CPU, yes. And will go to the ASIC? Yes. And in the future, for the AI edge applications, I believe most of the devices will share the similar multifunctional heterogeneous integration that will demand much of the characteristic I just talked about it. So I believe the volume, we obviously are optimistic that the volume will be increasing over time.

Kenneth Hsiang
Head - IR at ASE

Right. Question from the floor. Sunny

Sunny Lin
Sunny Lin
Semiconductor Analyst at UBS Group

Lin from UBS. Thank you for taking my questions. So my first question is on advanced packaging, especially on the leading edge. Just want to learn your strategy on how to scale the business into 2026 and 2027. I believe for 2025, most of your sales supply for packaging maybe is through the outsourcing from foundry.

Sunny Lin
Sunny Lin
Semiconductor Analyst at UBS Group

And so going to 2026, where are you in terms of the progress to ramp full process cohorts or focus? And how should we think about the further upside from the foundry outsourcing?

Kenneth Hsiang
Head - IR at ASE

Sunny wants us to describe in a little bit more detail what we're going

Tien Wu
COO & Director at ASE

to do with our LEAP. But the foundry outsourcing will continue depending on the foundry partner as well as our end customers' requirement overall. So that is ongoing. The second layer is going to be the ASIC players. The ASIC players will make their choice, and they can either go through different routes.

Tien Wu
COO & Director at ASE

And also there will be a peripheral packaging and testing requirements on the other devices that will also go into the same infrastructure. And then there will be the CPU guys. I don't think I can go even more details, but if you really believe that the AI is a new paradigm shift, that you look at how many players are really embracing the AI and how many other people are jumping on it. You can pretty much figure out we are still seeing the first wave, even the CPU, the ASICs, whatever we can name today, it will be the first wave. The real definition of paradigm shift is there will be others that we cannot see.

Tien Wu
COO & Director at ASE

That's the definition of paradigm shift. So I think for that, building an efficient, viable and flexible infrastructure today at a speed is extremely critical, which is why ASE management can choose through hard route that we want to accelerate investment and then just take the heat. Even with the risk, we might miscued also put a lot of stress on the supply chain. But we believe in this round, gaining customers' confidence will dramatically improve the long term royalty as well as explaining to our customers, not just the first wave, in the second wave and the third wave, you will need to have a footprint flexibility. That's where the large panel, the 300 by 300 fully automated line will be put in by the end of this year.

Tien Wu
COO & Director at ASE

The 600 by 600 fully automated line will be also deliver by Q4. And then silicon photonics, we have been extremely vocal. And also on the new power management, the VRM solutions, we're working with many of our key customers trying to define at IP level, at the technology level, also at a capacity level to the next generation. So I think this campaign is not just co ops or a focus, it's really in the overall the solution. And I think once in the lifetime, you will encounter something like this. So I'm personally very excited.

Sunny Lin
Sunny Lin
Semiconductor Analyst at UBS Group

For sure. So maybe let me try to ask the question, maybe in a different way as a follow-up, if I may. And so for us to think about 2026 for your Advanced Packaging sales, is it fair to assume that your full process Advanced Packaging could account for a meaningful portion of the opportunity given your current customer engagements?

Tien Wu
COO & Director at ASE

That would be the aspiration. But of course, you have to understand the customer loyalty means is a trusting partners, whatever people ask us to do, we will try to fulfill it. But the different customer will have different choices. And the market will take us to the rightful place. And we should not look at just 2026.

Tien Wu
COO & Director at ASE

We should really look at the multiple years. I think that statement is very true sometime, all right?

Joseph Tung
CFO at ASE

So I think just to give you a short answer, I think we are in full production in terms of full process. We do have a couple of customers that are using our capacity, and we are investing for making further investment into full process. And we do expect to have some meaningful business coming in next year, mostly from ASIC customers.

Sunny Lin
Sunny Lin
Semiconductor Analyst at UBS Group

Thank you very much. My very quick second question is on testing for AI. Just want to learn more on how you think about the competitions. Obviously, the key competitor continue to be very aggressive in the in house solution, whereas you may lean more toward the third party platform with event test. And so how should we think about the progress of you with the clients?

Sunny Lin
Sunny Lin
Semiconductor Analyst at UBS Group

I'm sure at some point, AC will be a very important supplier for final test for AI. But how should we think about the timing for you to gain meaningful market share?

Kenneth Hsiang
Head - IR at ASE

So I know you're asking about our test position related to final test on AI.

Joseph Tung
CFO at ASE

I think we have been talking about this for a long time, and we are expecting to have some final test revenue coming in by maybe in the fourth quarter. And we'll continue to expand that part of the business going forward into next year. And I'm sure we will have a we will gain a meaningful market share in this aspect as well. I think what you everybody saw some short reinforcing whatever about our competitors. So I'm not going to comment on competitor.

Joseph Tung
CFO at ASE

I'm just saying that what we're doing ourselves, we do have a goal, we do have a plan and we are making progress. We believe that whatever we invested is going to be fruitful for us.

Kenneth Hsiang
Head - IR at ASE

We have another question on the floor. Brad?

Brad Lin
Brad Lin
Director at Bank of America Merrill Lynch

Hi. Thank you for taking my question. I'm Brad Lin from Bank of America. So I got two questions. One is that, well, Tim, you just mentioned heterogeneous, integration.

Brad Lin
Brad Lin
Director at Bank of America Merrill Lynch

So basically, I think, ASE has a very unique position. It has ASE, SPO and also USI. So how would that help you maintain a competitive advantage in the well across multiple potential application in the future in AI, including humanoid robots, HAI? And then if available, may you share any initial view on the timeline for those to happen? Thank you.

Kenneth Hsiang
Head - IR at ASE

Brad is asking about the positioning of our brands, including our EMS side of the business in terms of whether this allows us to tackle incremental AI opportunities.

Tien Wu
COO & Director at ASE

You probably know that SPIL and ASE ATM business were running independent. And one of the advantage of that is the we're free to choose our own customers. And what's so happen is right now, the AI initial set of customers are extremely happy because we each want to have our different focus group with a very independent firewall in between, if we may call that advantage. The second one is the on the

Tien Wu
COO & Director at ASE

USI, I think with the SiP, we clearly demonstrate the synergy and also the vertical capability from our design in as well as manufacturing, also logistics perspective. For the AI, I think we're waiting for that opportunity. For example, power management is a key area because the power management, you go through 2,000 volts all the way to the 0.1. And then the assembly people have their sweet spot. And then the EMS team will also have their sweet spot.

Tien Wu
COO & Director at ASE

If you take this kind of a hierarchical approach into the PCB, into a different kind of architecture, you can derive the similar thesis. So over time, it is the value between ASE SPIL and USI and painting on the market demand. I think we've demonstrated this a few times. And I do believe in AI, you will see more optical, you will see more power management that will bring the synergy back again. On top of that, you have the China, you also have the other part of the world.

Tien Wu
COO & Director at ASE

You have The U. S, you have the China alliance. I think that presents another competitive advantage if we decided to go that route. Just one comment on the testing portion. There's one thing I want to articulate is testing is not about wafer sort and final test.

Tien Wu
COO & Director at ASE

If we only fixated on the wafer sort and the final test, I think we're missing the point. The point is in the future architecture, the testing needs to be an integral part of the processes. And the question is, how do you do this on the discrete format or in integrated in situ format? I am giving you a ten years outlook on the overall manufacturing strategy for very, highly evolved, automated, complicated assembly and testing process.

Brad Lin
Brad Lin
Director at Bank of America Merrill Lynch

Thank you for the explanation. So with that comment, we that actually the best testing will greatly outpace the so called advanced packaging in that view because that will be integrated into the well, a lot of the new process.

Tien Wu
COO & Director at ASE

Don't take my ten years comment back to one year. I'm always struggling with people, right? The technology direction is correct. The testing has a larger revenue base. If you really want to compare initial, of course, you can make that statement.

Tien Wu
COO & Director at ASE

However, you have to look at the overall testing business percentage as well as the nature and how do you define the segments. It's very difficult to make that comment. On the overall trend, yes, I mean, the hydrogen integration, a very, very long cycle time on the focus and the coal loss process and also the value of the components and also the yield impact and the module level. And these are the issues that defines and segregates the people who can play in this market versus people who cannot afford it. But this all becomes competitive advantages in any kind of business.

Tien Wu
COO & Director at ASE

So my point is, when we evaluate the overall ecosystem at a worldwide level, at a geographical level, you have to put all of this into consideration. The AI has initiate a paradigm shift in terms of algorithm and application. Accordingly, each country, each geography, each company needs to evaluate their own paradigm shift in accordance to this macro paradigm shift. Maybe I'm overstretching, but I think this is the kind of thing I'm very excited to see in the next ten years what will play out.

Brad Lin
Brad Lin
Director at Bank of America Merrill Lynch

Thank you. So my second question will be a little bit on the financials. So basically, we know we are putting a lot of the CapEx in the, well, LEAP business. And I believe, well, that will not be a problem for gross margin because it's margin accretive. But well, if available, can you kind of share some of the initial thought about how the growth rate of the depreciation that we are looking at in this year and maybe next year?

Kenneth Hsiang
Head - IR at ASE

Brad, you're looking for some guidance on what depreciation looks like, right? All right, great.

Joseph Tung
CFO at ASE

I think that for this year, think given the heavy investment in our CapEx, I think the depreciation percentage is going to grow about 14% from last year. At the ATM level, it will reach about NT69 billion for the year. That's holding level, right? At the ATM level, it's about billion I think financially, I think the we will see this heavy investment for some time. And we are currently funding our investment through additional debt.

Joseph Tung
CFO at ASE

As you can see in second quarter already, we are seeing our net debt to equity ratio has come up quite a bit. And we expect this to peak actually in third quarter as we put in additional debt to our balance sheet. And in third quarter, we should see a ratio roughly below 70%. And then it will start to come down as our target level remains to be 60% to 65%, which is the level that we feel comfortable with. And we're seeing that peak at third quarter and start coming down on a quarterly basis back to our more comfortable level, around 60% to 65%.

Brad Lin
Brad Lin
Director at Bank of America Merrill Lynch

Thank you very much.

Kenneth Hsiang
Head - IR at ASE

The next question we are taking from the virtual queue.

Operator

We have an online question from Laura Chen of Citigroup.

Laura Chen
Laura Chen
Head - Taiwan Equities Research at Citi

Yes. Hi. Good afternoon. Thank you for taking my questions. I have a question on the growth rate recovery on the wire bonding.

Laura Chen
Laura Chen
Head - Taiwan Equities Research at Citi

What would be the key driver behind? Just curious, especially we see some of the pulling happening in the first half already. So just wondering that you mentioned there are some power management IC demand. That also related to AI? Or do we see any market share gain or H AI device or just simply the demand gradually recovery? That's my first question.

Kenneth Hsiang
Head - IR at ASE

Laura is looking for a rationale as to why we're seeing or potentially seeing a wire bond recovery within our businesses.

Tien Wu
COO & Director at ASE

The wire bond capacity is tight in Taiwan, mainly due to two markets. The first one, it could be related to AI. As AI are building AI systems, it does require some of the chips that are using Wirebond to support those AI systems. But we believe the larger percentage of the demand actually comes from the automotive based on customers that we are serving. And maybe they are using the ASE capacity because the ASE wirebond are highly automated and we have the 100% fully automated line.

Tien Wu
COO & Director at ASE

Therefore, it gives you a better throughput and quality that could be. Overseas wirebond remains to be somehow idled. So we do see a disparity between the Taiwan wire bond as well as the overseas wire bond.

Laura Chen
Laura Chen
Head - Taiwan Equities Research at Citi

Thank you. Is this also yes, thank you. Just wondering, is that also kind of because of China or non China that kind of a decoupling trends or the reason that customers are preferred to place more orders in our Taiwan fab along with their probably main chip for AI or something like that?

Tien Wu
COO & Director at ASE

You're looking at the due to the BIS regulatory control, some of the loading are migrating from China to Taiwan. We see some of that, but that is not a major variable in our report.

Laura Chen
Laura Chen
Head - Taiwan Equities Research at Citi

Sure. Thank you. And also

Joseph Tung
CFO at ASE

I think most of the if it's BIS, I think most of the packages are more advanced rather than water pump.

Laura Chen
Laura Chen
Head - Taiwan Equities Research at Citi

Okay, sure. Also, think, Ken and Joseph, you probably already talked a little bit about that. But as we see a lot of leading edge advanced pathogens happening for different type of design like COAs or panel based or CPO, what will be the key consideration on your capacity preparation? In particular, everything seems to be quite tight and the AI chips development is very fast. So just wondering how you would plan your capacity and CapEx priority.

Laura Chen
Laura Chen
Head - Taiwan Equities Research at Citi

And also for the final testing starting from Q4 this year, I'm just wondering, is that also including the burning and also the system level testing?

Kenneth Hsiang
Head - IR at ASE

So Laura, you're asking about our LEAP services and how we prioritize funding those LEAP services, including to some extent the final test services provided for leading edge.

Tien Wu
COO & Director at ASE

Thank you. So the investment on factory facility that is very flexible. I mean that's the nature of OSAT and that's what we do. A large portion of the equipment, they do have some intrinsic fungibility. In other words, while we're going through different code names, and I think you know the code names better than I do, the intrinsically, we are doing this every day, not just this year.

Tien Wu
COO & Director at ASE

So even for the advanced packaging, there's still intrinsic fungibility that any company needs to master, although more complicated. So the investment that we put in, we want to make sure our capacity has the fungibility and flexibility, which can guard band five to ten years of utilization. Right? So that's one question. In terms of the testing, I'm pretty sure our testing revenue will include burn in as well as system level test.

Tien Wu
COO & Director at ASE

I won't be able to give you a percentage of that in detail. So as customers are requiring more ATC as well as thermal variation, I think that becomes one area included in the power management as well as the testing solution. I think that's part of the technology development that we're going through. In the right time, we will come out and announce the overall power management solution, including assembly and testing as well some of the IP innovation. Hopefully, can schedule this sometime next year.

Kenneth Hsiang
Head - IR at ASE

We have more questions from the floor. We have one additional question from Laura. No. We have one additional question.

Tien Wu
COO & Director at ASE

No. Someone put down their hand.

Kenneth Hsiang
Head - IR at ASE

Are there any more questions on the floor? Going once. Oh, no. Bruce has a question.

Bruce Lu
Bruce Lu
VP Asia Technology at Goldman Sachs

I just want to clarify a couple of things. Number one is that when we talk about the oversea investment, U. S. Is not in the short list. Is that right?

Tien Wu
COO & Director at ASE

I'm going to be very careful answering these questions. Please go read our announcement. We have made clear announcement that we are supporting one of the large customers going into United States. I'm not going to say anything other than that. Anything related to U. S. Investment, please read our press release.

Bruce Lu
Bruce Lu
VP Asia Technology at Goldman Sachs

Okay. The second thing is that can can I double check that what is the latest CapEx forecast for the full year in 2025 for equipment and total CapEx?

Kenneth Hsiang
Head - IR at ASE

Or if you're looking for the full an update on the CapEx?

Joseph Tung
CFO at ASE

For this year? I think Ken just mentioned that we are upping because the capacity right now is very tight and the demand is very high. So we are upping our CapEx machinery CapEx for a few $100,000,000. By a few 100,000,000, I mean, 300 to $400,000,000 And out of this and the bulk of the I would say almost 90% of this increase is really for leading edge as we see demand continues to be very strong, particularly going into 2026. So I think the increase of CapEx is really trickled into the fourth quarter.

Bruce Lu
Bruce Lu
VP Asia Technology at Goldman Sachs

Is more geared to packaging or testing?

Joseph Tung
CFO at ASE

Both.

Tien Wu
COO & Director at ASE

Joseph and I had a long debate on this. As a CFO, he tends to be very concerned about the operation guys are spending money like crazy. My advice to him is everybody wants to spend CapEx. The only people who has order can spend the CapEx. The question now is the that put a lot of burden on execution.

Tien Wu
COO & Director at ASE

If the operation team cannot fulfill the things online, it becomes a problem. We understand that. The receivable concern is legitimate and right on. The team collectively decided we're going to go through this CapEx ramp, mainly because our partner as well as our key client for the next ten years, they would like to have a trusted partner that can execute. The speed of that will define how are we going to invest further in Taiwan as was outside of Taiwan.

Tien Wu
COO & Director at ASE

So this goes to a long way. Therefore, we decided to bite the bullet and just go through that. Thank you.

Joseph Tung
CFO at ASE

Think to give you a little bit color, I think for this year's machinery CapEx, roughly 60% will be for assembly and 30% for test and 10% for others and material. That includes material and EMS, right? And also on this machinery CapEx, think about 60% is for leading edge.

Tien Wu
COO & Director at ASE

Don't look at the numbers too much because the machine delivery, it can change. The execution, building new buildings, hiring new people, I mean, there's a lot of variable. But right now, we do have a high aspiration to do this. Okay. Thank you.

Kenneth Hsiang
Head - IR at ASE

I believe we have one more question from virtual.

Operator

We have a question from Gokul Hariharan of JPMorgan.

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

Hi, thanks for taking my question. So, Jin, just wanted to zoom out and think about this. This is the first time I've seen ASC enter this like massive CapEx investment and hyper growth kind of stage. If we and I think as you discussed earlier, I think it's a very careful consideration that the management team has placed. Where do you want to be, let's say, in three to five years' time?

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

Think ASCs, I think if I just look at ATM, it's a $12,000,000,000 revenue company, 12,000,000 revenue operation, maybe mid-30s market share and all that. What constitutes success of this plan? Let's say, if we roll out maybe three to five years, like what does the successful ASC look like at the kind of culmination of this hyper investment phase?

Kenneth Hsiang
Head - IR at ASE

Okay, you're looking to see how we define our own successes within the company?

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

Yeah, I'm sure that you are spending billions of dollars. You do have some targets in mind. So just wanted to understand what do you define such as as the culmination of this heavy investment phase?

Tien Wu
COO & Director at ASE

I think this is the exercise we're going through. For example, if you look at a traditional OSAT, you can define the revenue, the margin and the CapEx, so you have some ratio. If you look at the key foundry supplier, their CapEx on their assembly and test will have a different ratio. So we're going through is to take this from the traditional OSAT ratio to the foundry ratio. And we're climbing stairs.

Tien Wu
COO & Director at ASE

Then the question is, why are we doing this? Well, because the foundry partner wants you to do this, because their end customer wants both of us to do this. The question now is who has the capability to execute this to the scale that becomes a competitive advantages over time. This includes not only the key players, also includes the whole ecosystem supporters that we enable you to do this. In terms of the margin model, I think you can apply equally.

Tien Wu
COO & Director at ASE

How do we define success? Going through the execution without issue and earn the larger clientele base on the longer term basis, that will be the success. Thank you.

Kenneth Hsiang
Head - IR at ASE

Right. Gokul, do you have any more questions there?

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

Yes. So since you referred your foundry partner, in that process, their own margins have gone up maybe 10% or more. Their growth rate has accelerated quite a bit. So how do we think about our margins? I think we've talked about structural margins heading to mid-20s to high 20s.

Gokul Hariharan
Managing Director at JP Morgan Chase & Co

Is that where we get to? And is there any expectations on growth? Like does $12,000,000,000 become $20,000,000,000 in five years? Is that our definition of success in terms of ATM revenue growth?

Joseph Tung
CFO at ASE

Well, I'm sure everybody knows that there's still a lot of moving parts and uncertainties in front of us. The world is changing very fast. Right now, we're not trying to reinvent the wheel. I think from what we learned or from what we know our own business, we are keeping our structural margin range as it is for now. And we'll just go we'll see how situation changes.

Joseph Tung
CFO at ASE

And if we need to make a change, we'll make a change. But at this point, there's nothing structurally different from what we originally expected.

Kenneth Hsiang
Head - IR at ASE

I think we've hit our hard cutoff time frame. It's 04:30 over here. Thank you very much for attending our earnings release. See you next time.

Joseph Tung
CFO at ASE

Thank you.

Analysts
    • Kenneth Hsiang
      Head - IR at ASE
    • Tien Wu
      COO & Director at ASE
    • Joseph Tung
      CFO at ASE
    • Charlie Chan
      Analyst - Technology & Semiconductors at Morgan Stanley
    • Bruce Lu
      VP Asia Technology at Goldman Sachs
    • Gokul Hariharan
      Managing Director at JP Morgan Chase & Co
    • Sunny Lin
      Semiconductor Analyst at UBS Group
    • Brad Lin
      Director at Bank of America Merrill Lynch
    • Laura Chen
      Head - Taiwan Equities Research at Citi
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