Q1 2026 ASE Technology Holding Co Ltd Earnings Call

Speaker #1: Hello, I am Ken Shong, the head of investor relations for ASE Technology Holdings. Welcome to our first quarter 2026 earnings release. I am joined today by Joseph Tung, our CFO.

Speaker #1: Thank you for attending our earnings release today. Please refer to our Safe Harbor notice on page 2. All participants consent to having their voices and questions broadcast via participation in this event.

Speaker #1: 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.

Kenneth Hsiang: Hello, I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our Q1 2026 earnings release. I am joined today by Joseph Tung, our CFO. Thank you for attending our earnings release today. Please refer to our safe harbor notice on page two. All participants consent to having their voices and questions broadcast via participation 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, and our actual results may differ materially. 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.

Speaker #1: These forward-looking statements are subject to a high degree of risk and are actual results may differ materially. For the purposes of this presentation, dollar figures are generally stated in new Taiwan dollars unless otherwise indicated.

Speaker #1: 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 subsidiaries.

Speaker #1: For today's presentation, I will be going over the financial results, and Joseph will then provide the company's guidance. We will then be available to take your questions during the Q&A session that follows.

Speaker #1: Our business throughout the first quarter remained resilient. Typically, we would expect to see manufacturing seasonality as many consumer and corporate products wind down at the end of the calendar year.

Kenneth Hsiang: Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiaries. For today's presentation, I will be going over the financial results, and Joseph will then provide the company's guidance. We will then be available to take your questions during the Q&A session that follows. Our business throughout Q1 remained resilient. Typically, we would expect to see manufacturing seasonality as many consumer and corporate products wind down at the end of the calendar year. This year, we saw such seasonality in our EMS business, while demand for our ATM services did not slow at all. Even with less working days during Q1, our ATM revenues grew sequentially. We experienced continued strength in our LEAP services in traditional advanced packaging, while our wire bond also saw some pickup.

Speaker #1: This year we saw such seasonality in our EMS business while demand for our ATM services did not slow at all, even with less working days during the first quarter our ATM revenues grew sequentially.

Speaker #1: We experienced continued strength in our leap services in traditional advanced packaging while our wire bond also saw some pickup. As our product mix shifts, typical seasonality may become more muted as AI-related products do not appear to follow the same seasonal patterns as typical consumer-driven devices.

Speaker #1: Our blended factory utilization rate was around 80% for the quarter. This percentage can be slightly misleading. Loading was actually a little better; however, we have been installing additional leap manufacturing capacities that are expected to start generating revenues weighted towards the fourth quarter.

Kenneth Hsiang: As our product mix shifts, typical seasonality may become more muted as AI-related products do not appear to follow the same seasonal patterns as typical consumer-driven devices. Our blended factory utilization rate was around 80% for the quarter. This percentage can be slightly misleading. Loading was actually a little better. However, we have been installing additional LEAP manufacturing capacities that are expected to start generating revenues weighted towards the Q4. We are also consolidating traditional capacities. These transitional activities would naturally bring down the blended utilization rates. As production resources get tighter, it needs to be emphasized that customers prefer manufacturing certainty. They like to know precisely the timing and pricing of wafers, substrates, packaging, and testing services. As uncertainties arise at key manufacturing points, customers perceive supply chain risk for their products.

Speaker #1: We are also consolidating traditional capacities. These transitional activities would naturally bring down the blended utilization rates. As production resources get tighter, it needs to be emphasized that customers prefer manufacturing certainty.

Speaker #1: They like to know precisely the timing and pricing of wafers, substrates, packaging, and testing services. As uncertainties arise at key manufacturing points, customers perceive supply chain risk for their products.

Speaker #1: Our capacities along with those of our upstream foundry partners are finite with limited ability to be pulled forward at this point. With that said, we are seeing strength not only in our leap-related capacities; we are also seeing strong demand in wire bond and traditional advanced packaging.

Speaker #1: From a financial perspective, first quarter ATM revenues came in slightly ahead of our expectations. We saw slight pickups throughout our customer base, especially as it relates to computing-related products.

Kenneth Hsiang: Our capacities, along with those of our upstream foundry partners, are finite, with limited ability to be pulled forward at this point. With that said, we are seeing strength not only in our LEAP-related capacities, we are also seeing strong demand in wire bond and traditional advanced packaging. From a financial perspective, Q1 ATM revenues came in slightly ahead of our expectations. We saw slight pickups throughout our customer base, especially as it relates to computing-related products. We also saw incremental improvement in our profitability due to this pickup, with gross margin outpacing our original expectations. Our EMS business slowed slightly due to underlying product seasonality as per our original expectations. Please turn to page three, where you will find our Q1 consolidated results. For the Q1, we recorded fully diluted EPS of TWD 3.08 and basic EPS of TWD 3.24.

Speaker #1: We also saw incremental improvement in our profitability due to this pickup with gross margin outpacing our original expectations. Our EMS business slowed slightly due to underlying product seasonality as per our original expectations.

Speaker #1: Please turn to page 3 where you will find our first quarter consolidated results. For the first quarter, we recorded fully diluted EPS of $3.08, and basic EPS of $3.24.

Speaker #1: Consolidated net revenues were $173.7 billion representing a decrease of 2% sequentially and an increase of 17% year-over-year. On a US dollar basis, our sales decreased by 4% sequentially and increased by 22% year-over-year.

Speaker #1: Our gross profit was $34.8 billion with a gross margin of 20.1%. Our gross margin improved by 0.6 percentage points sequentially and by 3.3 percentage points year-over-year.

Kenneth Hsiang: Consolidated net revenues were TWD 173.7 billion, representing a decrease of 2% sequentially and an increase of 17% year over year. On a US dollar basis, our sales decreased by 4% sequentially and increased by 22% year over year. Our gross profit was TWD 34.8 billion with a gross margin of 20.1%. Our gross margin improved by 0.6 percentage points sequentially and by 3.3 percentage points year over year. The sequential improvement in margin is primarily due to NT dollar depreciation. The annual improvement is primarily due to a higher mix of ATM revenue, in addition to higher ATM factory utilization, offset in part by the annual appreciation of the NT dollar. We estimate that foreign exchange had a +0.6 percentage point impact to our gross margin sequentially and a -1.2 percentage point impact annually.

Speaker #1: The sequential improvement in margin is primarily due to NT dollar depreciation. The annual improvement is primarily due to a higher mix of ATM revenue in addition to higher ATM factory utilization offset in part by the annual appreciation of the NT dollar.

Speaker #1: We estimate that foreign exchange had a positive 0.6 percentage point impact to our gross margin sequentially and a negative 1.2 percentage point impact annually.

Speaker #1: Our operating expenses increased by 0.3 billion sequentially and 2.1 billion annually to $17.3 billion. The sequential increase in operating expenses is primarily due to higher R&D labor-related costs.

Speaker #1: Meanwhile, the annual increase is primarily due to higher R&D labor-related costs and to lesser extents R&D supplies and other non-R&D labor-related expenses. Our operating expense percentage eased 0.4 percentage points sequentially to 10% and declined 0.3 percentage points annually.

Kenneth Hsiang: Our operating expenses increased by TWD 0.3 billion sequentially and TWD 2.1 billion annually to TWD 17.3 billion. The sequential increase in operating expenses is primarily due to higher R&D labor-related costs. Meanwhile, the annual increase is primarily due to higher R&D labor-related costs and to a lesser extent, R&D supplies and other non-R&D labor-related expenses. Our operating expense percentage eased 0.4 percentage points sequentially to 10% and declined 0.3 percentage points annually. Operating profit was TWD 17.5 billion, down TWD 0.2 billion sequentially and up TWD 7.9 billion year over year. Operating margin was 10.1%, up 0.2 percentage points sequentially and up 3.6 percentage points year over year. During the quarter, we had a net non-operating gain of TWD 0.7 billion. Our non-operating gain for the quarter primarily consists of net foreign exchange hedging activities, offset in part by net interest expense of TWD 1.6 billion. Tax expense for the quarter was TWD 3.6 billion.

Speaker #1: Operating profit was $17.5 billion. Down 0.2 billion sequentially and up 7.9 billion year-over-year. Operating margin was 10.1% up 0.2 percentage points sequentially and up 3.6 percentage points year-over-year.

Speaker #1: During the quarter, we had a net non-operating gain of 0.7 billion. Our non-operating gain for the quarter primarily consists of net foreign exchange hedging activities offset in part by net interest expense of 1.6 billion.

Speaker #1: Tax expense for the quarter was 3.6 billion. Our effective tax rate for the quarter was 20.0%. Net income for the quarter was 14.1 billion representing a 4% decline sequentially of 0.6 billion.

Speaker #1: And an 87% increase annually of 6.6 billion. On page 4 is a graphical presentation of our consolidated quarterly financial performance. The chart effectively shows the impact of ATM business growth and its impact to our consolidated holding company.

Speaker #1: For the first quarter this year, our ATM business represented 65% of our consolidated holding company revenue while representing 91% of our operating profit. This is compared to 58% of consolidated holding company revenue while representing 86% operating profit in the first quarter last year.

Kenneth Hsiang: Our effective tax rate for the quarter was 20.0%. Net income for the quarter was TWD 14.1 billion, representing a 4% decline sequentially of TWD 0.6 billion and an 87% increase annually of TWD 6.6 billion. On page four is a graphical presentation of our consolidated quarterly financial performance. The chart effectively shows the impact of ATM business growth and its impact to our consolidated holding company level results. For the first quarter of this year, our ATM business represented 65% of our consolidated holding company revenue while representing 91% of our operating profit. This is compared to 58% of consolidated holding company revenue while representing 86% operating profit in the first quarter last year. On page five is our ATM P&L. The ATM revenue reported here contains revenues eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses.

Speaker #1: On page 5 is our ATM P&L. The ATM revenue reported here contains revenues eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses.

Speaker #1: For the first quarter of 2026, we had record revenues for our ATM business of $112.4 billion. Up 2.7 billion from the previous quarter and up 25.8 billion from the same period last year.

Speaker #1: This represents an increase of 2% sequentially and 30% annually. Our ATM business was able to avoid a seasonal decline in revenue during the first quarter upsiding our original expectations.

Speaker #1: We also delivered higher-than-expected margin performance via improved profitability from higher utilization of equipment. However, we were unable to avoid the higher running costs during the Lunar New Year holidays.

Speaker #1: Gross profit for our ATM business was $29.2 billion. Up 0.4 billion sequentially and up 9.6 billion year-over-year. Gross profit margin for our ATM business was 26%.

Kenneth Hsiang: For Q1 2026, we had record revenues for our ATM business of TWD 112.4 billion, up TWD 2.7 billion from the previous quarter and up TWD 25.8 billion from the same period last year. This represents an increase of 2% sequentially and 30% annually. Our ATM business was able to avoid a seasonal decline in revenue during Q1, upsiding our original expectations. We also delivered higher than expected margin performance via improved profitability from higher utilization of equipment. However, we were unable to avoid the higher running costs during the Lunar New Year holidays. Gross profit for our ATM business was TWD 29.2 billion, up TWD 0.4 billion sequentially and up TWD 9.6 billion year over year. Gross profit margin for our ATM business was 26%, down 0.3 percentage points sequentially and up 3.4 percentage points year over year.

Speaker #1: Down 0.3 percentage points sequentially and up 3.4 percentage points year-over-year. The sequential gross margin decline was primarily due to higher rate of labor during the Lunar New Year holiday and also a higher percentage of depreciation from preparing equipment for further expansion.

Speaker #1: These negative impacts were mostly offset by a positive foreign exchange environment and efficiencies from higher loading. Meanwhile, the annual gross margin improvement was primarily due to higher factory utilization and a higher leap product mix offset in part by negative foreign currency impact.

Speaker #1: As a note, during this year we see our depreciation rising faster than revenues as a result of our ongoing investments in LEAP. The granularity of our OS and full process LEAP equipment differs from our more traditional advanced packaging lines.

Speaker #1: Our LEAP lines must be installed at scale and together as a full set of differing machinery instead of in small incremental units like wire bonders and testers.

Kenneth Hsiang: The sequential gross margin decline was primarily due to a higher rate of labor during the Lunar New Year holiday and also a higher percentage of depreciation from preparing equipment for further expansion. These negative impacts were mostly offset by a positive foreign exchange environment and efficiencies from higher loading. The annual gross margin improvement was primarily due to higher factory utilization and a higher LEAP product mix, offset in part by negative foreign currency impact. As a note, during this year, we see our depreciation rising faster than revenues as a result of our ongoing investments in LEAP. The granularity of our OS and full process LEAP equipment differs from our more traditional advanced packaging lines. Our LEAP lines must be installed at scale and together as a full set of differing machinery instead of in small incremental units like wire bonders and testers.

Speaker #1: This results in our LEAP lines taking a greater amount of time to bring up and tune when compared with more traditional packaging capacities. Currently, our full process LEAP lines are in the midst of tuning and qualification.

Speaker #1: As a result, we will continue to see gradually increasing depreciation without significant amounts of associated revenue during the tuning and qualification period. Meanwhile, revenues associated with these full process lines will ramp mostly during the fourth quarter.

Speaker #1: With that said, we continue to believe our margins will increase sequentially quarter over quarter and reach the higher end of our structural margins by the end of the year.

Speaker #1: During the first quarter, operating expenses were $13.3 billion. Up 0.6 billion sequentially and $2 billion year-over-year. The sequential and annual increases in operating expenses are primarily related to higher overall R&D costs and labor expenses.

Kenneth Hsiang: This results in our LEAP lines taking a greater amount of time to bring up and tune when compared with more traditional packaging capacities. Currently, our full process LEAP lines are in the midst of tuning and qualification. We will continue to see gradually increasing depreciation without significant amounts of associated revenue during the tuning and qualification period. Meanwhile, revenues associated with these full process lines will ramp mostly during Q4. With that said, we continue to believe our margins will increase sequentially quarter over quarter and reach the higher end of our structural margins by the end of the year. During Q1, operating expenses were TWD 13.3 billion, up TWD 0.6 billion sequentially and TWD 2 billion year over year. The sequential and annual increases in operating expenses are primarily related to higher overall R&D costs and labor expenses.

Speaker #1: Our operating expense percentage for the quarter was 11.8%. Increasing 0.2 percentage points sequentially and down 1.2 percentage points annually. The sequential increase was primarily due to relatively higher R&D labor costs.

Speaker #1: The annual decline was primarily due to higher revenues generating a higher operating leverage during the quarter. During the first quarter, operating profit was 15.9 billion.

Speaker #1: Representing a sequential 1% decline of 0.2 billion and a 90% annual increase of 7.5 billion. Operating margin was 14.1% down 0.6 percentage points sequentially while up 4.5 percentage points year-over-year.

Speaker #1: On page 6, you'll find a graphical representation of our ATM P&L. The chart highlights the improvement in our gross profit margin. It should be noted here that our second and third quarter 2025 margins were heavily impacted by NT dollar strengthening.

Kenneth Hsiang: Our operating expense percentage for the quarter was 11.8%, increasing 0.2 percentage points sequentially and down 1.2 percentage points annually. The sequential increase was primarily due to relatively higher R&D labor costs. The annual decline was primarily due to higher revenues generating a higher operating leverage during the quarter. During Q1, operating profit was TWD 15.9 billion, representing a sequential 1% decline of TWD 0.2 billion, and a 90% annual increase of TWD 7.5 billion. Operating margin was 14.1%, down 0.6 percentage points sequentially, while up 4.5 percentage points year-over-year. On page six, you'll find a graphical representation of our ATM P&L. The chart highlights the improvement in our gross profit margin. It should be noted here that our Q2 and Q3 2025 margins were heavily impacted by NT dollar strengthening. On page seven is our ATM revenue by the three C market segments.

Speaker #1: On page 7 is our ATM revenue by the 3C market segments. LEAP services are primarily used within our computing applications, with a lesser amount being used in the communications applications for infrastructure hardware.

Speaker #1: As can be seen here, the computing application percentage has been growing steadily with our communications segment declining. Our automotive consumer and others application appears to be consistently growing in line with our overall ATM growth.

Speaker #1: On page 8, you will find our ATM revenue by service type. We did not see any meaningful changes here during the quarter. On page 9, you can see the first quarter results of our EMS business.

Speaker #1: During the quarter, EMS revenues were down 10% sequentially and 1% annually to $61.9 billion. Sequentially, our EMS business's gross margin increased by 0.5 percentage points to 9.5%.

Kenneth Hsiang: LEAP services are primarily used within our computing applications, with a lesser amount being used in the communications applications for infrastructure hardware. As can be seen here, the computing application percentage has been growing steadily, with our communications segment declining. Our automotive consumer and others application appears to be consistently growing in line with our overall ATM growth. On page eight, you will find our ATM revenue by service type. We did not see any meaningful changes here during the quarter. On page nine, you can see the first quarter results of our EMS business. During the quarter, EMS revenues were down 10% sequentially and 1% annually to $61.9 billion. Sequentially, our EMS business' gross margin increased by 0.5 percentage points to 9.5%. This change was principally the result of product mix. Operating expenses within our EMS business decreased by $0.3 billion sequentially and increased by $0.1 billion annually.

Speaker #1: This change was principally the result of product mix. Operating expenses within our EMS business decreased by 0.3 billion sequentially and increased by 0.1 billion annually.

Speaker #1: The sequential decline is primarily the result of lower profit sharing during the quarter. The slight increase annually is primarily attributable to higher R&D headcount.

Speaker #1: Our first quarter EMS operating expense percentage of 6.4% was up 0.2 percentage points sequentially and 0.1 percentage point annually. The sequential and annual operating expense percentage increases are due to underlying product revenue seasonality relative to more stable operating expenses.

Speaker #1: Operating margin for the quarter was 3.1% up 0.3 percentage points sequentially and 0.5 percentage points year-over-year. The higher operating margins are primarily the result of product mix.

Speaker #1: Our EMS first quarter operating profit was 1.9 billion down 0.1 billion sequentially and up 0.3 billion annually. On the bottom of the page, you will find a graphical representation of our EMS revenue by application.

Kenneth Hsiang: The sequential decline is primarily the result of lower profit sharing during the quarter. The slight increase annually is primarily attributable to higher R&D headcount. Our Q1 EMS operating expense percentage of 6.4% was up 0.2 percentage points sequentially and 0.1 percentage point annually. The sequential and annual operating expense percentage increases are due to underlying product revenue seasonality relative to more stable operating expenses. Operating margin for the quarter was 3.1% up 0.3 percentage points sequentially and 0.5 percentage points year-over-year. The higher operating margins are primarily the result of product mix. Our EMS Q1 operating profit was TWD 1.9 billion, down TWD 0.1 billion sequentially and up TWD 0.3 billion annually. On the bottom of the page, you will find a graphical representation of our EMS revenue by application. The communications applications decline is primarily due to underlying product seasonality.

Speaker #1: The communications applications decline is primarily due to underlying product seasonality. The computing applications increase is primarily due to a pickup in new AI accelerator products.

Speaker #1: On page 10, 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 $114 billion.

Speaker #1: Our total interest-bearing debt decreased by 7.6 billion to $265.3 billion. Total unused credit lines amounted to $419.4 billion. Our EBITDA for the quarter was 38.2 billion.

Speaker #1: Our net debt-to-equity this quarter was 40%. On page 11, you will find our equipment capital expenditures relative to our EBITDA. Machinery and equipment capital expenditures for the first quarter in US dollars totaled $1 billion.

Speaker #1: Of which $636 million was used in packaging operations, $327 million in testing operations, $40 million in EMS operations, and $1 million in interconnect materials operations and others.

Kenneth Hsiang: The computing applications increase is primarily due to a pickup in new AI accelerator products. On page 10, you will find key line items from our balance sheet. At the end of the year, we had cash equivalents, and current financial assets of TWD 114 billion. Our total interest-bearing debt decreased by TWD 7.6 billion to TWD 265.3 billion. Total unused credit lines amounted to TWD 419.4 billion. Our EBITDA for the quarter was TWD 38.2 billion. Our net debt to equity this quarter was 40%. On page 11, you will find our equipment capital expenditures relative to our EBITDA. Machinery and equipment capital expenditures for the Q1 in US dollars totaled $1 billion, of which $636 million was used in packaging operations, $327 million in testing operations, $40 million in EMS operations, and $1 million in interconnect materials operations and others.

Speaker #1: In addition to spending on machinery and equipment during the quarter, we also spent $771 million that, I'll hand the presentation over to Joseph to present the company's outlook.

Speaker #1: Thank you, Ken. Before we get into the guidance for second quarter, I would like to give you a bit of a color for the full year.

Speaker #1: Now, first of all, we are upping our CapEx for the year, which includes additional $9 billion for buildings and infrastructure, as reflected in our recent announcements.

Speaker #1: And an incremental US $0.6 billion in machinery driven by a stronger demand for LEAP services this year and next. The majority of this additional machinery CapEx will be allocated to LEAP, particularly wafer sort and expected to be deployed in the fourth quarter to support capacity ramp-up in 2027.

Kenneth Hsiang: In addition to spending on machinery and equipment, during the quarter, we also spent TWD 771 million on facilities. With that, I'll hand the presentation over to Joseph to present the company's outlook.

Speaker #1: For ATM 2026 revenue, we now expect LEAP services revenue to be around 10% above our prior guidance. Reaching over US $3.5 billion. While the mainstream segment remains on track to grow at a similar rate with last year.

Joseph Tung: Thank you, Ken. Before we get into the guidance for Q2, I would like to give you a bit of a color for the full year. Now, first of all, we are upping our CapEx for the year, which includes additional $0.9 billion for buildings and infrastructure, as reflected in our recent announcements, and an incremental US $0.6 billion in machinery, driven by a stronger demand for LEAP services this year and next. The majority of this additional machinery CapEx will be allocated to LEAP, particularly wafer sort, and expected to be deployed in Q4 to support capacity ramp-up in 2027. For ATM 2026 revenue, we now expect LEAP services revenue to be around 10% above our prior guidance, reaching over US $3.5 billion.

Speaker #1: And for 2027, we continue to see strong LEAP business momentum and expect even stronger incremental revenue growth than this year. Lastly, on ATM profitability, our strong market position continues to support a favorable pricing environment throughout the year.

Speaker #1: We reported first quarter ATM gross margin of $26%, which is ahead of our original expectation of $24.5%. As we continue to expect sequential improvements for ATM margins, with second half gross margin to reach the upper end of our structural gross margin range, second quarter gross margin improvement, however, will be partly offset by higher costs associated with early resource deployment for product transitions.

Joseph Tung: While the mainstream segment remains on track to grow at a similar rate with last year. For 2027, we continue to see strong LEAP business momentum and expect even stronger incremental revenue growth than this year. Lastly, on ATM profitability, our strong market position continues to support a favorable pricing environment throughout the year. We reported Q1 ATM gross margin of 26%, which is ahead of our original expectation of 24.5%. We continue to expect sequential improvements for ATM margins, with H2 gross margin to reach the upper end of our structural gross margin range. Q2 gross margin improvement, however, will be partly offset by higher costs associated with early resource deployment for product transitions. Now, with that, let me give you the Q2 outlook.

Speaker #1: Now, with that, let me give you the second quarter outlook. Based on our current business outlook and exchange rate assumption of US dollar to $31.8 NT dollar, management projects overall performance for the second quarter of 2026 to be as follows.

Speaker #1: At the consolidated level, in NT dollar terms, our consolidated second quarter revenues should grow by 7% to 9% quarter over quarter. Our consolidated second quarter gross margin should increase by 20% to 100 basis points quarter over quarter.

Speaker #1: Our consolidated second quarter operating margin should increase by 50% to 120 basis points quarter over quarter. For ATM, in NT dollar terms, our ATM second quarter revenue should grow by 9% to 11% quarter over quarter.

Joseph Tung: Based on our current business outlook and exchange rate assumption of US dollar to TWD 31.8, management projects overall performance for Q2 2026 to be as follows. At the consolidated level, in TWD terms, our consolidated Q2 revenues should grow by 7% to 9% quarter over quarter. Our consolidated Q2 gross margin should increase by 20 to 100 basis points quarter over quarter. Our consolidated Q2 operating margin should increase by 50 to 120 basis points quarter over quarter. For ATM, in TWD terms, our ATM Q2 revenue should grow by 9% to 11% quarter over quarter, and our Q2 gross margin should be between 26% to 27%. For EMS, in TWD terms, our EMS Q2 revenue should grow at least 10% year over year. Our EMS operating margin should be similar with Q2 2025 levels.

Speaker #1: And our second quarter gross margin should be between 26% to 27%. For EMS, in NT dollar terms, our EMS second quarter revenue should grow at least 10% year over year.

Speaker #1: Our EMS operating margin should be similar with second quarter 2025 levels. With that, I'll open the floor for questions. Thank you.

Speaker #2: During the Q&A session that follows, we would appreciate it if your questions could be as clear and concise as possible and asked singularly. We will start by taking questions from participants online.

Speaker #2: As moderator, I will be receiving each question and repeating and directing each question individually. After a participant's initial question, he or she may ask a follow-up question clarifications of the earlier question or another question entirely.

Speaker #2: Then we will move on to the next caller. So with that, let's see if we have the first caller.

Speaker #3: We have our first question from Mr. Goku Hariharan of JPMorgan.

Speaker #4: Yeah, hi. Good afternoon. Great results. Congratulations on that. Thanks for the opportunity. Joseph and Ken, our first question is on LEAP. So the 10% upside in LEAP in 2026, could you talk a little bit about what is the reason for that?

Joseph Tung: With that, I'll open the floor for questions. Thank you.

Kenneth Hsiang: During the Q&A session that follows, we would appreciate it if your questions could be as clear and concise as possible and asked singularly. We will start by taking questions from participants online. As moderator, I will be receiving each question and repeating and directing each question individually. After a participant's initial question, he or she may ask a follow-up question, clarifications of the earlier question, or another question entirely. We will move on to the next caller. With that, let's see if we have the first caller.

Speaker #4: Is it mainly coming from on-substrate and wafer sort or any composition? And also just to clarify, 27, you said LEAP could grow at similar kind of stronger incremental revenue growth than this year.

Speaker #4: So this year is around $2 billion incremental revenue based on the new guidance. So are we implying that next year LEAP can grow at $2 billion plus kind of incremental revenue?

Speaker #4: Is that how we should read that statement? And any early read on what is the composition of LEAP next year?

Operator: We have our first question from Mr. Gokul Hariharan of JPMorgan.

Speaker #2: Goku is looking for clarification on our LEAP guidance for CapEx and oh, actually, just primarily on revenue side, right?

Gokul Hariharan: Yeah. Hi, good afternoon. Great results. Congratulations on that. Thanks for the opportunity, Joseph and Ken. First question is on LEAP. The 10% upside in LEAP, in 2026, could you talk a little bit about what is the reason for that? Is it mainly coming from on-Substrate and wafer sort or any composition? Also, just to clarify, 2027, you said LEAP could grow at similar, kind of stronger incremental revenue growth than this year. This year is around TWD 2 billion incremental revenue based on the new guidance. Are we implying that next year LEAP can grow at a TWD 2 billion-plus kind of incremental revenue? Is that how we should read that statement? Any early read on what is the composition of LEAP next year?

Speaker #4: Yeah, revenue, yes. This year and the 10% upside where it's coming from and 27, like the $2 billion or more than $2 billion incremental revenue, I just want to clarify that's what you meant.

Speaker #1: For this year, I think we are seeing a stronger than anticipated demand particularly in the LEAP part of the business. And as such, we need to increase our CapEx to support that expansion.

Speaker #1: And also, a lot of the increase of CapEx is really to prepare ourselves for next year's ramp-up as well. In terms of momentum, I think both for assembly in the LEAP services, both in terms of assembly and tests, we are growing at pretty much the same pace.

Kenneth Hsiang: Gokul is looking for clarification on our LEAP guidance for CapEx and actually, just primarily on revenue side, right?

Speaker #1: And in terms of combination, I think it's about 75% in assembly and 25% in tests. And with tests, we have about 75% in wafer sort and 25% in final tests.

Gokul Hariharan: Yeah, revenue.

Kenneth Hsiang: Yes.

Gokul Hariharan: This year and the 10% upside, where it's coming from, and 2027, like the 2 billion or more than 2 billion incremental revenue, I just want to clarify that's what you meant?

Joseph Tung: For this year, I think we are seeing stronger than anticipated demand, particularly in the LEAP part of the business. As such, we need to increase our CapEx to support that expansion. Also, a lot of the increase of CapEx is really to prepare ourselves for next year's ramp-up as well. In terms of momentum, I think both for assembly in terms of LEAP services, both in terms of assembly and tests, we are growing at pretty much the same pace. In terms of combination, I think it's about 75% in assembly and 25% in tests. With tests, we have about 75% in wafer sort and 25% in final tests.

Speaker #4: Understood. And I think on 27, could we talk a little bit about, I think, Joseph, you mentioned incremental growth can be higher than this year.

Speaker #4: So does that mean that we can grow from the 3.5 billion this year to at least 5.5 billion next year? Is that what you implied?

Speaker #1: I'm only implying that we are continuously very, very strong momentum going forward into 2027. And the $2 billion or $1.9 billion is really just to serve as a baseline.

Speaker #1: In fact, we are we can safely expect even stronger momentum than that. Although I'm not giving out any particular number at this point.

Speaker #4: Understood. And just within that 2027 LEAP any context on the full process co-host or full process forecast kind of composition and are you getting do you think that you will have some accelerator-related AI accelerator-related full process revenue in 27, or is it going to be mostly like the CPU and some of the other AI adjacent kind of full process revenue?

Gokul Hariharan: Understood. I think on 2027, could we talk a little bit about, I think, Joseph, you mentioned incremental growth can be higher than this year. Does that mean that we can grow from the $3.5 billion this year to at least $5.5 billion next year? Is that what you implied?

Joseph Tung: I'm only implying that we are continuing to see very strong momentum going forward into 2027. The TWD 2 billion or TWD 1.9 billion is really just to serve as a baseline. In fact, we can safely expect even stronger momentum than that. Although I'm not giving out any particular number at this point.

Speaker #1: I think right now, the full process is going on track. And we still believe that we can reach the $300 million revenue mark for this year.

Speaker #1: As we continue to expand that part of the capacity, I think for next year, we can see quite substantial growth in that area as well.

Speaker #1: And as also not just on the revenue growth, we're also expanding our customer base in this particular area. And we believe that any other application that will be moving into co-host-like kind of packages I think we will be able to entertain those part of the request.

Gokul Hariharan: Understood. Just within that 2027 LEAP, any context on the full process CoWoS, like our full process CoWoS kind of composition? Do you think that you will have some AI accelerator-related full process revenue in 2027, or is it going to be mostly the CPU and some of the other AI-adjacent kind of full process revenue?

Speaker #4: Understood. My second question is on gross margins, Joseph. You're already of the structural range. Of gross margin and you're already at the midpoint in Q1 and Q2.

Joseph Tung: I think right now the full process is going on track, and we still believe that we can reach this TWD 300 million revenue mark for this year. As we continue to expand that part of the capacity, I think for next year, we can see quite substantial growth in that area as well. As also, not just on the revenue growth, we are also expanding our customer base in this particular area. We believe that any other application that would be moving into CoWoS like packages, I think we will be able to entertain those part of the request.

Speaker #4: Why not raise the structural range of gross margin given you have higher margin products coming in next year as well with full process and more testing as well?

Speaker #4: Is there anything that is holding you back from kind of raising the gross margin range structural gross margin range?

Speaker #2: So Goku, you're looking for more clarification on the context of our structural margins.

Speaker #4: Yes.

Speaker #2: Thank you.

Speaker #1: Well, I think things are moving very fast at this point and it's very dynamic. And I think we will of course, we already said that even in the first quarter and second quarter, we are ahead of our original expectation in terms of margin improvement.

Gokul Hariharan: Understood. My second question is on gross margins, Joseph. You're already reaching probably the higher end of the structural range of gross margin, and you're already at the midpoint in Q1 and Q2. Why not raise the structural range of gross margin given you have higher margin products coming in next year as well with full process and more testing as well? Is there anything that is holding you back from raising the structural gross margin range?

Speaker #1: And we are even more confident now that in the second half, we'll be reaching the upper end of the structural margin. But I think at this point, because things are moving very fast, I think we would rather wait till things are more settled, maybe in next year, we will review the situation and see if this is justifiable to revise up our structural margin.

Speaker #4: Is there any risk factor that holds you back? Is it just the depreciation growth is very strong, or is there anything else that is holding you back?

Kenneth Hsiang: Gokul, you're looking for more clarification on the context of our structural margins?

Gokul Hariharan: Yes.

Speaker #1: Well, I wouldn't call it holding us back. I would say that because as Ken is mentioning, right now, the investment or the CapEx that we put in are in pretty good pretty large chunks.

Kenneth Hsiang: Thank you.

Joseph Tung: Well, I think things are moving very fast at this point, and it is very dynamic. I think Of course, we already said that even in Q1 and Q2, we are ahead of our original expectation in terms of margin improvement. We are even more confident now that in H2, we will be reaching the upper end of the structural margin. I think at this point, because things are moving very fast, I think we will rather wait till things are more settled. Maybe next year we will review the situation and see if this is justifiable to revise up our structural margin.

Speaker #1: Rather than four, we can incrementally add capacity. So and before the capacity is fully ramped up, it's kind of that normally creates a some of the some pressure on the margin during that ramp-up stage.

Speaker #1: So it's we need to wait until a more steady state kind of situation before we can find a suitable range for our margin.

Speaker #4: Got it. We can leave some more good news for later. Thank you. I'll go back to the queue.

Gokul Hariharan: Is there any risk factor that holds you back? Is it just the depreciation growth is very strong, or is there anything else that is holding you back?

Speaker #1: All right.

Joseph Tung: Well, I wouldn't call it holding us back. I would say that because, as Ken is mentioning, right now the investment or the CapEx that we put in are in pretty large chunks, rather than before we can incrementally add capacity. Before the capacity is fully ramped up, that normally creates some pressure on the margin during that ramp-up stage. We need to wait until a more steady state kind of situation before we can find the suitable range for our margin.

Speaker #5: Our next question is from Ms. Sunilin of UBS.

Speaker #6: Good evening. Could you hear me okay?

Speaker #5: Yes.

Speaker #6: Thank you very much for taking my questions. Congrats on the very strong results. So my first question is actually to get your thoughts on CPO.

Speaker #6: And so would you be able to share a bit more color on what will be the role that AEC can play for CPO's packaging and test?

Speaker #6: And how should we think about the revenue opportunity? AEC from CPO. And when would you expect the sales to start to contribute to AEC from CPO?

Speaker #4: So Sunil's first question refers to the context of CPO. And the various financial aspects of that, right?

Gokul Hariharan: Got it. We can leave some more good news for later. Thank you. I'll go back to the queue.

Joseph Tung: All right.

Speaker #6: Yes. Thank you.

Speaker #1: We are very working very closely with the off-season foundry as well as our customer, the end customer. In terms of the development of CPO, right now, we don't have a number for it.

Operator: Our next question is from Miss Sunny Lin of UBS.

Sunny Lin: Good evening. Could you hear me okay?

Speaker #1: But what I can say is once it gets into volume scale, that we will definitely be a very, very critical partner within the overall effort.

Operator: Yes.

Sunny Lin: Thank you very much for taking my questions. Congrats on the very strong results. My first question is actually to get your thoughts on CPO. Would you be able to share a bit more color on what will be the role that ASE can play for CPO's packaging and test? How should we think about the revenue opportunity, ASE from CPO? When would you expect the sales to start to contribute to ASE from CPO?

Speaker #1: And I think things are moving things are moving on track. And we continue to make progress on this CPO development.

Speaker #6: Got it. So may I follow up? And so one, what will be the timeline that you start to expire revenue contribution? And then secondly, in terms of packaging and test, what may be the role that AEC may play if you could share a bit more details?

Kenneth Hsiang: Sunny's first question refers to the context of CPO and the various financial aspects of that, right?

Sunny Lin: Yes. Thank you.

Joseph Tung: We are working very closely with the upstream foundry as well as our customer, the end customer, in terms of the development of CPO. Right now, we don't have a number for it. What I can say is once it gets into volume scale, that we would definitely be a very critical partner within the overall effort.

Speaker #1: No, I don't have that much of a detail except we will start with the packaging part of it. And eventually, of course, the test is a more complicated than the regular chips that we are testing now.

Speaker #1: So I think things will have to sync up our technology roadmap with our partners and also our customers to find the most suitable work combination between the three of us.

Sunny Lin: Well.

Joseph Tung: I think things are moving.

Sunny Lin: Yeah, sorry.

Joseph Tung: things are moving on track and we are continuing to make progress on this CPO development.

Speaker #1: And whatever happens, it will be a natural division of works for each of us to do what we do best.

Sunny Lin: Got it. Well, may I follow up? One, what will be the timeline that you start to expire revenue contribution? Secondly, in terms of packaging and test, what may be the role that ASE may play, if you could share a bit more details?

Speaker #6: Thank you very much. And my second question is on Capex. And so now with the higher Capex of this year, capital intensity should be above 30%.

Speaker #6: And so how should we think about the capital intensity for the coming maybe one to two years? Should we expect given a very strong demand, you need to continue to accelerate capacity expansion and therefore capital intensity will remain high at about 30%?

Joseph Tung: No, I don't have that much of a detail except we will start with the packaging part of it. Eventually, of course, the test is more complicated than the regular chips that we are testing now. I think we'll have to sync up our technology roadmap with our partners and also our customers to find the most suitable work combination between the three of us. Whatever happens, it will be a natural division of works for each of us to do what we do best.

Speaker #6: Or should we think about maybe in 2027, given the revenue generation maybe Capex will start to slow in terms of intensity? How should we think about the growth between the sales and Capex?

Speaker #4: Sunil, you're looking for clarification on our Capex trend going forward and the capital intensity involved, right?

Speaker #6: Yeah.

Speaker #1: Well, we're still in the in this mega trend and we're certainly not going to be shy about making the necessary investment. Not only just on the capacity itself, but also on the R&D.

Sunny Lin: Thank you very much. My second question is on CapEx. Now with the higher CapEx for this year, capital intensity should be above 30%. How should we think about the capital intensity for the coming maybe one to two years? Should we expect, given a very strong demand, you need to continue to accelerate capacity expansion and therefore capital intensity will remain high at about 30%? Should we think about maybe in 2027, given the revenue generation, maybe CapEx will start to slow in terms of intensity? How should we think about the growth between the sales and CapEx?

Speaker #1: Spending that we need to we need to put in. And from the momentum that we're seeing now, I would expect pretty heavy Capex for this and maybe even going into next year.

Speaker #1: Although as I said, things are moving very fast and there's a lot of variables in front of us. I cannot give you a number at this point.

Speaker #1: But I would say that we will be making the necessary investments and we do have multiple cost-effective funding sources that we can leverage on.

Kenneth Hsiang: Sunny, you're looking for clarification on our CapEx trend going forward and the capital intensity involved, right?

Speaker #1: To continue to support the Capex requirement that we will be facing for this year and also next year.

Sunny Lin: Yeah.

Joseph Tung: Well, we're still in this mega trend, and we're certainly not going to be shy about making the necessary investment. Not only just on the capacity itself, but also on the R&D spending that we need to put in. From the momentum that we're seeing now, I would expect pretty heavy CapEx for this and maybe even going into next year. Although, as I said, things are moving very fast, and there's a lot of variables in front of us. I cannot give you a number at this point. I would say that we will be making the necessary investments, and we do have multiple cost-effective funding sources that we can leverage on to continue to support the CapEx requirement that we'll be facing for this year and also next year.

Speaker #6: Thank you. So if I may have a follow-up. And so earlier you mentioned lots of capacity expansions through this year. For the output from Q4, so would it be fair to say that for a loop, we should expect a pretty meaningful step-up in terms of revenue going to Q4?

Speaker #6: And that should meaningfully improve your gross margin on a sequential basis. So while the direction is upward in the coming few quarters, but in terms of magnitude, should we expect a pretty meaningful expansion from Q3 into Q4 given a lot stronger leap growth?

Speaker #4: Sunil, first of all, I don't see how that's a follow-up. But I guess I'll let you ask it. You're looking for basically what type of trend we're looking at in terms of leap?

Sunny Lin: Thank you. Also, if I may have a follow-up. Earlier you mentioned lots of capacity expansions through the rest of this year for the output from Q4. Would it be fair to say that for LEAP, we should expect a pretty meaningful step-up in terms of revenue going to Q4, and that should meaningfully improve your gross margin on a sequential basis? While the direction is upward in the coming few quarters, but in terms of magnitude, should we expect a pretty meaningful expansion from Q3 into Q4, given a lot stronger LEAP growth?

Speaker #4: Given that we're upping the outlook currently, is that probably the right summary of that?

Speaker #6: Yeah, sure. Thank you, Kent.

Speaker #1: Yes. I think from the get-go, I was saying that we're still expecting a very strong year going into 2027 as well. And particularly in the leap services, we do see the need to up our Capex to support that momentum.

Speaker #1: And I think I already answered Goku's questions that we are right now, we're expecting even stronger incremental revenue growth for next year in terms of leap.

Kenneth Hsiang: Sunny, first of all, I don't see how that's a follow-up, but I guess I'll let you ask it. You're looking for basically what type of trend we're looking at in terms of LEAP, given that we're upping the outlook currently. Is that probably the right summary of that?

Speaker #1: And whatever that we're seeing this year, the incremental revenue will serve as a baseline for us. And with these do see further potential for further upsides.

Speaker #6: All right, Claire. Thank you very much.

Speaker #4: Thank you.

Sunny Lin: Yeah, sure. Thank you, Ken.

Speaker #3: Next, we have Ms. Laura Chen of Citi Online.

Joseph Tung: Yes. I think from the get-go, I was saying that we're still expecting a very strong year, going into 2027 as well. Particularly in the LEAP services, we do see the need to up our CapEx to support that momentum. I think I already answered Gokul's questions that right now we're expecting even stronger incremental revenue growth for next year in terms of LEAP. Whatever that we're seeing this year, the incremental revenue will serve as a baseline for us, and we do see further potential for further upside.

Speaker #5: Yes, hi. Good afternoon, can you hear me?

Speaker #3: Yes.

Speaker #5: Yeah. Thank you for taking my questions. My question is also regarding our leap advanced packaging progress. We know that AEC also built up your own full process.

Speaker #5: So I'm just wondering that for our 3.2 billion and even stronger growth into next year, how should we think about that, the full process of our leap business?

Speaker #5: And what would be the gross margin profile comparing to the substrate part?

Speaker #4: So Laura, you're looking for more expansion on our full process business opportunities, is that correct?

Speaker #5: Yes. Yes. And what's the percentage and also what's the gross margin profile?

Sunny Lin: Very clear. Thank you very much.

Joseph Tung: Thank you.

Operator: Next, we have Ms. Laura Chen of Citi online.

Speaker #4: Thank you.

Speaker #1: I think we like I said, we are on track at whatever capacity that we're putting in. And the customer engagement that we are having at this point, we do see very good potential going forward as we have multiple customers requesting for this kind of capacity.

Laura Chen: Yes. Hi, good afternoon. Can you hear me?

Operator: Yes.

Laura Chen: Yeah. Thank you for taking my questions. My question is also regarding our LEAP advanced packaging progress. We know that ASE also build up your own full process. I'm just wondering that for our TWD 3.2 billions and even stronger growth into next year, how should we think about the full process of our LEAP business, and what would be the gross margin profile comparing to the substrate product?

Speaker #1: But this is a very complex process that we need to go through. And we are in the midst of trying to tune up our capacity as well as the yield that we can generate.

Speaker #1: So we're going to take one step at a time at this point in time. Although we do see very good potential, but we want to be cautious in making the making this part of the business with the very good execution.

Kenneth Hsiang: Laura, you're looking for more expansion on our full process business opportunities. Is that correct?

Laura Chen: Yes. What's the percentage and also what's the gross margin profile?

Kenneth Hsiang: Thank you.

Joseph Tung: I think, like I said, we are on track at whatever capacity that we're putting in, and the customer engagement that we are having at this point. We do see very good potential going forward as we have multiple customers requesting for this kind of capacity. This is a very complex process that we need to go through, and we are in the midst of trying to tune up our capacity as well as the yield that we can generate. We're going to take one step at a time at this point in time, although we do see very good potential, but we want to be cautious in making this part of the business with very good execution. At this point, I think it's not very easy for us to give you a number for this business for next year.

Speaker #1: And so at this point, I think it's not very easy for us to say to give you a number for the business for this business for next year.

Speaker #1: But all I can say is we do see very good potential and it's just a matter of how we can quickly execute the expansion plan.

Speaker #3: Sure. And that's fair and very clear. And also my following question is just wondering that as we see that many of the clients of your clients or the AI chip makers, they are looking for various different backend support, including the panel base or large radical support for from the OSA and not just at the foundry side.

Speaker #3: So I'm just wondering that how is the progress at AAC on the panel base and how would you think about this business opportunities in your leap revenue?

Speaker #4: Laura, you're looking for our opportunities in terms of supporting large radical size manufacturing using panel, right?

Speaker #5: Yes. Yes. The panel base. So the radical. That kind of packaging design. Thanks.

Joseph Tung: All I can say is we do see very good potential, and it's just a matter of how we can quickly execute the expansion plan.

Speaker #1: Yeah. Oh, on panel, I think we're also on track. And right now, we have already installed a fully automated pilot line for customer qualification.

Laura Chen: Sure. That's fair and very clear. My following question is, just wondering that as we see that many of your clients or the AI chip makers, they are looking for various different backend support, including the panel-based or large reticle support from the OSAT, not just at the foundry side. I'm just wondering that how is the progress at ASE on the panel-based, and how would you think about these business opportunities in your LEAP revenue?

Speaker #1: And we do expect to have starting with small mass production mass production volume starting from next year. And we'll see how it goes from there at that point on.

Speaker #1: And I think in terms of the panel, right now, it's still at its early stage. It is something that's going to happen. But it's we're still at the early stage of the overall development.

Kenneth Hsiang: Laura, you're looking for our opportunities in terms of supporting large reticle size manufacturing.

Speaker #1: And the how the industry infrastructure will be built remains to be some work to be done going forward. Yes, there is potential for that.

Laura Chen: Yeah

Kenneth Hsiang: using panel, right?

Laura Chen: Yes. The panel base. The reticle, that kind of packaging design. Thanks.

Joseph Tung: Yeah. On panel, I think we're also on track. Right now we have already installed a fully automated pilot line for customer qualification. We do expect to have, starting with small mass production volume, starting from next year. We'll see how it goes from there at that point on. I think in terms of the panel, right now it's still at its early stage. It is something that's going to happen, but we're still at the early stage of the overall development and how the industry's infrastructure will be built. There's still some work to be done, going forward. Yes, there is potential for that. If anything else, we'll be the first to start the capacity ramp-up.

Speaker #1: And if anything else, we'll be the first to start the capacity ramp-up.

Speaker #3: Sure. And we'll wait for more details. Thank you.

Speaker #6: Charlie Chen, Morgan Stanley will be the next to ask questions.

Speaker #4: Thanks, Iris. Hi, Joseph. Hi, Kent. How are you? And also, congratulations for a very strong results and guidance. My first question is actually the non-AI or circular border semi.

Speaker #4: So over the past three months, do you see smartphone consumer semi demand battering out or it continue to deteriorate? Because we are getting a little bit confused why some mature no foundry or hiking with a price and Texas instrument also suggests that the they want to hike the price.

Speaker #4: But overall, air market demand are so weak. So just want to get some thoughts from management. Thank you. Charlie, you're looking for some characterization of our non-leap related revenues and how we view that going forward, right?

Laura Chen: Sure. We'll wait for more details. Thank you.

Joseph Tung: Okay.

Laura Chen: Charlie Chan of Morgan Stanley will be the next to ask questions.

Speaker #1: Yeah. Yeah. Exactly. And also the tendency, whether it's getting better or getting worse. And. How ASE kind of benefit or suffer from those incremental trends.

Charlie Chan: Thanks, Iris. Hi, Joseph. Hi, Ken. How are you? Also, congratulations for very strong results and guidance. My first question is actually on the non-AI, or let's say, the broader semi. Over the past three months, do you see smartphone consumer semi demand bottoming out, or it continue to deteriorates? Because we are getting a little bit confused at why some material foundry are hiking wafer price. Texas Instruments also suggested they want to hike their price, but overall, end market demand are so weak. Just want to get some stuff from management. Thank you.

Speaker #1: Thank you.

Speaker #2: I mentioned earlier on that we are maintaining I think the general market revenue growth will maintain. The same guidance as we made last quarter.

Speaker #2: Which is the repeat of last year's growth rate of about 13%. And yes, we do see that the PC and cell phone market softness continues.

Speaker #2: And it seems to be softening a bit more. But on the other hand, I think a lot of the softness is. Picked up by the more IC contents in the devices different devices.

Kenneth Hsiang: Charlie, you're looking for some characterization of our non-LEAP related revenues and how we view that going forward, right?

Charlie Chan: Yeah. Exactly. Also the tendency, whether it's getting better or getting worse, and how ASE benefit or suffer from those incremental trends. Thank you.

Speaker #2: We're seeing the AI peripheral chips merging. Emerging. And we are seeing good recoveries in terms of automotive and industrial segment. So puts everything together I think we're still very, very confident that we will repeat our last year's growth in terms of general market.

Joseph Tung: I mentioned earlier on that we are maintaining I think the general market revenue growth, we're maintaining the same guidance as we made last quarter, which is a repeat of last year's growth rate, about 13%.

Speaker #4: I see. So Kent, may I clarify with Joseph what did he mean by the AI peripheral chips? We do have some sense, right? But just want to get some clarification from Joseph.

Joseph Tung: Yes, we do see that the PC and cell phone market softness continues, and it seems to be softening a bit more. On the other hand, I think a lot of the softness is being picked up by the more IC contents in different devices. We're seeing the AI peripheral chips emerging.

Speaker #2: Well, there are power-related connectivity sensors. All different kinds of edge devices that will be using for the which we don't we're dividing this general market with the leap.

Speaker #2: So it's not in the industry segment per se kind of a differentiation. Or segmentation. We're just only looking at the process itself. To decide what's general market for us.

Joseph Tung: We are seeing good recoveries in terms of automotive and industrial segment.

Joseph Tung: Put everything together, I think we're still very confident that we will repeat our last year's growth in terms of general market.

Speaker #4: I see. Thanks for the clarification. And my second question is actually about your pricing strategy. I mean, you are investing heavily but there's also some cost increase from the recent geophysical events, right?

Charlie Chan: I see. Ken, may I clarify with Joseph, what did he mean by the AI peripheral chips? We do have some sense, right? I just want to get some clarification from Joseph.

Speaker #4: So just want to get a sense what's your prediction for your fab utilization in the coming quarters? And would you transfer that circular tightening into further pricing power to your customers?

Joseph Tung: Well, there are power related.

Joseph Tung: connectivities, sensors

Joseph Tung: all different kinds of edge devices that we'll be using.

Joseph Tung: We're dividing this general market with the LEAP. It's not in the industry segment, per se, kind of a differentiation or segmentation.

Speaker #2: So I believe Charlie, you're asking what the impact of recent political volatility would be on our pricing and then also different components that go into what we do.

Joseph Tung: We're just only looking at the process itself to decide-

Speaker #2: What our pricing strategy is relative to our services that we provide. Is that correct?

Charlie Chan: Right.

Joseph Tung: on what's general market for us.

Charlie Chan: I see. Thanks for the clarification. My second question is actually about your pricing strategy. You are investing heavily. There is also some cost increase from the recent geographical events, right? Just want to get a sense, what's your prediction for your fab utilization in the coming quarters? Would you transfer that so-called tightness into further pricing power to your customers?

Speaker #4: Yeah. So yeah, thanks, Kent. Yeah. So maybe it's more like from a strategic perspective, right? One is that you can just passively pass through those additional costs.

Speaker #4: Like you said, right? There's a increase in energy costs or chemical costs. I'm not sure how much of a chemical cost you have exposure to.

Speaker #4: Or I think differently, right? You're fab in the coming quarters if the utilization continue to be getting higher and you feel like it's sustainable.

Kenneth Hsiang: I believe, Charlie, you're asking what the impact of recent political volatility would be on our pricing, and then also different components that go into what we do, what our pricing strategy is relative to our services that we provide. Is that correct?

Speaker #4: So why don't you further kind of hike the price? And it's more like a proactive price hike.

Speaker #2: Well, I can never give you a direct answer on that whether we're going to raise our prices or not. What I can say is we will continue to seek for the suitable pricing strategy.

Charlie Chan: Yeah. Thanks, Ken. Maybe it's more from a strategic perspective. One is that you can just passively pass through those additional costs, like you said. There's an increase in energy cost or chemical cost. I'm not sure how much of a chemical cost you are face also too. Think differently. Your fab in the coming quarters, if the utilization continue to be getting higher and you feel like it's sustainable. Why don't you further hike the price, and it's more like a proactive price hike?

Speaker #2: Given the situation and also considering the customer relationship that we need to maintain. Also, we will set the pricing to reflect the margin requirement that we will have.

Speaker #2: For ourselves.

Speaker #4: I see. So whatever the cost increase there is because of the all the market uncertainties those can be fully passed through. And also at the same time, we will continue to set the pricing to reach our margin requirement.

Speaker #4: Thank you. It's very clear. Thanks, Joseph.

Joseph Tung: Well, I can never give you a direct answer on that, whether we're going to raise our prices or not.

Speaker #3: Next, we have Hasliu of COSA.

Joseph Tung: We will continue to seek for the suitable pricing strategy, given the situation and also considering the customer relationship that we need to maintain.

Speaker #5: Hey. Okay. Thank you. Thanks, Joseph, Kent, and Iris for taking my questions. And congrats on the solid results. And guidance. I guess my first question is also a follow-up on the near-term guidance.

Joseph Tung: Also, we will set the pricing to reflect the margin requirement that we will have for ourselves.

Speaker #5: Just want to get more clarity regarding your view on what is going to be the key driver for second quarter sequential growth for your ICATM business.

Charlie Chan: I see.

Joseph Tung: The short answer is, whatever the cost increase there is because of the.

Speaker #5: Would you be able to quantify it between leap versus traditional business on the growth momentum? And then I think a quick follow-up also on the full-year outlook for your overall ICATM business.

Joseph Tung: All the market uncertainties, those can be fully passed through.

Joseph Tung: Also at the same time, we will continue to set the pricing to reach our margin requirement.

Speaker #5: That you did provide more detail on the non-leap business and the reason why you are still holding that kind of a growth guidance similar to last year.

Speaker #5: But would you be able to provide the breakdown on the unit and also pricing assumptions for that kind of growth outlook? I was just wondering if in the past three months, if there's any meaningful change on the mix of assumptions on the pricing that you may be able to improve your pricing further.

Charlie Chan: Thank you. It is very clear. Thanks, Joseph.

Operator: Next we have Hass Liu of BofA. Hass.

Hass Liu: Okay. Thank you. Thanks, Joseph, Ken, and Iris for taking my questions. Congrats on the solid results and guidance. I guess my first question is also a follow-up on the near-term guidance. Just want to get more clarity regarding your view on what is going to be the key driver for Q2 sequential growth for your IC ATM business. Would you be able to quantify it between LEAP versus traditional business on the growth momentum? I think a quick follow-up also on the full year outlook for your overall IC ATM business, that you did provide more detail on the non-LEAP business and the reason why you are still holding that kind of a growth guidance similar to last year. Would you be able to provide the breakdown on the unit and also pricing assumptions for that kind of growth outlook?

Speaker #5: Or you simply have not yet seen your customers have been cutting their orders at this stage. So just want to get more clarity on the second quarter and also full-year ICATM growth momentum between leap versus non-leap business.

Speaker #2: Has, I believe you're looking for clarity between on our guidance relative to leap and non-leap contexts. Is that correct?

Speaker #6: Yes. On the quarterly basis as well as on the full-year outlook basis. Thanks.

Speaker #2: I think second quarter revenue growth is really job-based. I think both leap as well as the general market. We're seeing similar kind of a growth to support the quarterly growth of revenue for us.

Hass Liu: I was just wondering if in the past three months, if there's any meaningful change on the mix of assumptions on the pricing that you may be able to improve your pricing further, or you simply have not yet seen your customers have been cutting their orders at this stage. Just want to get more clarity on the Q2 and also full year IC ATM growth momentum between LEAP versus non-LEAP business.

Speaker #2: I think the as I said, the we are more than doubling our leaps revenue this year. We just up our leap revenue by another 10%.

Speaker #2: And showing the strong momentum that we are that we're seeing at this point. General market, we continue to see same kind of growth rate for from last year.

Kenneth Hsiang: Hass, I believe you're looking for clarity on our guidance relative to LEAP and non-LEAP contexts. Is that correct?

Speaker #2: And as I tried to explain, I think although we're seeing some softness in some certain segments, we do see that the so-called AI peripheral or AI-adjacent type of chips that are being brought on stream and then that we are seeing the demand for those chips are more than offset what we're seeing the softness in the in these particular segments.

Hass Liu: Yes. On the quarterly basis as well as on the full year outlook basis. Thanks.

Joseph Tung: I think Q2 revenue growth is really our base. I think both LEAP as well as the general market. We're seeing similar kind of a growth to support the quarterly growth of revenue for us. As I said, we are more than doubling our LEAP revenue this year. We just up our LEAP revenue by another 10%, showing the strong momentum that we're seeing at this point. General market, we continue to see same kind of growth rate from last year. As I try to explain, I think although we're seeing some softness in some certain segments, we do see that the so-called AI peripheral, AI adjacent type of chips, they are being brought on stream and then we are seeing the demand for those chips are more than offset, where we're seeing the softness in these particular segments.

Speaker #6: Okay. I think just a quick follow-up here is that to my first question is that so you are actually not changing your pricing strategy in the past three months or in the next few quarters.

Speaker #6: To reflect the potentially higher cost on the materials or the labors. And you pretty much on an aggregate basis, you are not seeing much of the customers' demand dynamic change in the past three months.

Speaker #6: Should I just make that kind of assumption for your full-year outlook?

Speaker #2: I'm not sure I quite get your question. Can you? Can you repeat that?

Speaker #6: Yeah. Yeah. I was just trying to yeah. I was just trying to get more clarity that you simply are not seeing any of the order cuts from your customers.

Speaker #6: Even though that the end market demand including smartphone PC at this stage and also the overall end market demand is just tracking slower. But you are seeing incrementally automotive industrial-related chipsets.

Hass Liu: Okay. I think just a quick follow-up here to my first question is that, you are actually not changing your pricing strategy in the past three months or in the next few quarters, to reflect the potentially higher cost on the materials or the labors. You pretty much, on an aggregate basis, you are not seeing much of the customers' demand dynamic change in the past three months. Should I just make that kind of assumption for your full-year outlook?

Speaker #6: Are making up some of the weakness in the other parts of the market. And so net-net you are not seeing. Of the unit demand weakness versus three months ago for your full-year outlook.

Speaker #6: Is that correct?

Speaker #2: Yes. Yes.

Speaker #6: Okay. Okay. Yeah. And then my second question is on Capex and also gross margins. Joseph, so you just mentioned that on the Capex for this year, you raised it by like 20% versus your original guidance.

Speaker #6: And I understand there is a lead time between you pulling implement and build clean room versus it starts to contribute to revenue. But would you be able to help us to triangulate that growth rate or the incremental 20% hike versus the 10% hike in your leap business for this year?

Joseph Tung: I'm not sure I quite get your question.

Hass Liu: Yeah.

Joseph Tung: Can you-

Hass Liu: I was just trying to get more clarity that you simply are not seeing any of the order cuts from your customers, even though that the end market demand, including smartphone, PC at this stage, and also the overall end market demand is just tracking slower. You are seeing incrementally automotive, industrial-related demand, and also some AI peripheral chipsets are making up some of the weakness in the other parts of the market. Net, you are not seeing much of the unit demand weakness versus three months ago for your full-year outlook. Is that correct?

Speaker #6: What is the main reason why that you raise your Capex by 20%? But in the meantime, you're leap business in general only being raised by like 10%.

Speaker #6: And on top of that, I was just wondering if the current supply tightness in the backend equipment supply chain do you think there is any further potential for you to raise Capex throughout this year?

Speaker #6: If you would like to have more capacity being sold throughout the next few years. Thank you. And I will have the margins.

Joseph Tung: Yes.

Hass Liu: Okay. Yeah, my second question is on CapEx and also gross margins. Joseph, you just mentioned that on the CapEx for this year, you raised it by 20% versus your original guidance. I understand there is a lead time between you pulling equipment and build clean room versus it starts to contribute to revenue. Would you be able to help us to triangulate that growth rate or the incremental 20% hike versus the 10% hike in your LEAP business for this year? What is the main reason why that you raise your CapEx by 20%, but in the meantime, your LEAP business in general only being raised by 10%?

Speaker #2: Has, you're looking for commentary in terms of how our capital equipment expenditures are. To our leading edge packaging revenue outlooks. Is that correct?

Speaker #6: That's right. Thanks, Ken.

Speaker #3: Well, first of all, two-thirds of the increase of our Capex is for building and facilities. As we've been saying, that the suitable new factory or facility is one of the one of the gating factors for us to expand.

Speaker #3: And in that area, we are making progresses. As shown in our past announcements that we've managed to start some of the building constructions and also to acquire some of the existing facilities that are suitable for our operation or for our leap services business operation.

Hass Liu: On top of that, I was just wondering, with the current supply tightness in the back-end equipment supply chain, do you think there is any further potential for you to raise CapEx throughout this year, if you would like to have more capacity being installed throughout the next few years? Thank you. I will have a follow-up on gross margin.

Kenneth Hsiang: Hass, you're looking for commentary in terms of how our capital equipment expenditures are correlated to our leading-edge advanced packaging revenue outlooks, correct?

Speaker #3: So in the for the machinery, it's largely for next year's ramp-up. And the bulk of it or 600 million worth of the Capex is really for wafer sort that would be the capacity would be ramped up in next year.

Hass Liu: That's right. Thanks, Ken.

Joseph Tung: Well, first of all, two-thirds of the increase of our CapEx is for building and facilities. As we've been saying that the suitable new factory or facility is one of the gating factors for us to expand. In that area, we are making progresses, as shown in our past announcements that we've managed to start some of the building constructions and also to acquire some of the existing facilities that are suitable for our operation or for our LEAP services business operation. For the machinery, it's largely for next year's ramp up and the bulk of it or TWD 600 million worth of the CapEx is really for wafer sort. The capacity will be ramped up in next year. As for this year, whatever the capacity that we're building or the CapEx that we're spending for machinery should be sufficient to support another 10% growth in our LEAP service.

Speaker #3: As for this year, the whatever the capacity that we're building or the Capex that we're spending for machinery should be sufficient to support another 10% growth in our leap service.

Speaker #6: Got it. And then I think just a quick follow-up on this part of the business on this part of the.

Speaker #2: I think you got your follow-up earlier, so.

Speaker #6: Okay. Yeah. Sure.

Speaker #2: All right. Sorry about that.

Speaker #4: Next, we have Mr. Bruce Liu of Goldman Sachs to ask questions.

Speaker #7: Hello. Can you hear me?

Speaker #4: Yes.

Speaker #7: Okay. Let me ask a simple question to save jobs for Ken. Can you give us an update for the global capacity investment, global capacity expansion?

Speaker #3: Global capacity expansion, you mean outside of Taiwan?

Speaker #7: Yes. US, Southeast Asia, anywhere, any places.

Speaker #2: So you're looking for a geographical differentiation between our capital expenditures? Is that what you're looking for?

Speaker #7: No, no, no. I'm looking for is there any incremental update for your investment outside of Taiwan? Your current investment is mostly highly concentrated in Taiwan.

Hass Liu: Got it. Then I think just a quick follow-up on this part of the business.

Kenneth Hsiang: I think you got your follow-up earlier.

Hass Liu: Okay. Yeah, sure.

Kenneth Hsiang: Sorry about that.

Speaker #7: You have limited capacity. You have limited clean room. Why not go outside? And I ask two quarters ago, and I'm going to ask again.

Operator: Next, we have Mr. Bruce Lu of CLSA to ask questions.

Speaker #6: I think outside of Taiwan, I think the main investment that we're making today is really in Malaysia. Where we announced that we've acquired a factory from ADI.

Bruce Lu: Hello, can you hear me?

Operator: Yes.

Bruce Lu: Okay. Let me ask a simple question to save job for Ken. Can you give us an update for the global capacity investment, global capacity expansion?

Speaker #6: And that will be used as our buffer capacity to serve the demand coming from outside of Taiwan. And in other areas, I think the we are making mostly maintenance kind of Capex to support the operation there.

Joseph Tung: Global capacity expansion. You mean outside of Taiwan?

Bruce Lu: Yes. US, Southeast Asia, anywhere, any places.

Kenneth Hsiang: You're looking for a geographical differentiation between our capital expenditures? Is that what you're looking for?

Bruce Lu: No, I'm looking for like, is there any incremental update for your investment outside of Taiwan? Your current investment is mostly highly concentrated in Taiwan.

Speaker #6: However, aside from Asia, we are also I think we are also ramping up quite a bit in Singapore. For our test operation, which is mostly to serve the AI-related test requirement.

Kenneth Hsiang: Right.

Kenneth Hsiang: You have limited capacity, you have limited clean room. Why not go outside? I asked a few quarters ago, and I'm going to ask again.

Joseph Tung: Outside of Taiwan, I think the main investment that we're making today is really in Malaysia, where we announced that we've acquired a factory from ADI. That will be used as our buffer capacity to serve the demand coming from outside of Taiwan. In other areas, I think we are making mostly maintenance kind of CapEx to support the operation there. However, aside from Malaysia, I think we are also ramping up quite a bit in Singapore for our test operation, which is mostly to serve the AI-related test requirement.

Speaker #7: I see. Thank you. I want to ask the next question is that can you give us some update for the profitability for the I think the YSI before, but I want to ask a bit different.

Speaker #7: For the full process of your leap, right? Because it's the Capex requirement is high. You touched on it might be low. You can might be unknown, right?

Speaker #7: At the current stage. But assuming the blue sky scenario, once you eventually you will deliver the good yield, with reasonable utilization rate, can that can the full process profitability be higher than leap services gross margin or higher than the corporate average?

Speaker #2: Bruce, you're looking for our profitability potential of our full process. Leading edge advanced packaging. Lines going forward. In the case that everything goes perfectly.

Speaker #2: Is that correct?

Bruce Lu: I see. Thank you. I want to ask the next question. Can you give us some update for the profitability for the, I think we asked that before, but I want to ask a bit different. For the full process of your LEAP, right? Because the CapEx requirement is high, the utilization might be low, yield might be unknown, right, at the current stage. Assuming the blue sky scenario, once you eventually will deliver that good yield with reasonable utilization rate, can the full process profitability be higher than LEAP services, or gross margin, or higher than the corporate average?

Speaker #7: Yes. Which eventually will deliver.

Speaker #3: Well, we haven't reached the blue sky yet. So it's kind of difficult to answer that question. But in theory, it should be a creative to leap.

Speaker #7: In creative to the leaps.

Speaker #3: In theory, yes. Given the complexity of it.

Speaker #7: I see. I understand. Thank you. I don't have a follow-up.

Speaker #2: Thank you very much.

Speaker #4: Next, we have Mr. Rick Xu of Daiwan. Hello, Rick?

Kenneth Hsiang: Bruce, you're looking for our profitability potential of our full process-

Speaker #2: Hello. Can you guys hear me?

Speaker #4: Yes.

Speaker #2: Oh, okay. Hi, Joseph and Ken. I just got one question here. I think for your very strong demand for your ICATM, the driver behind that, apart from AI and E&I, automotive sorry, automotive industrial, do you guys see any order pull in from your customers across the board because of the concern on the supply chain uncertainties?

Bruce Lu: Yes

Kenneth Hsiang: Leading Edge Advanced Packaging lines going forward, in the case that everything goes perfectly. Is that correct?

Kenneth Hsiang: Yes. Which eventually will deliver.

Kenneth Hsiang: Well, we haven't reached the blue sky yet, so it's kind of difficult to answer that question. In theory, it should be accretive to LEAP.

Bruce Lu: Accretive to the LEAP.

Kenneth Hsiang: In theory, yes, given the complexity of it.

Speaker #2: And if so, do you are you concerned about any demand rebalancing or order rebalancing second half? Because apparently, like Charlie said earlier, right, there is a disconnect between the end demand non-AI end demand and the wafer and chip loading.

Bruce Lu: I see. Understand. Thank you. I don't have follow-up.

Kenneth Hsiang: Thank you very much.

Kenneth Hsiang: Thank you very much.

Operator: Next, we have Mr. Rick Hsu of Daiwa. Hello, Rick.

Speaker #2: Just my only question.

Speaker #7: So Rick, you're looking to see whether we see order pull-ins and then how we may respond to such situations. Is that correct?

Rick Hsu: Can you guys hear me?

Operator: Yes.

Rick Hsu: Okay. Hi, Joseph and Ken. I just got one question here. I think for your very strong demand for your IC ATM, the driver behind that, apart from AI and E&I, automotive, industrial, do you guys see any order pull in from your customers across the board because of a concern on the supply chain uncertainties? If so, are you concerned about any demand rebalancing or order rebalancing in H2? Apparently, like Charlie said earlier, right, there is a disconnect between the end demand, non-AI end demand, and the wafer and chip loading. Just my only question.

Speaker #2: Exactly. Especially for second half.

Speaker #7: Yeah. As I said, in certain segments, we are seeing softness, but those are more than offset being offset by the AI peripheral chips demand.

Speaker #7: That we are getting. Yes, I think in the first quarter, we are seeing stronger than normal seasonality demand. May be coming from pulling. But having said that, we do we don't have really have the capacity because our capacity is really limited.

Speaker #7: So we really don't have the capacity to entertain those pooling demand, so to speak. So I think our revenue is very solid. It's not because of particularly in the first quarter's growth.

Kenneth Hsiang: Rick, you're looking to see whether we see order pull-ins, and then how we may respond to such situations. Is that correct?

Speaker #7: I don't think it's because of the because of the customer's early pull-in that really bumped up our revenue for the quarter.

Rick Hsu: Exactly, especially for H2.

Joseph Tung: Yeah. As I said, in certain segments, we're seeing softness, but those are more than being offset by the AI peripheral chips demand that we are getting. Yes, I think in the Q1, we are seeing stronger than normal seasonality demand may be coming from pull-in. Having said that, we don't really have the capacity, because our capacity is really limited. We really don't have the capacity to entertain those pulling demand, so to speak. I think our revenue is very solid. It's not because of, particularly in the Q1's growth, I don't think it's because of the customers early pull-in that really bumped up our revenue for the quarter.

Speaker #2: Okay. Fair enough. Thank you so much. That's the only question I have. Thank you.

Speaker #3: Thank you, Rick.

Speaker #7: Thank you.

Speaker #4: Next, we have Mr. Goku Hariharan of JPMorgan coming back for the second round Q&A.

Speaker #6: Yeah. Hi. Thanks for the second chance. One question on Capex. Joseph, depending upon what you are hearing from your customers and your foundry partner, could you talk a little bit about do you feel that this year is a peak of Capex?

Speaker #6: Or you think that you will have to keep spending on Capex even into next year given it feels like we're going to be a little bit free cash flow negative this year?

Speaker #6: So just wanted to understand how you're thinking about Capex into next year as well. And if Capex is growing next year, any thoughts on how we are looking to kind of fund that Capex into next year?

Speaker #7: Well, by the way, it's going, I think, next year could be another Capex-heavy year. For us.

Rick Hsu: Okay, fair enough. Thank you so much. That is the only question I have. Thank you.

Kenneth Hsiang: Thank you, Rick.

Speaker #6: Okay. So we should assume that Capex keeps growing next year then. Yeah.

Operator: Next, we have Mr. Gokul Hariharan of JPMorgan coming back for the second-round Q&A.

Gokul Hariharan: Yeah, hi. Thanks for the second chance. One question on CapEx, Joseph. Leaping upon what you are hearing from your customers and your foundry partner, do you feel that this year is the peak of CapEx, or you think that you will have to keep spending on CapEx even into next year? Given it feels like we're going to be a little bit free cash flow negative this year. Just wanted to understand how you're thinking about CapEx into next year as well, and if CapEx is growing next year, any thoughts on how we are looking to fund that CapEx into next year?

Speaker #7: Well, it's more likely, yes.

Speaker #6: Got it. And any thoughts on the funding given the free cash flow is kind of probably kind of flattish. Close to zero or negative this year given the heavy Capex?

Speaker #6: Is there any new fundraising or something like that that you need to think about?

Speaker #7: Yeah. Whatever the funding gap that we're going to have, for this and next year, I'm not sure about next year, though. But for this year, I think the funding gap will mostly be funded by additional borrowing.

Joseph Tung: Well, by the way it's going, I think next year could be another CapEx-heavy year for us.

Speaker #6: Okay. Okay. Understood.

Speaker #7: Which we have multiple sources for that.

Gokul Hariharan: Okay. We should assume that CapEx keeps growing next year then? Yeah.

Speaker #6: Okay. Understood. Maybe one more question from my side is on the testing business. I think we did talk about final test as a potentially something that we wanted to win with a large GPU customer.

Joseph Tung: It's more likely, yes.

Gokul Hariharan: Got it. Any thoughts on the funding, given the free cash flow is probably flattish or close to zero or negative this year, given the heavy CapEx? Is there any new fundraising or something like that we need to think about?

Speaker #6: Is that still the objective right now? Or you are too busy with too many wafer sort kind of projects on hand to kind of really go and support that kind of demand with the heavy capacity on final test?

Speaker #7: Yeah. I think the primarily, I think we will be focusing our resources in wafer sort at this point. I think we are tight in both facility as well as in capacity.

Joseph Tung: Yeah. Whatever the funding gap that we're going to have for this or next year, I'm not sure about next year though, but for this year, I think the funding gap will mostly be funded by additional borrowing.

Speaker #7: So for the time being, I think the main focus will still be on wafer sort.

Gokul Hariharan: Okay. Understood.

Joseph Tung: Which we have multiple sources for that.

Speaker #6: Got it. Very clear. Thank you.

Speaker #7: Thank you.

Gokul Hariharan: Okay. Understood. Maybe one more question from my side is on the testing business. I think we did talk about final test as potentially something that we wanted to win with a large GPU customer. Is that still the objective right now, or you are too busy with too many wafer sort projects on hand to really go and support that kind of demand with the heavy capacity on panel-level test?

Speaker #4: Next, we have Hasliu of COFA to ask questions.

Speaker #8: Yeah. Yeah. Thank you. I was not able to fully ask all my questions in the first round. But thank you so much for accommodating my additional questions.

Speaker #8: I think just on the backend equipment, it is the supply right now is getting tighter and the lead time for delivery is also getting longer.

Speaker #8: Do you think there's further potential or possibility that you need to raise your Capex again just to show your equipment supply chain more commitment?

Joseph Tung: Yeah. Primarily, I think we will be focusing our resources in wafer sort at this point. I think we are tight in both facility as well as in capacity. For the time being, I think the main focus will still be on wafer sort.

Speaker #8: Or to ensure that you could expand the capacity as scheduled throughout this year if needed that you need to raise your Capex again this year?

Speaker #2: As you're looking for characterization on the likelihood of our ability to spend more on Capex, is that?

Speaker #8: Yeah. That's right. Yeah. This is a straight way to ask. Yeah.

Gokul Hariharan: Got it. Very clear. Thank you.

Joseph Tung: Thank you.

Speaker #9: I'm sorry.

Operator: Next, we have Hass Liu of BofA to ask questions.

Speaker #2: Has is looking to understand whether we have any potential to increase our capital expenditures during this year.

Hass Liu: Yeah. Thank you. I was not able to fully ask all my questions in the first round, but thank you so much for accommodating my additional questions. I think just on the back-end equipment, the supply right now is getting tighter, and the lead time for delivery is also getting longer. Do you think there's further potential or possibility that you need to raise your CapEx again, just to show your equipment supply chain or commitment, or to ensure that you could expand the capacity as scheduled throughout this year if needed, that you need to raise your CapEx again this year?

Speaker #7: I wouldn't say no. I think the like I said, the things are moving very fast. And there are a lot of our forecast is being has been adjusted pretty rapidly at this point.

Speaker #7: And I wouldn't preclude that there will be further need for us to increase our Capex for the year.

Kenneth Hsiang: You're looking for characterization on the likelihood of our ability to spend more on CapEx? Is that?

Speaker #8: Okay. Yeah. And my same question before I jump back to the Q is that I was wondering if you could quantify the impacts of the new technology ramp transition related costs impacting your first quarter, second quarter, or even second half this year as you have more capacity gradually on the line.

Hass Liu: Yeah, that's right. Yeah. This is a straight way to ask. Yeah.

Joseph Tung: The capacity? I'm sorry. Hass is looking to understand whether we have any potential to increase our capital expenditures during this year. I wouldn't say no. I think, like I said, the things are moving very fast, and our forecast has been adjusted pretty rapidly at this point. I wouldn't conclude that there will be a further need for us to increase our CapEx for the year.

Speaker #8: But now you're entering into mass production at this stage. Contributing to your revenue, would you be able to quantify the potential negative impact to your gross margins?

Speaker #8: Because we already see some of the mildly negative impacts in first quarter and also your second quarter. Look and should we actually expect more of that negative dilution to happen throughout second half of this year before your full process or even other parts of the lead business capacity ramp is going to contribute to your revenue growth in the following year?

Speaker #8: Is that kind of a factor if you have any way to quantify any of the quantify any of the potential negative dilution throughout the next few quarters would be pretty helpful?

Hass Liu: Okay. Yeah, my second question before I jump back to the queue, is that I was wondering if you could quantify the impact of the new technology ramp transition-related costs impacting your Q1, Q2, or even H2 this year, as you have more capacity gradually on the line, but not yet entering into mass production at this stage, contributing to your revenue. Would you be able to quantify the potential negative impact to your gross margins? Because we already see some of the mildly negative impacts in Q1 and also your Q2 outlook. Should we actually expect more of that negative dilution to happen throughout H2 of this year before your full process or even other parts of the lead business capacity ramp is going to contribute to your revenue growth in the following year?

Speaker #2: Has is looking to understand whether we have previously included the incremental depreciation into our original gross margin outlooks for the year. Is that correct?

Speaker #8: Yes. Thanks.

Speaker #7: Yes. I think when we look at our margin trend, of course, we will consider all factors, including the Capex that we're going to make, including the timing of the revenue that will be generated.

Speaker #7: I think the margin profile that we are presented in the beginning of the year remains the same. That first half of the year, all quarters will be within our structural margin range, except at first quarter, we already ahead of our original plan.

Hass Liu: If you have any way to quantify any of the potential negative dilution throughout the next few quarters would be pretty helpful.

Speaker #7: And second quarter, we remain to be very confident that we will be reaching the upper end of the margin range. Yes. Everything is included.

Kenneth Hsiang: Hass is looking to understand whether we have previously included the incremental depreciation into our original gross margin outlooks for the year. Is that correct?

Hass Liu: Yes. Thanks.

Speaker #7: And so far, we haven't changed the our view on our margin profile for the year.

Kenneth Hsiang: Yes. I think when we look at our margin trend, of course we will consider all factors, including the CapEx that we're going to make, including the timing of the revenues that will be generated. I think the

Speaker #6: Got it. So is there any way you could quantify probably like 50 basis points or 100 basis point impacts to your first quarter and second quarter margins?

Speaker #6: And then into second half, if the similar like 50 to 100 basis point negative impact from that margins dilution for the capacity ramp, is it like a reasonable assumption?

Joseph Tung: margin profile that we presented in the beginning of the year remains the same. That H1 of the year, all quarters will be within our structural margin range, except Q1, we're already ahead of our original plan. Q2, we remains to be very confident that we will be reaching the upper end of the margin range. Yes, everything is included. So far, we haven't changed our view on our margin profile for the year.

Speaker #6: Thanks.

Speaker #2: Has, I think we haven't been able to necessarily release that as of yet. But there is a there is expansion into the depreciation percentage.

Speaker #2: We have not been able to create a immediate dilution effect at this point. Maybe we can have that for you next quarter.

Speaker #8: Okay. Got it. Thank you so much, Joseph, and Ken.

Speaker #4: If you have any questions, please raise your hand. Next, we have Ms. Laura Chen of Citigroup to ask questions.

Hass Liu: Got it. Is there any way you could quantify probably 50 basis points or 100 basis points impacts to your Q1 and Q2 margins? Into H2, if there's similar 50 to 100 basis points negative impact from that margin dilution for the capacity ramp. Is it a reasonable assumption? Thanks.

Speaker #10: Thank you. Just a quick follow-up. Thanks for taking my follow-up questions. I think just briefly talk about the CPO opportunities on the packaging and also the testing front.

Speaker #10: Although it's still in relatively early stage, so can you share with us what's would you see that the most difficult part or potential technology bottleneck and what's AC now is working and when would you see that will be kind of an indicator we can see better breakthrough?

Kenneth Hsiang: Hoss, I think we haven't been able to necessarily release that as of yet. There is expansion in the depreciation percentage. We have not been able to create an immediate dilution effect at this point. Maybe we can have that for you next quarter.

Speaker #9: Laura, you're looking for an understanding as to where we see a technology bottleneck going forward?

Speaker #10: Yeah. Yes and no. What would be like a key watch point to we can judge that when it will be becoming a stronger revenue catalyst at AAC?

Hass Liu: Okay, got it. Thank you so much, Joseph and Ken.

Operator: If you have any questions, please raise your hand. Next, we have Ms. Laura Chen of Citigroup to ask questions.

Speaker #7: Well, as I said, this is a team effort between us and foundry partner as well as our customer. I think at the end of the day, each will be doing what they do best.

Laura Chen: Thank you. Just a quick follow-up. Thanks for taking my follow-up questions. I think just to briefly talk about the CPO opportunities on the packaging and also the testing front. Although it's still in relatively early stage, can you share with us what would you see that the most difficult part or potential technology bottleneck, and what ASE now is working and when would you see that will be kind of an indicator as we can see better breakthrough?

Speaker #7: And there will be a natural division of works. I couldn't tell you what is hard, what is not. It really depends on what our respective expertise is and then suitable works will be allocated to different partners.

Speaker #7: So that's how the thing is being managed at this point. Like I think everybody understands that CPO is still it's a must-have. Going forward, but at this point, it's still at a very early stage.

Kenneth Hsiang: Laura, you're looking for an understanding as to where we see a technology bottleneck going forward?

Laura Chen: Yes, what would be a key watching point to we can judge when it will be becoming a stronger revenue catalyst at ASE?

Speaker #7: So I think it's a bit premature to say. When and how much it's going to be a major revenue or profit contributor to us.

Joseph Tung: Well, as I said, this is a team effort between us and our foundry partner as well as our customer. I think at the end of the day, each will be doing what they do best, and there will be a natural division of work. I couldn't tell you what is hard, what is not. It really depends on what our respective expertise is. Suitable works will be allocated to different partners. That's how the thing is being managed at this point. I think everybody understand that CPO, it's a must-have going forward, but at this point, it's still at a very early stage. I think it's a bit premature to say when and how much it's going to be a major revenue or profit contributor to us.

Speaker #10: Sure. Okay. Thank you.

Speaker #4: Our next, we have a question from Stephen Chen.

Speaker #8: Hi. Thank you very much. This is Stephen from Alethea Capital. And thank you for taking my question. And congratulations for your good result and guidance.

Speaker #8: So two questions from me. The first is regarding the two FEB acquisition for the past month you announced. One for steel and one for AAC.

Speaker #8: I'm just curious in what time frame you expect these two new acquired facilities can start to contribute to the company revenue?

Speaker #2: Stephen, welcome to the call. You're asking about our two recent acquisitions in regards to buildings and facilities. Is that correct?

Speaker #8: Yes, that's correct. Thank you, Ken.

Laura Chen: Sure. Okay. Thank you.

Speaker #7: First of all, both buildings are going to be for LEEP services. And I think we will start ramping up progressively, starting from early next year.

Operator: Next, we have a question from Rutherford Chang.

Rutherford Chang: Hi, thank you very much. This is Rutherford from Aletheia Capital, and thank you for taking my question, and congratulations for your good result and guidance. Two questions from me. The first is regarding the two fab acquisition for the past month you announced, one for SPIL and one for ASE. I'm just curious now, in what time frame you expect these two new acquired facility can start to contribute to the company revenue?

Speaker #8: Okay. Yeah. Thank you for that. So the quick follow-up. So if early for next year and I think especially for the second FEB, in the news release, you mentioned that it's for the packaging.

Speaker #8: So does that mean the tool installation for these two facilities? The CapEx will be in this year or that will be in the next year.

Speaker #8: Thank you.

Speaker #2: You're looking for the timing of the facilitation and equipment of these two facilities?

Kenneth Hsiang: Rutherford, welcome to the call. You're asking about our two recent acquisitions in regards to buildings and facilities. Is that correct?

Speaker #8: Yes. And also the impact the CapEx, whether it's this year or next year.

Rutherford Chang: Yes, that's correct. Thank you, Ken.

Joseph Tung: First of all, both buildings are going to be for LEAP services, and I think we will start ramping up progressively starting from early next year.

Speaker #7: I think the at least for equipment, it will be for next year. And this factory will be how should I put this? Because the current facility needs to be vacated before we can start moving in and start installation.

Rutherford Chang: Okay. Yeah. Thank you for that. Just quick follow-up. If early next year, and I think especially for the second fab, in the news release, you mentioned that it's for the packaging. Does that mean the tool installation for these two facility, the CapEx will be in this year or that will be in the next year? Thank you.

Speaker #7: And before that, it becomes available, there are also some construction works or for facilities and some of the wiring construction that needs to be done.

Speaker #7: So if we breaking down the CapEx between for building a facilities or for equipment, I think the for the building part of it, it will start earlier.

Kenneth Hsiang: You're looking for the timing of the facilitization and equipment of these two facilities?

Rutherford Chang: Yes. Also the impact, the CapEx, whether it's this year or next year.

Speaker #7: But for equipment, it will be starting from next year. Once we the space becomes available and we progressively put the machinery scene.

Joseph Tung: I think at least for equipment, it will be for next year.

Speaker #8: No, still. Thank you. And although one last quick follow-up. So we discussed about the full service and even some new technology like panel. But I'm curious if you can give us any color how do you see co-op right now?

Joseph Tung: How should I put this? The current facility needs to be vacated before we can start moving in and start installation. Before that becomes available, there are also some construction works for facilities and some of the wiring construction that needs to be done. If we're breaking down the CapEx for building of facilities or for equipment, I think for the building part of it will start earlier. For equipment, it will be starting from next year once the space becomes available, and we progressively put the machinery in.

Speaker #8: Thank you.

Speaker #7: Co-op?

Speaker #8: Yes. Chip and wavefront on PCB. Yes. Thank you.

Speaker #7: That's I've seen this further away. So I'm not an expert in this. So I think I'm qualified to comment.

Speaker #8: Okay. Got it. Thank you. No further question from me. Thank you.

Speaker #2: Thank you.

Speaker #4: We don't see anyone raising their hands online now.

Speaker #2: All right. Thank you very much. See you next quarter.

Speaker #7: I think to sum up, we had a good quarter and we'll continue to have a good year. And next year, we see a very, very strong momentum continuing.

Rutherford Chang: Yes, sir. Thank you. Also one last quick follow-up. We discussed about full service and even some of the new technology at the panel. I'm curious if you can give us any color, how do you see CoWLP right now? Thank you.

Speaker #7: And we will do our best to execute our expansion plan to meet the demand from our customers. And we will continue to see our profit return to expand.

Speaker #7: And come next year, when things are more settled, we will be reviewing our structural margin bench to make it a more suitable range for us.

Joseph Tung: CoWLP?

Rutherford Chang: Yes. Chip on wafer on PCB. Yes. Thank you.

Joseph Tung: I've seen this further away. I'm not an expert in this, so I don't think I'm qualified to comment on that.

Rutherford Chang: Okay. Got it. Thank you. No further question from me. Thank you.

Joseph Tung: Thank you.

Operator: We don't see anyone raising their hands online now.

Joseph Tung: All right. Thank you very much. See you next quarter. I think to sum up, we had a good quarter, and we'll continue to have a good year. Next year, we see a very strong momentum continuing, and we will do our best to execute our expansion plan to meet the demand from our customers. We will continue to see our profit return to expand. Come next year, when things are more settled, we will be reviewing our structural margin range to make it a more suitable range for us. Thank you.