ASE Technology Holding Co., Ltd.

Hello, I am Ken Shung, the head of investor relations for ASC Technology Holdings. Welcome to our second quarter 2025 earnings release. Thank you for attending our earnings release today. Please refer to our safe harbor notice on page two. Two. Thank you. 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. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiary using Chinese GAAP. I'm joined today by Dr. Tian Wu, our COO, and Joseph Tung, our CFO. For today's presentation, Dr. Wu will go over our mid-year update, I then will go over the financial results, and Joseph will deliver the company's guidance and closing remarks. Afterwards, both Tian and Joseph will be available to take your questions during the Q&A session. I will be moderating the Q&A sessions that follow. We will start with some questions from the floor and then start alternating in some questions from virtual attendees. With that, I'll hand the presentation over to Dr. Wu.

Good afternoon. We have not had a lifeline for quite a few years. Welcome back, and thank you for coming. To begin with, I would like to give you a recap for the first half of 2025. Everything will be U.S. dollar terms. The unconsolidated revenue grew 9% year on year in first half of 2025, with ATM revenues up 18% year on year. Leading edge of advanced packaging and overall testing outpaced growth while the general segment saw some recovery. The leading edge of advanced packaging and testing revenue were over 10% of ATM revenues in the first half of 2025, comparing to 6% for the full year of 2024. Our testing business grew 31% year-on-year in the first half. The momentum will continue into the second half. Our increased turnkey and expanding leading-edge test. Machinery CapEx was U.S. dollar 1.9 billion. Building, factory, facility, automation was 0.9 billion in the first half of 2025, driven by advanced packaging and testing. So that is the first half recap. It has been quite busy for AAC team. The second half will be busier. Let me give you a little look. For the ATM business, we expect momentum to carry into Q3. As of now, we also believe Q4 will have a quarter-to-quarter growth comparing to Q3. The leading edge advanced packaging and testing revenue, we target to increase by US $1 billion. We made this statement at the early beginning of this year. Contributing 10% of the whole year growth, while the general segment is to grow by mid to high single digit year on year in 2025. We maintain this view as of now. Even with all of the uncertainties that we have gone through, this view has not changed. We expect revenue uptrend continuing into 2026 and beyond, driven by leading-edge solutions and broad-based semiconductor demand related to AI proliferation, also general recovery that we believe will happen in 2026. Investment in R&D, human capital, advanced capacity, and small factory infrastructures are key to support a multi-year growth. This is putting a lot of pressure on ASE team. However, with detailed conversation and discussion with our key partners and all of our key customers, We believe this is the best thing that we can do for ASE, for the Taiwan ecosystem, as well as for the industry. With that, let me go over to the third page. The third page, I only have bullet form. I would like to talk about three items, market dynamics, operations, and also the challenges. I might not go over things in the right order, but these are the bullet points I would like to cover. To begin with, I want to talk about how do we see the market heading and what is the current dynamics and also the future opportunities for ASC as well as for many players in our industry. I want to touch on the technology focus because that is related to the market trend, also related to the ASC position. Then I'll cover the operation where the leading edge capacity and all capacity in general in Taiwan is very full now. That's why we have to continue to expand into the second half. The overseas will still have some idle capacity. Therefore, how do we manage the expansion? in Taiwan as well as outside of Taiwan, and the resource optimization becomes key. And lastly, all of the challenges I will touch base on that. Okay, with that, let me just go over the mega trend. Everybody talks about AI, hyperscaler, data center. We're well into, I would say, the second or the third year of this trend. The recent announcement outside of the U.S., you're seeing the announcement of mega data center worldwide. We believe the two things are happening. The first is expansion of hyperscaler data centers worldwide. The second thing is in the middle of that expansion, the upgrade cycle are ongoing right now. with the technology provider as well as the infrastructure provider. We have not touched base on the AI Edge applications yet, but we believe there will be multiple waves in the next 10 years, starting with the hyperscaler data centers and then go through the inference and then go through the AI Edge applications. What are important is in this AI paradigm shift, what has become clear to us by talking to our foundry partner and also talking to our key customers, some of the foundational technology requirements are identical. I'm going to give you four. The first one is integration. I think the 3D IC packaging, the density, that is an example of the heterogeneous integration that we've been working on this for a long time. The focus offered by ASC, the co-ops offered by TSMC are examples of that integration. That trend will continue with the expansion as well with the upgrade cycle. The second thing is the power management. We have not touched base on the power management. We believe power management is going to be a key hurdle that industry needs to address. The third one is the silicon photonics. I think we have been talking about, very vocal, the importance of silicon photonics. We have not seen the revenue uptick yet, but this is a foundational technology that will provide the bandwidth, the speed, latency, and the efficiency. It needs to happen in order to trigger even more applications such as humanoid. And lastly will be the cost. In the cost, not only we need to think about capacity, we need to think about the material configuration. More importantly, we have to think about throughput and also the flexibility in designing the footprint. And that's where the large panel coming in. If we have gone through all of the foundational requirements, then we're going back to the AAC position. And there are three things I want to share with you on how I view the AAC positions, how I articulate AAC's position to our key partner and clients. The first one is the scale. I think from the news report, you can look at the AAC scale. margin model, as was our cash flow, and also the amount of capex investment we are making on behalf of the industry. The second item is speed. Because AAC is well positioned within the Taiwan ecosystems, that we will execute expansion. It is second to none. In other words, it's very difficult to imagine in 2025 alone, how much capital we have put in, how much more revenue we are going to introduce. The third one will be the synergy. So between scale, speed, and synergy, that pretty much outlined the AAC position in this new paradigm, AI shift. We're at the beginning of the data center of the scaler. In the future, there will be multiple cycles of expansion, upgrade, inference. as well as the AI edge. That's where the real volume and the real application is going to emerge. Because all of these future opportunities, we're seeing the leading edge capacities in Taiwan is very, very full right now. We do see the disparity between AI as well as the other general sectors. And that pretty much outlined the 2025 first half scenario. In the second half, the disparity will improve. In 2026 and beyond, we believe that cycle will start showing less of a disparity. That is why it is putting a lot of pressure on ASE to accelerate on the capacity growth in Taiwan, especially in the leading edge packaging and testing. At the same time, it prompts us to look at resource optimization between Taiwan overseas We have planned to looking at expansions in other countries of the world with all of the recent updates and changes. It prompted us to start looking at the business opportunities versus how do we deploy our capital and resources based on the new paradigm as well as all the new variables. And lastly, Foreign exchange. Foreign exchange, I think Kenshong and Joseph will give you much, much more details on the impact of foreign exchange on ASE's performance for last quarter and maybe for Q3. However, I want all of you to keep in mind, we are here for the long term. In the long term, we will have execution issues. We'll have regulatory control issues. We will have product mix issues. We have customers changing order issues. Of course, we will also have machine delivery issues and our own execution issues. When the management team is busy worrying about all of the detailed operational issues, let's not forget the future opportunities here and the speed execution. We would like to take all of the ASC partner and our customer to a much higher ground for this uptick, 10 years of AI cycles. With that, thank you.

Thank you, Dr. Wu. Thank you. Now I will go over our prepared remarks in regards to our financial results for the second quarter. We are trying to be more environmentally friendly. We are no longer providing printed copies of our slides. If you have not done so, we have a QR code. The QR code, please. Here for the attendees to scan. After scanning, you'll be forwarded to our investor relations landing page where you can download materials related to the presentation today. The slide deck currently does not include our guidance section. After the presentation has concluded, the slide deck will be updated to include our guidance section. During the quarter, we saw a material move in the NT dollar to U.S. dollar exchange rate. The NT dollar moved from an average exchange rate of 32.8 to 31.2 NT dollar per U.S. dollar, strengthening by 4.9%. With our revenues generally based in U.S. dollars and a large percentage of our ATM expenses being NT dollar based, The foreign exchange fluctuation was detrimental to our financial performance. The impact of currency fluctuation will differ each quarter. However, on a simplified basis, we estimate that for every percentage point appreciation of the NT dollar relative to the U.S. dollar, we see a corresponding 0.3 percentage point negative impact to our gross and operating margins at the holding company level and a 0.45 percentage point negative impact to margins at the ATM level. Using this simplified approach, we can estimate that on a sequential basis, foreign exchange had impacts to our holding company and ATM margins of 1.5 and 2.2 percentage points, respectively. On an annual basis, we estimate impacts to our holding company and ATM margins of 1.0 and 1.5 percentage points, respectively. As Dr. Wu stressed, our businesses are healthy and are generally on track to hitting most of our targets stated at the beginning of the year. However, foreign exchange movements have created a temporary misalignment between our costs and revenues, and as a result, we believe that our current financial results may not fully portray our underlying accomplishments. From a strategic perspective, we believe the current negative currency impact to be a near to midterm phenomenon financially. we fundamentally believe our businesses support a certain level of financial return. Such return expectations are intrinsic within our business evaluation and capital investment processes. The exchange rates we encounter are variables used within these calculations. As such, in time, we believe our margin structure can and will return to previously stated structural levels. With that said, we are examining and considering the timing of a number of strategic initiatives. We are also reconsidering whether future business opportunities still align with our return goals. There is much to accomplish, but it does present an opportunity to reexamine our businesses in more detail. With that, let's go through the financial results. Please turn to page 7 where you will find our second quarter consolidated results. For the second quarter, we recorded fully diluted EPS of $1.70 and basic EPS of $1.74. consolidated net revenues were $150.8 billion, representing an increase of 2% sequentially and 7% year-over-year. On a U.S. dollar basis, our sales increased by 7% sequentially and 11% year-over-year. We had a gross profit of $25.7 billion with a gross margin of 17%. Our gross margin improved by 0.2 percentage points sequentially and improved by 0.6 percentage points year over year. The sequential improvement in margin is primarily due to higher loading efficiency in our ATM business, offset in large part by foreign exchange. The annual improvement is primarily due to higher utilization and beneficial product mix offset by foreign exchange. We estimate that foreign exchange fluctuation had a negative 1.5 and 1.0 percentage point impact on gross margins on a sequential and annual basis, respectively. Our operating expenses increased by $0.3 billion sequentially and $1.5 billion annually to $15.5 billion. The sequential increase in operating expenses is primarily due to higher consumption of factory supplies as our R&D activities ramp. The year-over-year increase in operating expenses is primarily attributable to increases in R&D staffing, factory supply consumption, and other labor-related costs. Our operating expense percentage stayed flat sequentially at 10.3% and increased annually by 0.3 percentage points. Operating profit was $10.2 billion, up $0.5 billion sequentially, and $1.2 billion year-over-year. Operating margin was 6.8%, up 0.3 percentage points sequentially, and improved 0.4 percentage points year-over-year. During the quarter, we had a net non-operating loss of $0.9 billion, Our non-operating loss for the quarter primarily consists of net interest expense and net foreign exchange hedging activities offset in part by profits from associates and other non-operating income. Net interest expense for the quarter was $1.2 billion. Tax expense for the quarter was $1.6 billion. Our effective tax rate for the quarter was 17%. Net income for the quarter was $7.5 billion, representing a decrease of $0.1 billion sequentially and a decrease of $0.3 billion year-over-year. On the bottom of the page, we provide key P&L line items without the inclusion of PPA-related expenses. Consolidated gross profit excluding PPA expenses would be $26.2 billion with a 17.4% gross margin. Operating profit would be $11 billion with an operating margin of 7.3%. Net profit would be $8.3 billion with a net margin of 5.5%. Basic EPS excluding PPA expenses would be $1.91. On page 8 is a graphical presentation of our consolidated quarterly financial performance. On page 9 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. For the second quarter 2025, revenues for our ATM business were $92.6 billion, up $5.9 billion from the previous quarter, and up $14.8 billion from the same period last year. This represents a 7% increase sequentially and a 19% increase annually. On a US dollar basis, our ATM revenues were up 13% sequentially and 23% annually. Gross profit for our ATM business was $20.2 billion, up $0.6 billion sequentially, and up $3 billion year over year. Gross profit margin for our ATM business was 21.9%, down 0.7 percentage points sequentially and down 0.2 percentage points year over year. The sequential and annual margin declines were primarily due to NT dollar to U.S. dollar appreciation and, to a lesser extent, higher utility rates offset in part by efficiency from higher loading. On a constant currency assumption, we estimate our gross margin would be roughly 2.2 percentage points higher during the quarter, within our original margin expectations for the second quarter. During the second quarter, operating expenses were $11.4 billion up, $0.1 billion sequentially, and $1.5 billion year-over-year. The sequential increase in operating expenses was related to slightly higher labor costs from workdays. The annual increase is primarily the result of R&D ramp-up and labor-related expenses. Our operating expense percentage for the quarter was 12.3%, decreasing 0.7 percentage points sequentially and down 0.5 percentage points annually. The sequential decrease was primarily related to higher revenues on relatively stable operating expenses. We continue to target to lower our operating expense percentage. However, given the foreign exchange environment, the level of anticipated decline in percentage may be somewhat impacted. During the second quarter, operating profit was $8.8 billion, representing a sequential increase of $0.5 billion and an annual increase of $1.6 billion. Operating margin was 9.5% down 0.1 percentage points sequentially, while up 0.2 percentage points year-over-year. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 22.4%, and operating profit margin would be 10.3%. On page 10, you'll find a graphical representation of our ATM P&L. On page 11 is our ATM revenue by 3C market segments. You can see here that the computing segment continues to become a relatively larger component of our business. This was largely driven by a higher percentage of LEAP-based revenues. From a wider perspective, it is representative of AI's growing share of the electronics market. On page 12, you will find our ATM revenue by service type. Here you can see the two service types containing LEAP services, Bump and Flipchip, and Testing. Both are becoming a larger component of our overall business. We continue to expect growth in these areas. it should be noted that we are starting to see a more visible pickup in our wire bond business. There are signs that this is related to a more general market recovery. On an absolute dollar basis, our wire bond business grew on a U.S. dollar basis, but was outpaced by leap and testing. On page 13, you can see the second quarter results of our EMS business. The annual seasonality of our EMS business has been inconsistent over the last couple of years due to differing device ramp schedules. As such, we believe the annual comparability of our second quarter results may be impacted. During the quarter, EMS revenues were $58.8 billion, declining 6% sequentially and 7% year over year. The sequential decline was primarily the result of underlying device seasonality. Sequentially, our EMS business's gross margin improved 0.5 percentage points to 9.4%. This change was principally the result of product mix. Operating expenses within our EMS business increased slightly by $0.1 billion sequentially and declined $0.1 billion annually. Our second quarter operating expense percentage of 6.9% was up 0.6 percentage points. Annually, our EMS operating expense percentage was up 0.4 percentage points on lower revenues. Operating margin for the second quarter was 2.6% flat sequentially and down 0.5 percentage points year over year. The annual decline was primarily due to lower revenues. Our EMS second quarter operating profit was $1.5 billion, down $0.1 billion sequentially and $0.4 billion annually. On the bottom of the page, you will find a graphical representation of our EMS revenue by application. As you can see, the second quarter mix of application revenue was relatively steady sequentially. On page 14, you will find key line items from our balance sheet. At the end of the year, we had cash, cash equivalents, and current financial assets of $76.9 billion. Our total interest-bearing debt increased by $8.5 billion to $240.1 billion. We continue to anticipate increasing our debt outstanding throughout the year. Total unused credit lines amounted to $355.3 billion. Our EBITDA for the quarter was $27.4 billion. Our net debt to equity this quarter was 52%. As a reminder, we anticipate that our net debt to equity will be peaking this year during the third quarter. On page 15, you will find our equipment capital expenditures relative to our EBITDA. Machinery and equipment capital expenditures for the second quarter in U.S. dollars totaled $992 million, of which $690 million were used in packaging operations, $251 million in testing operations, $49 million in EMS operations, and $2 million in interconnect material operations and others. In addition to spending on machinery and equipment, during the quarter we also spent $531 million on facilities, which includes land and buildings. We continue to see the complexities of semiconductor design requiring step-ups in our LEAP offerings. Progressing device memory, thermal, and power requirements in addition to traditional bandwidth expansion, continue to necessitate advancements in our capabilities, equipment, and facilities. Our packaging products are now more than ever on the critical path of chip design. As we get closer to 2026, we are seeing a number of initiatives starting to activate. Aligning with customer requests, we are trying to be more aggressive with timelines, and as a result, we are potentially seeing some of the capital expenditures slated for 2026 being accelerated into the fourth quarter of 2025. At this point, the delivery and installation schedules are still fairly dynamic. But we are potentially looking at a bump up in 2025 capital equipment expenditures by a few hundred million dollars. With that, I'll hand the presentation over to Joseph to give the outlook for the coming quarter.