ASE Technology Holding Co., Ltd. American Depositary Shares (each representing Two Common Shares)

Hello, I am Ken Sheng, the head of investor relations for ASC Technology Holdings. Welcome to our third quarter 2025 earnings release. I am joined today by Joseph Tong, our CFO. Thank you for attending our earnings release today. please refer to the Safe Harbor Notice on page 2. 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. For today's presentation, I will go over the financial results and Joseph will give the company's guidance. Afterwards, we will be available to take your questions during the Q&A session. With that, let's get started. During the third quarter, both our ATM and EMS businesses outperformed our original sales and profitability expectations. Packaging and testing utilization percentages were in the high 70s. Loading on LEAP and traditional advanced packaging lines were generally full. Our wire bond utilization also showed some improvement. Our test business continues to grow faster than our assembly business, with our chip probe testing leading the way. From a profitability perspective, with our factory loading being better than anticipated, we were able to extract higher operating leverage. However, the company's performance was still impacted significantly by foreign exchange. Despite the NT Dollar's near-term decline in value against the US Dollar for much of the third quarter, the NT dollar traded at a relatively appreciated level when compared with the second quarter. During the quarter, the NT dollar moved from an average exchange rate of 31.2 to 29.7 NT dollar per US dollar, strengthening by 4.6%. Simplistically, we estimate that for every percentage point appreciation of the NT dollar relative to the US dollar, we see a corresponding 0.3 percentage point negative impact to margins at the holding company level and a 0.45 percentage point negative impact to margins at the ATM level. Using this simplified approach, foreign exchange had negative sequential impacts to our holding company and ATM margins of 1.4 and 2.1 percentage points, respectively. And annually, negative impacts to our holding company and ATM margins of 2.4 and 3.6 percentage points, respectively. Heading into the fourth quarter, we expect a more stable NT dollar environment with an average exchange rate of 30.4 NT dollars per US dollar. Please turn to page three where you will find our third quarter consolidated results. For the third quarter, we recorded fully diluted EPS of $2.41 and basic EPS of $2.50. Consolidated net revenues were $168.6 billion, representing an increase of 12% sequentially and 5% year over year. On a US dollar basis, our sales increased by 17% sequentially and 14% year over year. We had a gross profit of $28.9 billion with a gross margin of 17.1%. Our gross margin improved by 0.1 percentage points sequentially and 0.6 percentage points year over year. The sequential improvement in margin is primarily due to higher loading 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 had a negative 1.4 and 2.4 percentage point impact to our gross margins on a sequential and annual basis, respectively. Our operating expenses increased by $0.2 billion sequentially and $0.7 billion annually to $15.7 billion. The sequential and annual increases in operating expenses are primarily due to higher R&D costs. Our operating expense percentage declined a percentage point sequentially to 9.3% and was flat annually. Operating profit was $13.2 billion, up $3 billion sequentially, and $1.7 billion year over year. Operating margin was 7.8%, up a percentage point sequentially, and up 0.6 percentage points year over year. During the quarter, we had a net non-operating gain of $0.8 billion. Our non-operating gain for the quarter primarily consists of net foreign exchange hedging activities, offset in part by net interest expense of $1.4 billion. Tax expense for the quarter was $2.6 billion. Our effective tax rate for the quarter was 19%. Net income for the quarter was 10.9 billion, representing an increase of 3.4 billion sequentially and 1.2 billion annually. 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 $29.4 billion with a 17.4% gross margin. Operating profit would be $14 billion with an operating margin of 8.3%. Net profit would be $11.6 billion with a net margin of 6.9%. Basic EPS excluding PPA expenses would be $2.68. On page four is a graphical presentation of our consolidated quarterly financial performance. 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. For the third quarter of 2025, we had record revenues for our ATM business of $100.3 billion, up $7.7 billion from the previous quarter and up $14.5 billion from the same period last year. This represents an increase of 8% sequentially and a 17% increase annually. On a US dollar basis, our ATM revenues were up 13% sequentially and 27% annually. Our test business's growth as a whole continues to outpace our assembly business as a whole, growing 11% sequentially and 30% annually. Gross profit for our ATM business was $22.7 billion, up $2.5 billion sequentially, and up $2.9 billion year over year. Gross profit margin for our ATM business was 22.6%, up 0.7 percentage points sequentially, and down 0.5 percentage points year over year. The sequential gross margin increase was due to equipment utilization rate improvement offset in large part by NT dollar appreciation. The annual gross margin decline was primarily due to NT dollar appreciation and to a much lesser extent higher electricity rates offset in large part by higher loading. On a constant currency basis relative to our first quarter, we estimate our gross margin would be roughly 4.2 percentage points higher during the quarter. This difference would have put our adjusted third quarter gross margin of 26.8% in the middle of our previously stated structural ATM gross margin range. During the third quarter, operating expenses were $11.8 billion up $0.4 billion sequentially and $1.2 billion year-over-year. The sequential increase in operating expenses was primarily related to higher overall R&D costs including labor, equipment, and factory supplies. The annual increase is primarily the results of R&D ramp-up and labor-related expenses. Our operating expense percentage for the quarter was 11.8%, decreasing 0.5 percentage points sequentially and down 0.5 percentage points annually. The decline was primarily the result of higher revenues during the quarter. As we previously have mentioned, we believe our spending in R&D on an absolute dollar level will continue to increase. But as the associated LEAP revenue syncs up with the R&D spending, our operating expense percentage should continue to moderate. During the third quarter, operating profit was $10.9 billion, representing a sequential increase of $2.1 billion and an annual increase of $1.7 billion. Operating margin was 10.8%, up 1.3 percentage points sequentially and up 0.1 percentage points year-over-year. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 23.1% and an operating profit margin would be 11.6%. On page 6, you'll find a graphical representation of our ATM P&L. Please note the generally upsloping revenue bars. Using the first quarter's foreign exchange rate, we estimate the gross margin percentages for the second and third quarters would be 24.1% and 26.8%. On page seven is our ATM revenue by the three C market segments. You can see here that the computing segment continues to become a relatively larger component of our business. This was largely driven by a higher percentage of leap-based revenues. On page eight, you will find our ATM revenue by service type. Here you can see the two service types containing LEAP services, bump and flip chip, and testing. Both are becoming a larger component of our overall business. We expect continued momentum in these areas heading into 2026. On page nine, you can see the third quarter results of our EMS business. The annual seasonality of our EMS business has been inconsistent over the last few years due to differing device wrap-up schedules. As such, we believe the annual comparability of our quarterly results may be impacted. During the quarter, EMS revenues were $69 billion, increasing 17% sequentially, while down 8% year over year. The sequential increase and annual decline were both primarily the result of differing underlying device seasonality. Sequentially, our EMS business's gross margin declined 0.2 percentage points to 9.2%. This slight change was principally the result of product mix. Operating expenses within our EMS business decreased by $0.2 billion sequentially and declined $0.5 billion annually. The sequential decline is primarily the result of lower compensation and professional fees. While on an annual basis, the decline is primarily related to lower compensation expenses. Our third quarter EMS operating expense percentage of 5.6% was down 1.3 percentage points sequentially, while annually our EMS operating expense percentage declined slightly by 0.1 percentage points on lower spending and revenues. Operating margin for the third quarter was 3.7% up 1.1 percentage points sequentially and up 0.4 percentage points year over year. The improvements are primarily the results of higher loading rate and some one-time inventory related adjustments. Our EMS third quarter operating profit was $2.5 billion up $1 billion sequentially and $0.1 billion annually. On the bottom of the page, you will find a graphical representation of our EMS revenue by application. The third quarter application mix shows the seasonal ramp up of our customers' consumer products, with our consumer segment growing while all other segments declining in application share. We believe at a strategic level, our EMS business faces similar technological manufacturing trends as our ATM business does. Trends such as power delivery and thermal control are core themes at the forefront in both our ATM and EMS businesses. Having the ability to address customer challenges at both the ATM and EMS level allows us to provide a broader set of technical solutions to our customers. 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 $83.4 billion. Our total interest-bearing debt increased by $55.6 billion to $295.7 billion. This increase was primarily due to the completion of a $50 billion syndicated loan to fund our CapEx. Total unused credit lines amounted to $344.7 billion. Our EBITDA for the quarter was $32.6 billion. Our net debt to equity this quarter was 63%. On page 11, you will find our equipment capital expenditures relative to our EBITDA. Machinery and equipment capital expenditures for the third quarter and U.S. dollars totaled $779 million, of which $534 million was used in packaging operations, $199 million in testing operations, $40 million in EMS operations, and $6 million in interconnect material operations and others. In addition to spending on machinery and equipment, during the quarter we also spent $716 million on facilities which includes land and buildings. the overall environment appears to be strengthening. For us, the upward seasonality during the third quarter has been the strongest since the COVID timeframe. From a customer sentiment perspective, the pendulum appears to be swinging from booking capacity on an as-needed basis to pre-booking capacities and making sure raw materials are available. As a whole, our customers are now looking for more assurance and security in their supply chains. For the quarter, Leap and test services continue to lead growth for the company. Leap continues to be driven by AI. Although we are seeing more customers target their products for use within the AI super cycle, many new products are inferring AI capability or AI readiness. Products are expounding new and smart AI capabilities and features. Newer generations of products are becoming more robust electronically while allowing streamlined access to certain aspects of gen AI capability, such as video and document creation. The key is whether the end consumers are enticed to integrate new generations of products into their lives. And to that end, AI does appear to be upping the basic standards of quality in various contexts, not just limited to the school office and social media. And there does appear to be the not so subtle ominous angle of you need AI to be competitive. This is bringing an intelligence and capabilities arms race to everyone's front door. In such a context, understanding the seemingly insatiable need for more capable chips and hardware seems fairly straightforward. From the packaging and test perspective, the higher the AI computational capability, the stronger the chip's packaging and testing needs are. Critical improvement paths in power delivery, processing bandwidth, and thermal performance will continue to drive our LEAP services. With that, I'll hand the presentation over to Joseph to present the company's outlook.

Thank you, Ken. Let me give you the fourth quarter guidance.

Based on our current business outlook and exchange rate assumption of one US dollar to 30.4 NT dollars versus in third quarter, we have 29.7 exchange rate. Management projects overall performance for the fourth quarter of 2025 to be as follows. On consolidated level, in NT dollar terms, our consolidated fourth quarter revenue should grow by 1% to 2% quarter over quarter. Our consolidated fourth quarter gross margin should increase by 70 to 100 basis points quarter over quarter. our consolidated fourth quarter operating margin should increase by 70 to 100 basis points quarter over quarter. For ATM, in empty dollar terms, our ATM fourth quarter revenue should grow by 3 to 5% quarter over quarter. Our ATM fourth quarter growth margin should increase by 100 to 150 basis points quarter over quarter. For EMS, in NT dollar terms, our EMS fourth quarter revenue should stay flat or decline slightly quarter over quarter. Our EMS fourth quarter operating margin should be similar to fourth quarter 2024 level. With that, let me also give you some color for the full year. For ATM, we're seeing better than expected momentum of mainstream business given the continuing recovery of the general market. While on leading edge revenue, we are on track to reach the US dollar 1.6 billion mark as planned. Altogether, we expect ATM 2025 full year revenue to exceed our target and grow over 20% year-over-year in US dollar terms. As for machinery CapEx, we expect to further increase our full-year CapEx by another few hundred million US dollars to meet customers' requests and to support continuing business momentum into 2026. The increase is largely for wafer probing for both AI and non-AI chips, as well as for general capacity ramp and some new initiatives for year 2026. With that, let's give it back to Ken to open the floor for question.

Thank you, Joseph. During the Q&A session that follows, we would appreciate if questions can be kept concise and asked one at a time. I will be receiving each question and repeating the asked question to Joseph. Again, we'll be limiting the number of questions asked to two questions per turn, but asked one at a time.

The first question is from Goku Hariharan of JP Morgan. Goku.

Hi, thanks for taking my question, Ken and Joseph. First question, obviously, on LEAP. Could you give us a little bit more color about how the progress has been on LEAP revenues this year? I think you had the $1.6 billion guidance or additional $1 billion guidance. What are we tracking to compare to that guidance now? And any indications for what it could do next year? I think based on our own math, it looks like it could easily double next year. And you're also raising capacity and capex pretty much every quarter. And also on Leap, what is the margin contribution from Leap related business? Is it already accretive or it'll turn accretive once you reach a certain kind of revenue run rate and any indications on that? That's my first question.

Thank you. You're looking for revenue progress and then generally kind of what we're thinking about for this year and then

Yes. Okay. Like I said, we are on track in reaching our $1.6 billion mark this year. Everything is progressing well. I think we have shown very strong momentum in the AI and HPC related part of the business. In terms of the revenue mix, I think, you know, Because of the geopolitical uncertainties, in terms of packaging, we are a little bit short from our original target, but that was sufficiently replenished by our more than expected growth in our test business. So we are very, very confident that we will reach our 1.6 billion mark for this year. And going forward into 2026, we see or continue to see very strong momentum. And we are very, very confident that we will gain another over a billion dollar kind of revenue increase for 2026 in this space. CapEx wise, we will continue to make heavy investments in our leading edge. I think to support the uh, the strong momentum that we're seeing today. And, uh, you know, I think AI or HPC is really the momentum is here to stay. Uh, we're not going to be shy on making the necessary investment to not just secure our dominant position in this space, but also to expand that dominance against our competitors and to, uh, uh, fully support our customers needs. Um, In terms of margin and return, I think the steady state, as we mentioned before, the leap would definitely be both margin as well as return creative. And we are quickly reaching that point at this point.

Okay, that's very clear. Thanks, Joseph. Maybe one other question. Can you talk a little bit about pricing? I think Ken mentioned in the opening remarks that you're pretty much running full on flip chip and bumping, you're pretty much running full on leap. I think last time round, I think Dr. Wu had discussed about potential price negotiations. Anything that you can report on what are we seeing on pricing for your overall offering? Should we expect that pricing should go up? I think OSAT pricing doesn't usually go up that much, but I just wanted to understand how we should think about pricing going into next year.

Gokul, you're looking for commentary on overall just pricing environment for us for this year and next year.

Maybe also specifically on Leap as well as your flip chip and bumping kind of advance, the mainstream advanced packaging business as well, because the customer set is slightly different. Leap, you're kind of largely partnering with the large foundry.

Well, without getting too specific, I think in general, I think our pricing remains to be resilient. And, you know, I think it's very sensitive to talk about pricing, but as a whole, I think we will continue to... to set the pricing, the most suitable pricing structure based on the current situation. I think there are a lot of moving parts and there are a lot of uncertainties in front of us, but in general, I think we will continue to make our pricing a very, very resilient level.

Maybe if I kind of tweak it a little bit, Joseph, like what is customer I'm sure that everybody is talking about this. We hear that from your fabulous customers as well. I just wanted to understand what is customer feedback to pricing? I wanted to think about a little bit more on the mainstream stuff, like Flipchip CSP or Flipchip BGA, where there is no super cycle of growth. Even in those areas, are you able to have some value app programs coming through?

Are you asking for expansion on the original pricing question there?

Yes, sir. Maybe talk a little bit more on the mainstream advanced packaging as well.

For mainstream, I think we are seeing the continuing recovery of the general market. And therefore, I think pricing-wise, I think it's right now at a very stable level.

Okay. All right. Thank you very much. I'll go back to the queue. Thank you. Thank you.

Next question is from Charlie Chen of Morgan Stanley. Charlie.

Yes. Hi. I just amused myself. First of all, congratulations for a very good result and outlook. My first question is really on sort of supply chain related discussion. For example, what's the update plan for you to do the U.S. operation? Because your major customers, major foundry partners are all very active in the U.S. And there seems to be, have your competitor, mCore, in that presence. So, you know, one is that you update the plan for the U.S. operation to ensure that AISME kind of growth. And also we are very concerned about the so-called tea glass shortage. I think lots of customers are going through with your fab to see if they can secure more substrates, right? So I'm not sure if there will be kind of a gating factor for your next piece of growth. So this is the first question. Thank you.

That's, Charlie, that sounds like two questions.

Let's start with question number one, the U.S. building out perspective.

Okay, thank you for your question and thanks for coming to my concert.

Yeah, it was a great one.

On US, we don't have anything new to report except that, let me reiterate what we mentioned last time, that we were invited by our customer. to look at the investment opportunities in the U.S. We are currently still engaging in discussion with our customers, and we're evaluating different opportunities. But no decision is made at this point. But whatever decision we will eventually make, it will have to make economical sense for us. In terms of the competition, I think AMCOR has its own mind. So I think I'm not going to answer for AMCOR. But overall, we will continue to be watchful on the overall competition landscape and see how we can better position ourselves in terms of meeting these competitions.

So Charlie, do you want your second question to be about your previous question on tea glass and such?

Yeah, maybe we can save it for maybe second round. But my major second question is really the final test completion. Sorry, I know this one is a little bit controversial, but I wanted to get your updates or confidence level about your final test market share at major customers next generation GPU. Oh yeah, and by the way, congratulations for a very strong share price. So I think your efforts were recognized by foreign shareholders. Yeah, so second question is really about your final test. business updates.

So you're looking for a more comprehensive explanation or update on our final test market share gains?

Yeah, because your Taiwanese competitor seems to be very aggressive in the testers purchase and capacity expansion as well. So I hope both can win. So just wanted to get a little bit more color about your realistic assumption about your final test market share.

I think as we mentioned, we have been aggressive and we have been pretty successful in terms of expanding our test business. I think for this year, our test business growth is gonna be twice the packaging revenue growth. And we will continue to make large investment into our tax capacity. But our resources are also limited. We don't have unlimited resources to try to cover everything in the market. So right now, the main focus for our investment in TESS is really on the wafer probing. And I think we will continue to on this effort for the time to come. And in terms of final tests, I think we are making the investment, necessary investment at this point to build up the capacity. And we're expecting to have meaningful revenue being generated in the later part of next year when we start serving the next generation AI chips.

Okay.

Okay, okay. Yeah, since the update, it was great to see you and Ken. Thank you. Thank you.

Next question is from Bruce Lu of Goldman Sachs.

Hello, can you hear me? Yes. Okay, my question is regarding to your revenue split for your incremental 1 billion revenue in 2026 for your AI-related revenue. We understand that the revenue contribution is more geared to testing for this year. Are we able to see incremental more revenue contribution from packaging? And to be more specific, can we get more like, you know, packaging related business from both outsourcing as well as your own, you know, packaging or AI packaging business?

Bruce, you're asking for the incremental revenue for this year, right?

And next year. Because Joseph just said that we will see another additional $1 billion revenue for next year, right?

He may have said that. So, yeah, okay.

For the $1 billion increase of our leading edge revenue, I think the breakdown is $650 from packaging and about $350 from test for this year. For next year, we'll see how things go. I think the we'll kind of give you a ballpark number saying that we will be having maybe at least a billion dollar revenue growth. But in terms of the exact composition, I think that remains to be seen. Then we'll, based on the current situation, to allocate our resources and to grow both of the business. But right now, we don't have a set mind on what kind of breakdown it will be. But what I can say is that Ted seems to continue to have stronger momentum at this point.

I see. So the testing will grow faster than packaging next year within this one building?

It has been growing faster than packaging. But, you know, come next year when the new generation products comes on stream, the competition may have some changes. But what I'm saying is we are seeing, we're continuing to see strong momentum in tests at this point.

I see. Okay. Thank you. The second question is for, again, I want to trick down a little bit for the U.S. plan. I mean, TSMC has built as a plan to build some, you know, COW process and, you know, MCOT committed to build some substrate process. So it seems to me that they have, you know, your customer, your competitor seems to have at least one supply chain in U.S., which probably, you know, what's the strategy for AAC at the current stage? Obviously, you probably don't need two supply chains in the United States, right? So the potential losing some market share for TSMC out of business is definitely a threat for our future business, right? So can we elaborate more about, like, what's the strategy from AAC today?

Bruce, you're looking for a reiteration on the U.S. plan on our behalf.

Yes.

Well, we don't fight for market share just for market share's sake. We fight for the market share that makes sense or make profit for us. If we don't see return, if we don't see at least acceptable margin, then that's not the part of the business that we want to pursue. I think the... Like I said, regardless if it's U.S. or in any part of the world, for us to make an investment, it has to make economical sense. If ENCO feels that with that kind of investment, they can make a profit out of it, fine. But right now, we're not sure on that.

So there's no way to pass on the incremental cost to the customer in order to make the investment profitable?

Well, it's not just about pricing. It's about the overall infrastructure that can support that kind of a business at a reasonable cost structure. And even with some premium pricing, whether that can cover the costs associated with it. uh remains to be seen i right now i think that's a that's a very tall task actually okay understand thank you thank you next question is from laura chan of city group thank you uh hi can you hear me yes

Hi, good afternoon. I just want to consult Joseph, your view on the growth margin outlook and also congratulate for the great result. Obviously, we see quite full deterioration rate like Ken just mentioned. At the same time, there is a stronger testing business. I recall, Joseph, you mentioned before that in the long term, if the utilization rate breaks to 80% plus, the growth margin could go back to high 20s. So just wondering, how is the dynamic now? And also, you are increasing the CapEx for the future demand. So just wondering, how should we think about the growth margin outlook into next year or longer term?

Laura, you're looking for commentary on the relationship between utilization and our margin structure.

Yeah, and also, yeah, and at the same time, we are also increasing capex. I believe that there's also some increasing in depreciation costs. So just wondering the dynamic right now, how should we think about the growth margin outlook?

Well, if we exclude the foreign exchange impact, I think we have already come back to our structural margin. Like Ken mentioned, in third quarter, if we were on the same Forex level as quarter one, our margins should be around 26.8%. And going into the next quarter, fourth quarter, there will be further margin improvement. Again, at the same currency level, we should be over 27%. What we mentioned before, once our utilization reaches 70% and above, then we should go back to our structural margin range. But unfortunately, the foreign exchange does have a pretty big impact on our overall margin. But having said that, I think we will continue to... I think right now the foreign exchange seems to be stabilizing now. We will start our margin... from this level. And we are very confident that with the continuing expansion of our leading edge business, we're confident that we will continue to see as the capacity being ramped up, we are confident that we will continue to see margin improvement. And right now, we are very, very confident that in 2026, for the whole year, we should have a gross profit margin for ATF at the structural margin range.

Thank you. I'm very looking forward to that. My second question is about the leading-age advanced packaging. AAC also developed your own focus technologies. I'm just wondering how is the current progress in the customers' engagement? It's not just focused on the outflow opportunities on sub-trades. Also, how does AAC's your own focus progress?

Laura, you're looking for an update on our internal advanced packaging solutions, such as Focus.

Right.

Well, obviously, in terms of the overall capacity, I think for co-ops or co-ops like 2.5D, I think our foundry partner as well as ourselves is still scrambling to to try to make the necessary investment for our capacity to catch up with the demand. And so given the tightness, I think obviously there will be other customers that would like to have other alternatives or solutions to meet their demand. And that creates a very good business opportunity for us. to try to sell our own solutions. And on that, we are making the necessary investment at this point. And we do have engagement with multiple customers. But these things take time. I think what we're expecting is that by later part of next year, we will start to see meaningful full process revenue coming in.

Thank you.

So multiple customers. Yeah.

Okay, so does this add also included in your at least a 1 billion revenue increase into next year?

Yes.

Okay, thank you. Very clear.

Next question is from Sonny of UBS.

Sunny, are you there?

Yeah. Could you hear me okay? Yes. Thank you very much. So congrats on the very good results and guidance. Glad to see LIP business ramping up and gaining momentum going to 2026. So maybe a question on mainstream. Could you help us understand the recovery ahead? And so when you guide ICATM sales to growth 3% to 5% sequentially, how's the growth by mainstream and LIP? And how should we think about the cycle for mainstream going to 2026? Do you see the current utilization rate being a good base for critical recovery going to 2026?

So you're looking for basically our more trailing edge capacity or trailing edge plus traditional advanced packaging capacity?

So mostly on the mainstream. So wire bonding, die bonding.

Okay. Okay. You're looking for commentary on more traditional packaging for this year and into next year.

How should we think about the cycle from here?

As I mentioned, the mainstream business, we're seeing better than expected performances. I think that's a result of the general market recovery. And also in some part of the... In different sectors, we are also seeing ourselves gaining shares, particularly... If we look at different sectors, I think communication and... Communications and, of course, PC or computing is... is recovering better than the others, like automotive and industrial. But nonetheless, I think the recovery is very obvious at this point. Maybe in terms of automotive, it's kind of moving in a slower pace than the other three sectors. But on that, we actually posted very, very significant good growth in our automotive business. I think for ATEM this year, we're going to see over 20% growth in this part of the business. I think that's largely the result of where we continue in gaining market share in this space through our factory automation. In general, I think in the beginning of the year, we were saying that we We will have our leading edge giving us 10% growth and high single-digit growth coming from the mainstream. Now obviously, as I mentioned in the beginning of the session, I told everybody that we're gonna exceed our revenue growth target to over 20%. So that means the mainstream, performance is much better than what we were expecting in the beginning of the year. We're not seeing anything negative at this point in terms of mainstream business. Without giving you any further guidance for next year, we do think that we are in a very healthy space at this point for both in the general market and we're still seeing very strong momentum in the leading edge as well.

Maybe a very quick follow-up. So for Q4, is the utilization rate for mainstream continuing to recover a bit?

Yes, I think in like... Like what Ken just mentioned, I think our bumping and flipchart are pretty full. Wire bounding is improving, although it's not entirely full, but it is steadily improving.

Got it. My second question is on gross margin. So from here, one, with the improving measuring business, and then secondly, accelerating ramp probably for LIB going to 2026, and then stabilizing FX, should we assume for ICATM, the growth margin recovery should accelerate in the coming few quarters?

Sunny, you're looking for an update in terms of forward-looking commentary regarding our gross margin structure.

Yeah, especially on the pace of the improvement.

Well, we're not in the perfect world. There's still a lot of moving parts and uncertainties in front of us, which includes foreign exchange movements. So yes, I think the general trend is is very certain because as we continue to expand rapidly in our leading edge, which is margin accretive, so that gave us a very good pace for our margin improvement going forward. But in terms of the pace, I think there's still, I think right now it's still too early to give you a clear path of what kind of pace we're gonna have in terms of our margin expansion.

Got it. Also on LERP, is there a margin difference between outsourcing and full process co-ops? Meaning if you start to ramp more full process, France can have a next year. Will that further boost your growth margin for ICATM?

I think in terms of full process, we're still at the early stage. So it's kind of difficult to... to make any meaningful comparison at this point. I think both needs to be at really a more stable level for us to make the comparison.

Got it. Very helpful. Thank you very much.

In general, I think theoretically, you know, Regardless, it's our own full process or outsource, you know, leading edge does give us a margin equation.

Got it. Thank you.

Our next question is from Felix Pan of KGI.

Hi. Yeah, good afternoon. Can you guys hear me okay?

Yes.

Yes, thank you for taking my question. So my first question regarding to, I have seen your Foundry partner incremental CP test also seeing demand. Just correct me if I was wrong, but I find it very difficult to quantify how big for the 10 is. Maybe for you it's really hard to comment on the same thing. But maybe on the temp side or even the percentage of the bone, can you just give us some sense? How can we quantify how big for the CP test demand? Any color will be grateful. That's my first question.

Hi, Felix. I think I'll take this one. In terms of the overall TAM for something like that, I would say that that's not quantifiable, at least from our perspective. This is something that is probably known by our foundry partners. And you may want to address the amount of work that they want to outsource directly to them. We don't quantify that at this point.

okay uh yeah so uh my second question is i think during the tsmc the latest uh earning call i think cc uh emphasize uh customers of customers engagement uh we we do see the incremental engagement um from your perspective do you see the similar pattern uh the engagement from customers customer as well or uh i think there's a lot of uh thing happening uh in this month. So I just want to if any color you can share is any business model change or you have seen incremental customers customer engagement as citizens as well.

Yeah. Felix, you're asking for how we

look at our overall market and whether we actually look into our customers' customers, similar to Foundry?

Actually, my question is, does any customer, your customer's customer, jump your customer to have the engagement with you guys, like to secure some critical capacity or something like that?

I don't know if we can talk about that. Joseph, you want to take a stab?

Yeah, I think we have very, very close communication with both our direct customers as well as our foundry partners. Those dialogues are being conducted on a routine basis so that we can better prepare ourselves in terms of our capacity and also our technology roadmap. So in this regard, we do talk to them. I think our information source is not just coming from our customer, but our customer will definitely keep us informed of what they're expecting from their own customers and how the overall market will shape up. So, you know, it's a constant dialogue among the industry players to make sure that the demand is sufficiently being supported by the supply. That's an ongoing process that has been going on for maybe forever. All right. Okay.

All right. Okay. Thank you. Thank you.

If you have any question, please raise your hand. Next question is from Goku Hariharan of JP Morgan.

Thanks for taking my follow up questions. First one, could you help us understand what is the progress on the full stack focus or course like? kind of processes going into next year? When do we expect this to start becoming more meaningful contributor to revenues to the leap total revenues? And are the applications still similar in terms of like AI accelerator or are the applications becoming more diverse in terms of networking or server CPU and other kind of stuff as well?

You're looking for an update more on our full process type services, is that correct?

I talked about this earlier. We are continuing our investment in full process and we are currently engaging with multiple customers to plan for the capacity and we expect that come later part of next year we should start seeing some meaningful revenue coming from full process rather than just only from outsourced part of the business. In terms of the application, I think there will be AI accelerators, there will be other adoptions in different chips requiring such capability. But at this point, I think it's a little bit too early to say the exact revenue, scale of the revenue or the composition of that, of such revenue. We just have to continue to work very closely with our customers, multiple customers, to better understand what their demands will be and we'll prep ourselves for the necessary capacity for them.

Got it. Thanks, Joseph. Maybe a slightly related question is on the CapEx. I think we are probably finishing this year well above $3 billion in terms of visionary CapEx. How do we think about this investment cycle? Are we still going to be in this increased CapEx, likely to continue to increase CapEx over the next couple of years given the demand outlook that you're seeing from your customers into customers' customers.

Gokul, you're looking for an update on our overall CapEx view?

Yeah.

And also in the frame of the leading-edge advanced packaging, how it works?

That's right, yeah.

Like I said, we have... We stay very close with our foundry partner, and they, our foundry partner being the dominant player, they cover all the who's in who's in the, whoever has any demand, they will be the one to supply. So, yeah. they really have a very, very close connection with their customer and their customers' customers. And since we have a very close communication with them, so whatever information that they're gathering, we do have the benefit of sharing some of that information to better prepare ourselves for capacity expansion. And as I said earlier, again, we're not going to be shy on making the necessary investment, particularly for the leading edge, so as to secure and also to expand our dominance in this space. As such, we believe at least for next year, we will continue to see pretty heavy investments in our capacity towards technology in the leading edge.

Is it fair to say next year, machinery capex is likely to be still higher than this year? Yes.

We will give you a better guidance once we complete our budget cycle, which is starting now. And we will reserve this question to next quarter.

Got it. Very clear. Thank you very much. And great performance.

Next question is from Charlie Chen of Morgan Stanley.

Thanks for taking my second questions. Yeah, that question is about T glass resulting the shortage of substrates. Yeah, I'm not sure if there would be kind of a risk factor for ASC group to grow your revenue next year, because we start to hear some concerns and how time to get the substrate source and how would ASE help customers to get a more sufficient supply?

Charlie, your second or your third question is regarding overall tea glass supply and whether it would impact our overall supply chain going forward.

Yeah, and how would ASE manage or help your customers on this period of shortage?

Like I said, there's a lot of uncertainties and that's ahead of us. Like running any other business, there's going to be ups and downs, there's going to be changes. But right now, I think whatever we're seeing today, maybe some of the materials, or don't ask me what Teaglass is, but some of the materials may have a longer lead time. But at this time, we haven't seen any real disruptions on our service to our customers at this point. I think if anything else, being the dominant player, if there's any problem, we're the ones that our customers that come to, and we certainly have the best leverage in trying to secure the needed materials or components that will be needed for serving them.

Gotcha. Thank you. So I would assume for those materials or Subject, if there will be any cost or price increase, ASC would fully pass through to customers. Is that right? Or you would charge some markup because those materials are getting harder to get?

We will find the most suitable pricing for the situation.

Okay. Okay. Thanks for that. Much appreciated for your answers. Thank you.

Next question is from Bruce Lu of Goldman Sachs.

Hi, thank you for taking my follow-up. I think I asked this question last quarter, but I want to ask it again. What is the CapEx to revenue nowadays? Or is there any changes in terms of how long does it take to see the revenue after you invest your CapEx? The reason I ask this is you invest about 1.8 billion CapEx last year. And three point something billion this year, right? But you generate additional 1 billion revenue this year, but you also can only generate additional 1 billion next year. So regularly, you should be able to generate a bit more than 1 billion next year, right? Is there any changes in terms of capex to revenue or time to generate revenue?

Bruce, you're looking for... the magic solution in terms of capex to revenue, right? Which Joseph used to give us.

Well, first of all, the three... million-plus capex is not entirely for leading edge. I think for this year, I think 55% of that is for leading edge. And bear in mind that that's just a number. We don't make capacity expansion overnight. Equipment needs to be delivered in... You don't have this equipment all delivered at once, right? Things move progressively. So just simple math, if it's $1.8 billion worth of CapEx, that means on average 900 million worth of new capacity being put in. So... So this year, if it's a billion dollar increase, that ratio seems to be still on track. Of course, the other half of the investment will start to generate revenue, but there's always a time gap between when the machineries or the cap has been spent and when the revenue is being generated. I'm not saying that we can only generate a billion dollar worth of new revenue coming in. I'm just saying that at this point, we are very confident that we can have at least a billion dollar worth of leading edge revenue coming in next year. You know, for the majority of the leading edge at this point, we're still in the earlier stage at this point, and we're still gathering data. to come up with a more meaningful investment intensity on this kind of investment. But from the limited data that we've gathered so far, I think the traditional dollar of investment creating a dollar of annual revenue seems to be the case. for the main business that we are entering now, which is OS and test.

So one-to-one. That's the magic number.

It still works. It still applies. But like I said, we are still in the process of getting more data. We're And bear in mind that our capacity is not in full RAM at this point. So we're going to take a little bit more time.

My brain is simple, right? 45% of your 3 point something billion dollar CapEx is 2 billion US dollars. Right? I mean, you just mentioned that three point something billion dollars, 55% is for mature technology. Let's say 45%, let's say 50% of your three point something billion campus this year, that's close to two billion for next year in terms of incremental new revenue from AI. That's how the math works.

No, that's not how the math works. We don't live on math. We live in the real world.

I only know math.

Okay, thank you. Well, if you're calling me conservative, call me conservative.

Okay. That's all I need.

There is no question on the floor.

OK. I guess time has pretty much run out.

I would like to thank everyone for participating in the call. I look forward to seeing you all either during the quarter or at the next earnings release.

OK. We are having a good run and we'll continue to have a good run going into next year. And we're confident that we will continue to deliver good performances and good numbers for you. We'll see you next quarter. Thank you very much.