ASE Technology Holding Co., Ltd.

Hello, I am Ken Shum, the head of investor relations for ASA Technology Holdings. Welcome to our fourth quarter and full year 2025 earnings release. I'm joined today by Dr. Tian Wu, our COO, and 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 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 subsidiaries. For today's presentation, Dr. Wu will be delivering the company's keynote. 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. With that, let me hand the presentation over to Dr. Tianwu.

Good afternoon. I would like to give you a two, three years outlook for the ASC business. This represents the best perspective that we have as of today from our partner as well as customer. Let me talk about the megatrend and future opportunities. The AI server cycle continues, primarily led by hyperscaler and the data center development. There's a lot of activity in the physical layers via edge applications. For example, we're seeing more design perspective regarding to the robotics and the drone, also the equipment surrounding the automotive and the smart manufacturing. And I think the volume will gradually show up in the next two years, which is what we're looking for. We are seeing last year the mainstream business recovered. We believe the mainstream, namely the IoT, the automotive, the general sector, the mainstream business will recover better this year comparing to last year. The second category is what I call the ASE and the Taiwan Cluster. I would like to give you two backgrounds. Many of you have raised the questions. There seems to be a very fast evolution in technology as was demand. So the question is, how will ASE and the Taiwan cluster react to the fast evolution of technology and manufacturing requirement? The second question is, there seems to be a lot of constraints in substrate and maybe memory. And how would that change our perspective regarding to the manufacturing for our partner? I will try to answer that using a longer timeframe. I think there's no question about the leadership in semiconductor manufacturing in Taiwan for this year as well as few years down the road. I don't think there's any question about our position Taiwan as was ASE. We also understand that what is driving the business in AI is mainly the system optimization, which includes chip level optimization, packaging level optimization, as well as power delivery, silicon photonics, manufacturing efficiency, as well as thermal. I would like to remind you, Taiwan has manufacturing leadership in all sectors. In other words, not only we exemplify the strength in each sector, there's a lot of cross collaboration, co-design, co-optimization and co-manufacturing in this era. This is particularly true when there is a supply constraint. The leadership will have a first mover advantage when there is a supply constraint. In the fast evolution, amidst all uncertainty, customers tend to go for the leader to manufacturing the first product in order to maintain the leadership position. So ASE and Taiwan collectively will have competitive advantages over our competitor in this space. Many of you ask if ASE is going to ramp up last year, this year, as was potentially 2027 and beyond. How can we manage all of the factory space, TAPACs, resource management? It is a difficult question, but AAC is not doing this alone. In Taiwan, let me give you a few examples. There's a lot of technology collaboration with our partner, upstream and downstream. In terms of factory space, yes, we are building factory from scratch. We're also acquiring existing factory from our partner, even with clean rooms already installed. Resource planning, you have to look at the whole cluster. So here, I am particularly grateful to our customer as well as our partner for supporting us, helping us to ramp up. Now, once again, when there is a supply constraint, when there's a fast evolution, when everything is running against time, the Taiwan cluster has demonstrated the best efficiency and speed in terms of manufacturing ramp-up. This will set a stage for many of the conversations that we will have throughout this call. Lastly, I want to talk about ASE's Taiwan Plus One. Many of you have asked, what is our strategy in terms of Taiwan Plus One? Our objective is to support all of our customers, satisfying their manufacturing requirement on the global footprint. Here, I want to give you a very simple classification from ASE's perspective. In the future 5 to 10 years, there will be wafers out of Taiwan. There will be wafers not coming from Taiwan. For wafers that are coming from Taiwan, AESC has a very good opportunity to do packaging and testing inside of Taiwan. Might not be all true, but that is the assumption. Now, for wafers that are not produced in Taiwan, they might also come to Taiwan, but they might also not come to Taiwan. So AESC is building footprint primarily in Penang. mainly for the automotive and the future, potentially robotics, to capture customers and wafers that are not produced in Taiwan, but would like ASE to use our automation, as well as all of our advanced technology to help them produce the system package and the system optimization. We're also building footprint Korea and Philippines, But Penang will be the main sector that we'll be ramping up, simply because the Penang cluster has been well-established, second to Taiwan. With that, I would like to give you the 2025 recap. The consolidated revenue grew 12% at the HOKO level, with ATM revenue up 23%. led by leading-edge advanced packaging services and testing business. The LEAP services reached $1.6 billion, accounting for 13% of ATM revenue, up from $0.6 billion in 2024, or 6% of ATM revenue. The general segment grew 13% year-on-year, Testing business grew 36% year-on-year in 2025, supported by expanding turnkey and leading-edge tests. Machinery CapEx totaled $3.4 billion. Building facilities automation CapEx was $2.1 billion in 2025, mainly driven by LEAP services and testing investments. Next page, 2026 outlook. Our CFO will give you more elaboration after this highlight. Expect revenue uptrend to continue 2026 and beyond. Driven by leading edge solutions and broad-based semiconductor demand related to AI proliferation and general market recovery. ATM business leading edge assembly packaging service to double from U.S. $1.6 billion to $3.2 billion, with roughly 75% from packaging and 25% from testing. General segment continues to grow at a similar pace as last year. overall atm revenue to outperform the logic semiconductor market stepping up capex expenditure that joseph would talk about numbers with the investments in r d human capital advanced capacity and small factory infrastructure to support the multi-year growth so our view is asc is is in a very good position together with our customer as well as talent partners and we understand the short-term need we're trying to run against time to fulfill the supply long term we are deploying our floor space outside the top one to capture the next generation opportunity thank you thank you tian

For the fourth quarter, from a financial perspective, our ATM factory loading was slightly better than originally anticipated. With higher loading, we were able to extract higher operating leverage. Our ATM factories in Taiwan ran at or near full capacity, with leap in traditional advanced packaging utilization rates, outpacing that of Wirebond. Non-Taiwan utilization rates continued to show improvement. Our overall ATM utilization rate was around 80%. Our EMS business slowed slightly due to underlying product seasonality. Revenue and profitability was aligned to our initial outlooks. Please turn to page 6 where you will find our fourth quarter consolidated results. For the fourth quarter, we recorded fully diluted EPS of $3.24 and basic EPS of $3.37. Consolidated net revenues were $177.9 billion, representing an increase of 6% sequentially and 10% year-over-year. On a U.S. dollar basis, our sales increased by 2% sequentially and 14% year-over-year. Our gross profit was $34.7 billion with a gross margin of 19.5%. Our gross margin improved by 2.4 percentage points sequentially and by 3.1 percentage points year over year. The sequential improvement in margin is primarily due to higher loading in our ATM business and NT dollar depreciation. The annual improvement is primarily due to higher factory utilization offset in part by the annual appreciation of the NT dollar. We estimate that foreign exchange had a positive 1.1 percentage point impact to our gross margins sequentially and while having a negative 1.2 percentage point impact annually. Our operating expenses increased by $1.4 billion sequentially and $1.6 billion annually to $17 billion. The sequential and annual increases in operating expenses are primarily due to higher R&D labor-related costs. Our operating expense percentage increased 0.3 percentage points sequentially to 9.6% and edged up 0.1 percentage points annually. Operating profit was $17.7 billion, up $4.5 billion sequentially and $6.5 billion year-over-year. Operating margin was 9.9%, up 2.1 percentage points sequentially and up 3 percentage points year-over-year. During the quarter, we had a net non-operating gain of $0.6 billion. Our non-operating gain for the quarter primarily consists of net foreign exchange hedging activities offset in part by net interest expense of $1.7 billion. Tax expense for the quarter was $3.2 billion. Our effective tax rate for the quarter was 18%. Net income for the quarter was $14.7 billion, representing an increase of $3.8 billion sequentially and $5.4 billion annually. On the bottom of the page, we provide key P&L line items without the inclusion of PPA-related expenses. Excluding PPA expenses, gross margin would be 19.8%, operating margin would be 10.4%, and net margin would be 8.7%. Basic EPS excluding PPA expenses would be $3.55. Please refer to page 7. Here you will find our 2025 consolidated full year results versus 2024 full year results. Fully diluted EPS for the year was $8.89, while basic EPS was $9.37. For 2025, consolidated net revenues improved 8% as compared with 2024. Our ATM business improved by 20%, while our EMS business declined by 5% annually. Our ATM business was 60% of our consolidated net revenue, up from 54% in 2024. Gross profit for the year was $114.2 billion, improving $17.3 billion year-over-year, or by 18%. In 2025, our consolidated gross margin improved 1.4 percentage points to 17.7%, principally as a result of higher ATM revenue mix and higher factory utilization of our ATM equipment, offset in part by appreciating empty dollar and higher utility costs. Operating expenses increased $5.7 billion for the year and came in at $63.4 billion. Our overall operating expense percentage edged up 0.1 percentage points to 9.8%. As a general trend, we believe our spending in R&D on an absolute dollar level will continue to increase as the technological complexity of services we offer continues to progress. However, as our R&D investments start yielding associated incremental revenues, such as those in our lead business, we should see increasing operating leverage. Currently, we see our 2026 ATM operating expense percentage declining by near 100 basis points, with our consolidated operating expense percentage dropping 80 basis points. Operating profit for the year was $50.8 billion, increasing $11.6 billion. Operating margin for the year was 7.9%, representing an improvement of 1.3 percentage points from 2024. Our ATM business accounted for 87% of our 2025 operating profit, up from 80% in 2024. We recorded a net non-operating gain of $0.5 billion for the year, including a net interest expense of $5.6 billion versus $4.9 billion in 2024. Most of the net non-operating gain was associated with our foreign currency hedging activities. Total tax expense was $9.5 billion. The effective tax rate for 2025 was 18.4%. We expect our effective tax rate for 2026 to be about 18%. Net income for the year increased by 25% to $40.7 billion. On a full year basis, we estimate that the depreciating NT dollar had a negative 0.9 percentage point impact to our consolidated gross and operating margins. Removing the effect of PPA depreciation, our gross margin would be 18%. Our operating margin would be 8.4%. Our basic EPS would be $10.07. On page 8 is a graphical presentation of our consolidated quarterly financial performance. Our ATM business, driven by expanding LEAP services, continues to outgrow our EMS business. Looking into 2026, we continue to expect our ATM business to outgrow our EMS business. As such, we believe that ATM revenues and profitability will continue to become a larger share of our consolidated total. and continue to positively impact our consolidated margin structure. 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 fourth quarter of 2025, we had record revenues for our ATM business of $109.7 billion, up $9.4 billion from the previous quarter and up $21.3 billion from the same period last year. This represents an increase of 9% sequentially and 24% annually. Our test businesses growth as a whole continues to outpace that of our assembly business. Test revenues grew 13% sequentially and 33% annually. Gross profit for our ATM business was $28.8 billion, up $6.1 billion sequentially and up $8.2 billion year-over-year. Gross profit margin for our ATM business was 26.3%, up 3.7 percentage points sequentially, and 3 percentage points year over year. The sequential gross margin increase was primarily due to higher equipment utilization, depreciation of the NT dollar, and the end of higher summer utility rates. Meanwhile, the annual gross margin improvement was primarily due to higher equipment utilization offset in part by depreciation of the NT dollar. During the fourth quarter, operating expenses were $12.7 billion, up $0.9 billion sequentially and $1.6 billion year-over-year. The sequential and annual increases in operating expenses are primarily related to higher R&D costs and labor expenses. Our operating expense percentage for the quarter was 11.6%, decreasing 0.2 percentage points sequentially and down 1 percentage point annually. The decline was primarily the result of higher revenues during the quarter. During the fourth quarter, operating profit was $16.1 billion, representing a sequential increase of $5.2 billion and an annual increase of $6.6 billion. Operating margin was 14.7%, up 3.9 percentage points sequentially and up 4 percentage points year-over-year. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 26.7% and operating profit margin would be 15.3%. On page 10, we have our ATM full-year P&L. During 2025, we continue to see impressive growth of our LEAP-related services. But we also started to see a stronger recovery of more traditional services toward the middle of the year. Full-year 2025 revenues for our ATM business improved by 19%, with our packaging business up 17%, and our test business up nearly twice the packaging at 32%. Gross profit for the year improved 25% to $91.4 billion. Gross margin for the year was 23.5% up one percentage point from 2024. Margin improvement was the result of higher factory efficiency offset in part by the impact of the appreciating NT dollar. We estimate that the appreciating NT dollar had a negative 1.4 percentage point impact on margins here. Adding that back, gross margin for the year would be well within our structural gross margin range. Our operating expenses increased by $6.1 billion during the year, led primarily by higher labor-related expenses. However, our operating expense percentage decreased by 0.5 percentage points to 12.1%. Operating profit improved $12.1 billion to $44.1 billion, while our operating margin improved 1.5 percentage points to 11.3%. Without the impact of PPA-related expenses, gross profit margin would be 24%, and operating margin would be 12.1%. On page 11, you'll find a graphical representation of our ATM P&L. We believe we have had two main drivers for our improvement trend in gross margin, higher utilization of factory equipment, and a higher mix of LEAP services and revenues. Looking forward, we expect to continue to see a rising mix of LEAP-related business. On page 12 is our ATM revenue by 3C market segments. There aren't many changes here. On page 13, you will find our ATM revenue by service type. Here you can see the two service types which pertain to our LEAP services, bump and flip chip, and testing. Both are becoming a larger component of our overall business. Traditional advanced packaging with LEAP now accounts for more than half of our overall ATM business. Wirebond now accounts for less than a quarter of our overall ATM business. Meanwhile, our test business during the fourth quarter reached 19% of ATM. On page 14, you can see the fourth quarter results of our EMS business. During the quarter, EMS revenues were flat sequentially at $69 billion, well down 8% year over year. The annual decline was the result of differing underlying device seasonality. Sequentially, our EMS business's gross margin declined 0.2 percentage points to 9%. This change was principally the result of product mix. Operating expenses within our EMS business increased by $0.4 billion sequentially and $0.1 billion annually. The increases are primarily the result of a higher headcount and fluctuations related to our profit-sharing program. Our fourth quarter EMS operating expense percentage of 6.2% was up 0.6 percentage points sequentially and annually. The sequential operating expense percentage increases primarily from increases in compensation due to headcount and related bonuses and profit sharing. Operating margin for the fourth quarter was 2.8%, down 0.9 percentage points sequentially and up 0.1 percentage points year-over-year. Our EMS fourth quarter operating profit was $2 billion, down $0.5 billion sequentially and flat annually. On a full year basis, our EMS operations revenues declined 5%. Gross profits for the year declined 3%, with gross margin improving 0.1 percentage points to 9.1%. Operating profit declined 5%, with operating margins staying flat at 2.9%. As the electronics industry pivots towards various applications of AI, so will the focus of our EMS business. For the coming year, we'll see our EMS business continue to extend its system capabilities further into AI and AI adjacent applications such as server, optical, and power solutions. There are a number of EMS projects in various stages of development that will help position the business for growth this year and beyond. On page 15, you will find a graphical representation of our EMS revenue by application. There was a slight shift from consumer devices to computing, automotive and industrial devices. The shifts here are generally due to underlying product seasonality. On page 16, 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 $102 billion. Our total interest-bearing debt increased by $22.7 billion to $272.9 billion. Total unused credit lines amounted to $400.6 billion. Our EBITDA for the quarter was $38.3 billion. Our net debt to equity this quarter was 46%. On page 17, you will find our equipment capital expenditures relative to our EBITDA. Machinery and equipment capital expenditures for the fourth quarter in U.S. dollars totaled $733 million, of which $485 million was used in packaging operations, $218 million in testing operations, and $28 million in EMS operations, and $1 million in interconnect material operations and others. In addition to spending on machinery and equipment, during the quarter we also spent $456 million on facilities, which includes land and buildings. For the year 2025, machinery and equipment capital expenditures in US dollars totaled $3.4 billion, of which $2.1 billion was used in packaging operations, $1.1 billion in testing operations, $139 million in EMS operations, $13 million in interconnect materials and others. For the year 2025, we additionally spent $2.1 billion on facilities which include buildings and land. With that, I'll hand the presentation over to Joseph to present the company's outlook.