ASE Technology Holding Co., Ltd.

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. 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. 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 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. 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. We experienced continued strength in our LEAP services and 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. 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. We are also consolidating traditional capacities. These transitional activities would naturally bring down the blended utilization rate. 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. 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, first quarter ATM revenues came in slightly ahead of our expectations. We saw slight pickups throughout our customer base, especially in 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 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. Consolidated net revenues were $173.7 billion, representing a decrease of 2% sequentially and an increase of 17% year over year. On a U.S. dollar basis, our sales decreased by 4% sequentially and increased by 22% year-over-year. 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. 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 positive 0.6 percentage point impact to our gross margin sequentially and a negative 1.2 percentage point impact annually. 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. 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. 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. 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. 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 and an 87% increase annually of $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 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 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. 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. 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. 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 $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%, down 0.3 percentage points sequentially, and up 3.4 percentage points year over year. 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. 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. 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. 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. 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. 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 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. 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 the first quarter, operating profit was $15.9 billion, 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. 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. 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. 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 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. 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%. 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. 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 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. Operating margin for the quarter was 3.1% of 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 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. 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. 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. 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. 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 U.S. 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. In addition to spending on machinery and equipment, during the quarter, we also spent $771 million on facilities. With that, I'll hand the presentation over to Joseph to present the company's outlook.

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. 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 tax will be allocated to LEAP, particularly wafer sort, and expected to be deployed in the fourth quarter 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. While the mainstream segment remains on track to grow at a similar rate with last year, And for 2027, we continue to see strong lead 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 first quarter ATM gross margin of 26%, which is ahead of our original expectation of 24.5%. As we continue to expect sequential improvement 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. 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. At the consolidated level, in NT dollar terms, A consolidated second quarter revenue should grow by 7% to 9% quarter over quarter. A consolidated second quarter gross margin should increase by 20 to 100 basis points quarter over quarter. A 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. 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. Our EMS operating margin should be similar to the second quarter of 2025 levels. With that, I'll open the floor for questions. Thank you.

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