ASE Expertise Holdings (ticker: ASX), a number one supplier of semiconductor manufacturing companies, reported its second quarter 2024 earnings with a mixture of challenges and development alternatives.

The corporate skilled divergent efficiency throughout its enterprise segments, with conventional merchandise dealing with a scarcity of sustained demand, whereas modern merchandise noticed elevated demand. ASE Expertise’s earnings name highlighted a strategic concentrate on increasing its superior packaging enterprise and managing prices amid a cautious outlook for its conventional enterprise.

Key Takeaways

• Conventional product demand is low, with tools utilization round 60%.
• Modern merchandise are in excessive demand with full tools utilization.
• ASE Expertise will put money into labor and tools for modern merchandise.
• EMS companies demand exceeded expectations.
• Q2 totally diluted EPS was NTD 1.75, and fundamental EPS was NTD 1.80.
• Consolidated web revenues grew 6% sequentially and three% year-over-year.
• Gross revenue reached NTD 23.1 billion; gross margin was 16.4%.
• Working revenue and web earnings noticed sequential will increase however diversified year-over-year.
• Future outlook: Modern enterprise development and cautious conventional enterprise strategy.
• Plans to double CapEx funding in 2024, specializing in meeting, testing, supplies, and EMS.

Firm Outlook

• ASE Expertise anticipates a story of two companies, with booming modern sectors and a cautious strategy to conventional companies.
• The corporate is about to handle manufacturing prices and improve R&D funding.
• Third-quarter steerage contains excessive single-digit ATM income development and mid- to high-teens development for EMS income.

Bearish Highlights

• Conventional product demand stays low with tools utilization at 60%.
• Working bills have elevated each sequentially and yearly as a result of larger R&D labor prices.
• The auto and industrial segments are weak regardless of market share features within the automotive enterprise.

Bullish Highlights

• Modern merchandise are seeing full tools utilization as a result of excessive demand.
• The corporate has recorded a rise in consolidated web revenues and gross revenue.
• There may be optimism for demand in superior packaging, particularly in AI and high-performance computing.

Misses

• Working revenue was up sequentially however down year-over-year.
• Web earnings remained flat in comparison with the earlier 12 months.

Q&A Highlights

• ASE Expertise is forward of its income goal for superior expertise however didn’t verify rumors about capability will increase or new fabs.
• Investments in superior packaging are anticipated to positively affect margins.
• The corporate is seeing better-than-expected EMS outcomes as a result of earlier new product ramp-ups.
• A muted seasonality is predicted for the EMS enterprise.

In conclusion, ASE Expertise Holdings is navigating a fancy market setting with a strategic concentrate on modern expertise and growth plans in varied world areas. Whereas dealing with challenges in conventional product demand and elevated working bills, the corporate is optimistic about its superior packaging enterprise and is actively working to fulfill rising demand. With plans to double CapEx funding and broaden its world footprint, ASE Expertise is positioning itself for future development within the semiconductor business.

InvestingPro Insights

ASE Expertise Holdings (ASX) has demonstrated resilience amidst market fluctuations, as evidenced by its dedication to shareholder returns and constant efficiency within the semiconductor area. Listed below are some key insights from InvestingPro which may be of curiosity to buyers:

• The corporate has a notable observe file of sustaining and growing dividends, with a historical past of elevating its dividend for the final 3 consecutive years and sustaining dividend funds for 7 consecutive years. This might be an indication of monetary stability and a dedication to returning worth to shareholders.

• As a outstanding participant within the Semiconductors & Semiconductor Tools business, ASE Expertise’s strategic investments in superior packaging may additional solidify its market place, particularly contemplating the excessive demand for modern merchandise.

InvestingPro Information highlights embrace:

• A market capitalization of $20.45 billion, reflecting the corporate’s substantial presence within the business.

• A Worth/Earnings (P/E) ratio of 21.19, with an adjusted P/E ratio for the final twelve months as of Q2 2024 at 23.96, which can recommend the market’s expectations of future earnings development.

• Income for the final twelve months as of Q2 2024 stood at $18.07 billion, with a gross revenue margin of 16.1%, aligning with the corporate’s reported gross margin within the article.

Buyers searching for additional insights and evaluation can discover further InvestingPro Suggestions at https://www.investing.com/professional/ASX. There are extra ideas accessible, together with analyst predictions and profitability assessments. Use coupon code PRONEWS24 to rise up to 10% off a yearly Professional and a yearly or biyearly Professional+ subscription for extra in-depth funding evaluation and information.

Full transcript – Superior Semiconductor Engineering (ASX) Q2 2024:

Ken Hsiang: Hi there. I’m Ken Hsiang, the Head of Investor Relations of ASE Expertise Holdings. Welcome to our Second Quarter 2024 Earnings Launch. Thanks for attending at the moment. Please discuss with our secure harbor discover on Web page 2. All contributors consent to having their voices and questions broadcast by way of participation on this occasion. If contributors don’t consent, please disconnect at the moment. I want to remind everybody that the presentation that follows might include forward-looking statements. These forward-looking statements are topic to a excessive diploma of danger, and our precise outcomes might differ materially. For the needs of this presentation, greenback figures are usually said in New Taiwan {dollars} until in any other case indicated. As a Taiwan-based firm, our monetary info is introduced in accordance with Taiwan IFRS. Outcomes introduced utilizing Taiwan IFRS might differ materially from outcomes utilizing different accounting requirements, together with these introduced by our subsidiary utilizing Chinese language GAAP. I’m joined at the moment by Dr. Tien Wu, our COO; and Joseph Tung, our CFO. For at the moment’s presentation, I shall be going over the monetary outcomes, and Joseph will give the corporate’s outlook. Dr. Wu and Joseph will then be accessible to take your questions through the Q&A session that follows. In the course of the Q&A session, every caller shall be restricted to 2 questions at a time, however might return to the queue for additional questions. With that, let’s get began. The second quarter might be summed up as the story of two companies, one enterprise representing the modern merchandise and the opposite the extra conventional merchandise. For the standard enterprise, the second quarter had selective merchandise with indicators of reemergence. However by and huge, common product demand lacked the power and sturdiness essential to be thought of a sustained wholesome pickup within the quick time period. Whereas the modern enterprise noticed growing demand with the event of accelerating product pipelines. Tools utilization for conventional merchandise look to be close to 60%, whereas utilization for the modern merchandise are successfully full. To help the bifurcated market, we might want to proceed to extend our funding in the forefront area, particularly, labor and tools. From the labor perspective, we might want to rent extra engineers as the extent of product complexities are growing with the forefront. We may even have to put money into incremental capital tools to offer for incremental demand. For our EMS enterprise, within the second quarter, demand for our companies was barely forward of our preliminary expectations. We imagine this was principally the results of a barely quicker begin to the manufacturing season. Please flip to Web page 3, the place you’ll find our second quarter consolidated outcomes. For the second quarter, we recorded totally diluted EPS of NTD 1.75 and fundamental EPS of NTD 1.80. Consolidated web revenues elevated 6% sequentially and three% year-over-year. We had a gross revenue of NTD 23.1 billion with a gross margin of 16.4%. Our gross margin improved by 0.7 share factors sequentially and 0.4 share factors year-over-year. The sequential enchancment in margin is principally as a result of NT Greenback depreciation and product combine adjustments at each our ATM and EMS companies. Our working bills elevated by NTD 0.7 billion sequentially and by NTD 1.7 billion yearly. The sequential improve in working bills are primarily as a result of larger R&D labor-related bills. The year-over-year improve in working bills is primarily attributable to continued R&D staff-up and different labor-related prices. Our working expense share remained flat at 10% sequentially and elevated by 1 share level year-over-year. The annual improve was additionally associated to larger R&D staff-up for each ATM and EMS, abroad growth and better incentive inventory possibility and bonus bills. Working revenue was NTD 9 billion, up NTD 1.5 billion sequentially and down NTD 0.4 billion year-over-year. The year-over-year decline in working revenue is primarily associated to larger working bills associated to the ramp-up of our modern superior packaging and abroad growth. Working margin elevated 0.7 share factors sequentially and declined 0.5 share factors year-over-year. In the course of the quarter, we had a web non-operating acquire of NTD 1.1 billion. Our non-operating acquire for the quarter primarily consists of web overseas alternate hedging actions, earnings from associates and different non-operating earnings, offset partially by web curiosity expense of NTD 1.2 billion. Tax expense for the quarter was NTD 2 billion. Our efficient tax charge for the quarter was 19%. Web earnings for the quarter was NTD 7.8 billion, representing a rise of NTD 2.1 billion sequentially and flat year-over-year. The NT Greenback depreciated 3% in opposition to the US Greenback sequentially through the second quarter, whereas depreciating 4.2% yearly. From a sequential perspective, we estimate the NT Greenback depreciation had a 0.85 share level constructive affect to the corporate’s gross and working margins. Whereas from an annual perspective, we estimate the NT Greenback depreciation had a 1.21 share level constructive affect to the corporate’s gross and working margins. On the underside of the web page, we offer key P&L line gadgets with out the inclusion of PPA-related bills. Consolidated gross revenue excluding PPA bills could be NTD 24 billion with a 17.1% gross margin. Working revenue could be NTD 10.2 billion with an working margin of seven.3%. Web revenue could be NTD 9 billion with a web margin of 6.4%. Primary EPS excluding PPA bills could be NTD 2.08. On Web page 4 is a graphical illustration of our consolidated monetary efficiency. You will notice a trough-ish however steadily bettering setting for each our ATM and EMS companies. Gross margins are steadily bettering additionally. On the working margin entrance, as was said earlier, working bills are growing for anticipated ramps in modern superior packaging merchandise. We anticipate these modern superior packaging merchandise to be accretive to margins. On Web page 5 is our ATM P&L. The ATM income reported right here comprises revenues eradicated on the holding firm degree associated to intercompany transactions between our ATM and EMS companies. For the second quarter of 2024, revenues for our ATM enterprise had been NTD 77.8 billion, up NTD 4 billion from the earlier quarter and up NTD 1.7 billion from the identical interval final 12 months. This represents a 5% improve sequentially and a 2% improve yearly. Gross revenue for our ATM enterprise was NTD 17.2 billion, up NTD 1.6 billion sequentially and up NTD 1 billion year-over-year. Gross revenue margin for our ATM enterprise was 22.1%, up 1.1 share factors sequentially and up 0.9 share factors year-over-year. The sequential margin enchancment was primarily associated to overseas foreign money and better loading effectivity, offset by larger utility prices. The annual margin enchancment is primarily the results of overseas alternate, product combine, offset partially by larger utility prices. In the course of the second quarter, working bills had been NTD 9.9 billion, up NTD 0.5 billion sequentially and NTD 1.2 billion year-over-year. The sequential improve in working bills was primarily pushed by larger compensation bills from ramp-up of modern superior packaging. The annual working expense improve was pushed primarily by the continued scale-up of R&D labor and different labor-related bills. Our working expense share for the quarter was 12.8%, flat sequentially and up 1.3 share factors yearly. Sequentially, working bills stored tempo with income growth. The annual improve was as a result of larger compensation bills, primarily on the R&D degree. In the course of the second quarter, working revenue was NTD 7.3 billion, representing a rise of NTD 1.2 billion quarter-over-quarter, and a decline of NTD 0.2 billion year-over-year. Working margin was 9.3%, growing 1.1 share factors sequentially and declining 0.4 share factors year-over-year. For overseas alternate, we estimate the NT to US Greenback alternate charge had a constructive 1.47 share level affect on our ATM sequential margins and a constructive 2.1 share level affect on a year-over-year foundation. With out the affect of PPA-related depreciation and amortization, ATM gross revenue margin could be 23.3% and working revenue margin could be 10.8%. On Web page 6, you may discover a graphical illustration of our ATM P&L. As you’ll be able to see right here, the primary half of 2024 is shaping up very equally with the primary half of 2023. On Web page 7 is our ATM income by 3C market segments. Our communications software dropped 3 share factors, whereas our computing and client segments elevated. In the course of the quarter, we skilled some spotty pickups in our client area. Nevertheless, finish demand was inadequate to maintain a extra strong development charge. As a word right here, our modern superior packaging companies are recorded inside computing and communications accordingly according to their underlying utilization. On Web page 8, you’ll find our ATM income by service sort. There are just some small actions right here with different companies declining 2 share factors and wire bonding and superior companies growing 1 share level every. On Web page 9, you’ll be able to see the second quarter outcomes of our EMS enterprise. Our EMS revenues got here in a bit forward of the place we anticipated, primarily because of barely sooner than anticipated begin to the manufacturing season. In the course of the quarter, EMS revenues had been NTD 62.9 billion, bettering NTD 3.5 billion or 6% sequentially and bettering NTD 2.5 billion or 4% year-over-year. The sequential and annual income enhancements are primarily attributable to our clients’ timing of this 12 months’s product manufacturing begin. Sequentially, our EMS enterprise’s gross margin improved 0.3 share factors to 9.6%. This modification was principally the results of higher loading. Working bills inside our EMS enterprise was NTD 4.1 billion, growing NTD 0.2 billion sequentially and NTD 0.5 billion yearly. Our second quarter working expense share was 6.5%, flat sequentially and up 0.6 share factors yearly. The upper annual working expense share was primarily associated to larger bills associated to NPI growth. Working margin for the second quarter was 3.1%, bettering 0.3 share factors sequentially and declining 0.4 share factors year-over-year, primarily as a result of improve in compensation bills on larger headcount, primarily as a result of consolidation of an acquired entity. Our EMS second quarter working revenue was NTD 2 billion, up NTD 0.3 billion sequentially whereas down NTD 0.1 billion yearly. On the underside of the web page, you’ll find a graphical illustration of our EMS income by software. As is typical within the second quarter, there is not a lot motion right here on a sequential foundation. Nevertheless, on an annual foundation, we’re experiencing respectable development inside our automotive merchandise. On Web page 10, you’ll find key line gadgets from our stability sheet. On the finish of the second quarter, we had money, money equivalents and present monetary belongings of NTD 75.3 billion. Our whole interest-bearing debt declined by NTD 11.4 billion to NTD 183.9 billion. Whole unused credit score traces amounted to NTD 417 billion. Our EBITDA for the quarter was NTD 26.1 billion. Our web debt to fairness this quarter was NTD 0.34. On Web page 11, you’ll find our tools capital expenditures relative to our EBITDA. Equipment and tools capital expenditures for the second quarter in US {Dollars} totaled $406 million, of which $215 million had been utilized in packaging operations, $154 million in testing operations, $31 million in EMS operations and $6 million in interconnect materials operations and others. We proceed to be excited by the increasing portfolio of merchandise that our modern superior packaging addresses. As we glance additional out, we proceed to see indicators that enterprise is shaping up for the following tremendous cycle. Nevertheless, if we glance into the extra quick future, we imagine we’ll proceed to have a story of two companies: the forefront and the extra conventional enterprise. Once we take a look at the forefront enterprise, together with AI and high-end networking, enterprise is constant to growth. We can’t appear to get the capability put in quick sufficient. For us, that is additionally not a single buyer phenomenon both. And the fascinating half is that it seems to be accelerating. On the extra conventional enterprise aspect, there’s some pleasure concerning doubtlessly shortened refresh cycles on plenty of merchandise as a result of new AI options. However by and huge, our clients are nonetheless continuing cautiously. For us, meaning our clients usually are in a trial-and-error mode. They begin with a conservative forecast. If their merchandise hit, they are going to shortly modify their outlooks. There may be an growing optimistic sentiment available in the market, and we’re wanting ahead to when such optimism manifests into growing forecasts. If we take a look at our total value setting heading into the third quarter, we might want to proceed to handle our prices of manufacturing with larger utility prices and ramping labor wants. On the working expense entrance, we additionally see continued spending on R&D labor, instruments and tools associated to modern superior packaging and testing. And as I said earlier, we’ll proceed to bear larger working bills earlier than nearly all of revenues come into place in the direction of the latter a part of this 12 months and subsequent 12 months. We need to maintain our full 12 months working expense share improve to inside 75 foundation factors of that of 2023. With that, I want to hand the ground over to Joseph Tung to talk to our company outlook. Joseph?

Joseph Tung: Sure. Thanks, Ken. Let me offer you our steerage for the third quarter. By way of ATM, in NT Greenback phrases, our ATM third quarter 2024 income ought to develop by excessive single digits quarter-over-quarter. And our ATM third quarter gross margin ought to be between 23% to 23.5%. By way of EMS, in NT Greenback phrases, our EMS third quarter 2024 income ought to develop mid- to excessive teenagers quarter-on-quarter. Our EMS third quarter 2024 working margin ought to be barely above fourth quarter 2023 degree of three.5%. Along with the income and margin steerage, I want to additionally present an replace on our CapEx. In anticipation of the booming demand for modern ATM capability and additional expertise development, we imagine we might want to step up our CapEx funding, ranging from elevating full 12 months 2024 consolidated equipment CapEx to double from final 12 months’s USD 914 million ranges. And as these investments carry larger worth contribution and have gotten extra crucial to the general semiconductor manufacturing, we imagine such funding shall be each return and margin accretive. On geographical growth. We began our Malaysia growth 2 years in the past, and our Section 1 has been accomplished, and we’ll begin quantity manufacturing in quarter 1 ’25. Additionally, we’re quickly to shut the acquisition of two Infineon (OTC:) operations, one within the Philippines and one in Korea, and anticipate income contributions of those 2 websites ranging from third quarter this 12 months. Now we have additionally acquired land in Mexico and we have recognized potential areas in Japan. The land shall be developed and buildings be constructed in anticipation of future clients’ demand, and all these efforts are made to shorten the lead time for capability ramp-up. With that, we’ll open the ground for questions.

Operator: [Operator Instructions] Our first query is from Mr. Gokul Hariharan of JPMorgan.

Gokul Hariharan: My first query is concerning the steerage. So whenever you speak about ATM excessive single digit, may you additionally assist us to grasp the total 12 months development prospects for ATM? As a result of I feel again in February or January, I feel Tien had talked about 6% to 10% for business and comparable development for ATM. Any updates there given year-to-date, it seems such as you’ll be monitoring at about flattish year-on-year on USD phrases. And in addition gross margin. Beforehand, we had been anticipating 25% to 30% vary within the second half of the 12 months. Any purpose, Joseph, why it is slightly bit decrease? Are there any start-up prices or some other further prices which have are available in? Or is it simply that utilization is monitoring decrease. And lastly, on CapEx, This double from FY ’23, clearly, a much bigger quantity than earlier. Any breakdown by way of check versus superior packaging versus conventional packaging by way of the place you’re placing in incremental CapEx. That is my first query.

Joseph Tung: I suppose the total 12 months — by way of a full 12 months perspective, I feel the — within the common market, the restoration appears to be a bit slower than we had been anticipating. So within the — though within the second half, we’ll begin to see the — common market begin to backside out, and we’ll begin to have some restoration — extra restoration there. However the tempo of it appears to be slower than it initially anticipated. However on the forefront, we’re nonetheless is booming, however we’re aggressively making an attempt to meet up with the capability to fulfill the rising demand. Properly, all in all, put every thing into consideration, I feel for the total 12 months, we’re now taking a look at a extra average sort of development by way of our prime line. And by way of margin, I feel, once more, due to the extra muted restoration of the overall market, I feel the — in third quarter, we’ll are available in slightly bit quick, reaching the structural margin of 24%. However on the total 12 months foundation, we nonetheless stay hopeful that going into second half, we can have a greater pickup and we’re nonetheless — I feel the — coming again to the longer term margin continues to be in play at this level. What is the third query?

Ken Hsiang: CapEx breakdown.

Joseph Tung: The CapEx breakdown. With the brand new CapEx that I simply talked about, I feel the breakdown shall be roughly 53% for meeting and 38% for check. Now we have one other 1% for materials and about 8% for EMS.

Gokul Hariharan: That is very clear. My second query, Joseph, is on the two.5D superior packaging the place you are clearly spending loads of CapEx and the prospects are good. I feel final time, I feel Tien had talked about NTD 50 million further revenues from this phase. And I feel not too long ago, I feel in your AGM, you had indicated there’s in all probability some upside to that quantity. May you speak slightly bit about, a, what’s the scale of this type of enterprise? Is it — do you suppose that this might be 10% of your ATM revenues subsequent 12 months? And secondly, may you speak slightly bit about your partnership with the main foundry given in addition they referred to as out elevated utilization of OSAT companions to meet buyer demand? How widespread is your form of buyer base? Is it principally coming from this main AI accelerator buyer? Or is it form of extra broad-based you are having a number of tasks from many alternative clients for two.5D packaging?

Joseph Tung: Properly, I feel by way of vanguard, I feel principally continues to be coming from AI or high-performance computing. And I feel it is a broader base. It is not only one buyer phenomenon, as Ken talked about earlier on. And we’re having reactive engagements with each of our foundry companions in addition to clients instantly. And I feel the elevating of our CapEx is in the direction of constructing the wanted capability for this kind of — together with packaging in addition to assessments.

Operator: Subsequent query is from Ms. Sunny Lin of UBS.

Sunny Lin: May you hear me?

Operator: Sure.

Sunny Lin: So my first query is to observe up on the testing alternatives that you simply simply talked about concerning the superior packaging enterprise. And so may you share a bit extra particulars concerning the shopper engagement, and for a number of the key tasks, the way you compete with the prevailing suppliers? .

Joseph Tung: Current suppliers?

Sunny Lin: For testing, for these HPC tasks.

Joseph Tung: I feel the — there’s loads to go round as we see the demand for vanguard, each for packaging and assessments are booming. And we’re at the moment nonetheless slightly bit capability constrained, and we’re beefing up our CapEx on this space to construct the capability in addition to to additional our expertise funding. I feel the ambition, demand is coming from totally different clients and likewise part of it from the foundry as nicely. So we’ll entertain no matter enterprise that’s wanted from our clients. And by way of assembly competitors, there’s at all times competitors, we’ll do no matter we are able to to additional penetrate no matter enterprise that is in entrance of us.

Sunny Lin: Possibly let me attempt to ask from a unique angle. And so for a number of the AI accelerated merchandise, there are some fairly strong present suppliers which have very shut relationship with the purchasers. They’re keen to customise the burn-in instruments and likewise the Board’s. And due to this fact, I simply surprise what’s your aggressive methods. And for those who handle to get a few of these merchandise, when ought to we anticipate the income to determine to come back by?

Joseph Tung: We’re gearing up on our modern testing capability and functionality, together with burn-in. We’re principally leveraging on our turnkey companies, we do anticipate to have good progress ranging from subsequent 12 months. .

Operator: Our subsequent query is from Mr. Charlie Chan.

Charlie Chan: So, perhaps to start with, I am questioning, Joseph, your view about Kenneth and Tien speaking concerning the Foundry 2.0. They embrace the started foundry as to their 10. Do you suppose going ahead, could be extra competitors from foundry? Or do you imagine there ought to be extra collaborations?

Joseph Tung: That can be a testomony that the back-end packaging and check is turning into a an increasing number of crucial a part of the general worth chain. And we’re excited concerning the alternative in entrance of us. and we shall be intently working with our companions each on the upstream and likewise downstream to make this factor occur. So I feel the general relationship with each our clients in addition to upstream foundries. We’re working very intently with each of them, and we’ll attempt to give you the capability and the expertise wanted to swimsuit their wants.

Charlie Chan: So my follow-up query can also be to make clear your potential growth of the superior packaging enterprise. So a few hypothesis, perhaps it is a good likelihood so that you can make clear right here. So to begin with, my understanding is that you simply solely do the Wafer-on-substrate WoS proper, the OS. However the chart suggests that you simply need to broaden to chip on wafers. That is the primary half. And secondly, there is a rumor speaking about you in all probability will do a brand new fab very near Taichung or Changhua space, and there is a form of offloading TSMC’s burden. And quantity three is basically the capability quantity. So far as I do know, in all probability by way of WoS capability, you could have 60,000 wafers per thirty days. However rumors speaking about you are going to greater than double the capability for WoS. So these form of rumor or hypothesis, are you able to make clear slightly bit?

Tien Wu: We’re not going to make clear the hypothesis, by the best way. However I gives you a qualitative description concerning the present engagement mannequin. The expertise takes years to develop. So whether or not the OS or the CoW or the equal of OS or the equal of CoW has been developed along with the foundry companions in addition to key clients for years, so within the present panorama due to the capability constraints, there was energetic engagement with our accomplice as nicely with our buyer to see which route gives you essentially the most environment friendly various to meet the shopper demand within the shortest period of time. So that is form of the partnership that we’ve got developed with the main foundry suppliers. Now we have additionally gained confidence from a number of clients over years of product growth trial-and-error course of, supplies or totally different tools set and the reliability. So on this spherical, as we are able to see, the OS ramp has been fairly profitable. And we’ll proceed to measure and monitor the progress of ramp-up to ensure the yield, the standard and the price mannequin are all in verify. We can’t provide the particular remark based mostly on the quantity that you’ve got outlined. Nevertheless, for those who return to the CapEx quantity we’ve got supplied, I feel you’ll be able to clearly perceive that we’re making an attempt to ramp up quickly on the OS. The CoW has been engaged with a number of clients in addition to with our foundry accomplice. So we’ve got energetic dialog along with accomplice and clients, once more, simply to hunt one of the best various approach to fulfill the shopper demand. I feel the — we’re not able to remark element of the engagement mannequin in addition to the amount. However over time, simply to provide you a tough quantity, firstly of the 12 months, we estimated we can have about NTD 250 million incremental superior expertise income. I additionally commented we’re barely forward of that curve. So proper now, that standing is we’re forward of the unique quantity. The momentum almost certainly will speed up into subsequent 12 months. Additionally, as indicated by Joseph and Ken’s remark, that we’re including the — we’re doubling the CapEx. In 2025, we’ll proceed to watch the state of affairs, and based mostly on the enterprise panorama, that we’ll determine what would be the proper approach to do it. Okay?

Operator: Subsequent query is from Mr. Rick Hsu of Daiwa Securities.

Rick Hsu: Hi there. Are you able to guys hear me?

Tien Wu: Sure, we are able to hear you. Sure.

Rick Hsu: Simply my — the primary query is my typical housekeeping query about your utilization charge for wire bonding and the testing for Q2 and Q3. And in addition slightly follow-up, when Ken say one thing about your superior utilization charges was already full, what’s your quantitative definition of the total?

Joseph Tung: By way of utilization in quarter 2, we’ve got each our packaging and testing working at barely above 60%. And that ratio will go above 65% for each in quarter 3. Once we speak about full, we imply every thing is getting used up. All capability…

Rick Hsu: Okay.

Joseph Tung: Including to what Tien simply talked about, I feel after we speak about increasing our capability, we’re speaking about increasing capability for all types of demand coming from our buyer, whether or not so CoW or OS or testing. Additionally, not simply on the equipment itself, we’re additionally including areas, manufacturing facility areas, new manufacturing facility buildings which might be being constructed or being placing on the stream, on-line. We’re additionally investing closely, like we’re beefing up our R&D as nicely, making loads of funding in R&D and likewise by way of hiring skills. It is an all-around effort for us to fulfill the shopper demand.

Rick Hsu: The second query is about your CapEx. We see a really robust dedication in constructing the superior package deal and testing capability, corresponding to on substrate and likewise the core equal. Would you are concerned about any potential danger of overflow enterprise mannequin, i.e., that when the foundries resolve their bottleneck situation, will they cancel the outsourcing? I imply, what’s concerning the overflow danger?

Tien Wu: I feel the enterprise mannequin, the — in fact, something is feasible. However the collaboration has been in place for a lot of, a few years. We’re additionally very used to the up and down cycle. So on this spherical, actually depends upon the — throughout the entire platform. We’re taking a look at a number of buyer product growth, that we take a look at their utilization and the quantity highway map. Then we take a look at our funding. After all, we’ll look at the pliability of the funding we put in place. So the character of the OSAT enterprise is we’ll construct a versatile and fungible capability, and that may be simply moved round to accommodate totally different product combine as is quantity. So proper now, we’re fairly assured the capability we put in place shall be right here and shall be very helpful for our clients and our companions for fairly a number of years, a minimum of. So the quick reply is not any, we do not fear about it.

Operator: Subsequent query is from Mr. Brad Lin of BOA.

Brad Lin: I’ve two questions. So the primary one is on the abroad growth. So does the agency have any new ideas on the US growth? I do know that we remark about abroad, however appears to — nicely, we didn’t point out a lot concerning the US aspect. So on the brand new subsidy program by the US authorities and likewise the growing political dynamics there, so if — does ASE have any new ideas on the US growth? And in addition, we additionally see the growth of the ISE labs there in California. Does that qualify for apply to the brand new subsidy packages?

Tien Wu: Simply to provide you a solution, the — nicely, let me touch upon the ISE facility. The ISE facility solely has one goal, that’s to help the innovation at a chip degree or at a system degree in Silicon Valley for both AI or the longer term edge system or any superior expertise, excessive efficiency computing or silicon photonics or energy administration. So the lab is put in place to offer system-level testing, system-level growth as nicely system-level reliability. The lab is in California, Silicon Valley. The principle mission is to bridge no matter expertise can be found domestically within the US and no matter expertise which might be wanted which might be accessible globally, proper? So the CHIPS Act workplace simply introduced the R&D funding in addition to the manufacturing funding. We’ll take into account tips on how to apply. And for ISC and IC is comparable with the Section 3 or Section 4, we’ll take into account the CHIPS Act R&D in addition to the manufacturing. The US high-volume manufacturing institution are nonetheless being thought of. We do not need a tangible plan but, primarily as a result of the shopper request on the quantity are nonetheless being investigated.

Brad Lin: So can we are saying that, nicely, with latest developments, there’s a larger risk that we’ll do the so-called quantity manufacturing aspect there.

Tien Wu: We do have a Mexico facility, and that’s additionally accessible for North America. Simply to provide the clarification.

Operator: Now we have a query from Ms. Laura Chen of Citigroup.

Chia Yi Chen: Are you able to hear me?

Operator: Sure.

Chia Yi Chen: I’ve questions concerning the gross margin developments. On one hand, we’re seeing that we’re accelerating our funding within the superior packaging, however the broad based mostly restoration on the standard software appears to be — stay muted. So my query is that how would we anticipate this superior packaging funding to bear fruit? If it is reached the said 5G array and likewise the loading, how would you see that would be the normalized gross margin? That is my first query.

Joseph Tung: As I discussed earlier on, the CapEx that we’re making for the modern packaging and check, these investments are of upper margin — or these investments are of accretive margin in addition to return. In order we proceed to develop that a part of the enterprise additionally on assessments, I feel it’ll assist the general margin for our ATM enterprise as we — as time goes on.

Chia Yi Chen: So can we anticipate that there shall be over — like if the general ATM enterprise reached, say, like 80% utilization charge, normally, we are able to anticipate like 25% gross margin. However with the cohorts, if that is reached a glad utilization charge and likewise the loading, that shall be a lot larger than that what we anticipate earlier than.

Joseph Tung: Such capability can also be larger than the company common margin.

Chia Yi Chen: And in addition, my subsequent query is on the EMS enterprise. You talked about that the higher than anticipated close to time period is as a result of earlier ramp for the brand new merchandise. So do you anticipate the soundness will proceed into the height seasons into This fall? Or can we anticipate that This fall shall be even stronger just like the historic sample?

Joseph Tung: No, I feel the primary half versus second half sample ought to be just like a typical seasonality.

Operator: Subsequent query is from Mr. Bruce Lu of Goldman Sachs.

Bruce Lu: I feel I need to ask once more for the superior packaging, all proper? So Joseph used to remark that the CapEx to income ratio. Are you able to remark about like what’s the CapEx income ratio for the superior packaging? You spend some huge cash this 12 months. How a lot income you’ll be able to generate subsequent 12 months? As well as, TSMC commented that the superior packaging gross margin is one way or the other approaching to the company common with 50-plus %, proper? So can we anticipate — is there any purpose that we are able to assume that your gross — your profitability was one way or the other comparable with TSMC on your superior packaging?

Tien Wu: I do not suppose we must always make that form of the straightforward comparability. As a result of TSMC, the packaging they do as was the enterprise mannequin are barely totally different for ASE. Joseph has already talked about it. The — the OS that we’re doing proper now, the margin is larger than the ATM, the company common. That is the place we’ll stand. We’re not going to remark evaluating to the TSMC margin as a result of the tools, the method, all the — every thing they use are barely totally different than the ASE. Now by way of the — how can we bridge the greenback, I feel usually, we’re speaking concerning the CapEx greenback, I feel it is greenback for greenback.

Bruce Lu: So for superior packaging, it is also greenback for greenback.

Joseph Tung: That is the present complement.. We’ll really have to — as soon as it will get to quantity, then we can have higher evaluation of that. That appears to be nonetheless the case, sure.

Bruce Lu: The second factor is that I need to ask about seasonality on your EMS enterprise. I feel the third quarter steerage appears to be slightly bit lighter than historic seasonality. So what was responsible for decrease seasonality as a result of — we did not hear any delay for the flagship mannequin smartphone. It is due to the smartphone or due to different purposes?

Joseph Tung: I feel the individuals are anticipating the brand new kind [indiscernible]. Appears individuals are sending an uptick on the cargo. So this quarter — and due to the sooner launch of the product, we’re seeing a better-than-expected second quarter. And that very same form of momentum ought to go into quarter 3. However as an entire, the opposite common markets, the restoration continues to be a bit sluggish. So I feel from a full 12 months perspective, I feel EMS can have — even have a muted 12 months for the — by way of our prime line.

Operator: [Operator Instructions] Subsequent query is from Jason Tsang of CLSA.

Jason Tsang: Are you able to hear me?

Tien Wu: Sure.

Jason Tsang: My first query is concerning on the proportion of your superior packaging. Are you able to give us what number of share is that superior packaging account on your whole income? And also you talked about about NTD 250 million. Is that your goal in coming years? Or is expectations on the contribution from superior packaging on this 12 months?

Joseph Tung: As we guided earlier than, this 12 months we’re anticipating to double the — our income by way of vanguard packaging assessments. And we’re — and the incremental income ought to be over NTD 250 million. As Tien talked about, we’re at the moment barely forward of our schedule. And I feel the momentum continues to be robust. And going into subsequent 12 months, we’re anticipating one other doubling of income on this phase.

Jason Tsang: My second query…

Joseph Tung: And the proportion of our modern income is about 5% this 12 months, going from 2.5% to over 5% this 12 months.

Jason Tsang: 5% of ATM enterprise, proper?

Joseph Tung: Right.

Jason Tsang: My second query is by way of the economic and auto enterprise. As a result of virtually, we merged the brand new fab from ID employers. And we all know that at the moment, these segments stay weak. So have we discovered any synergy or upside coming from these form of new enterprise? Or can we remark that whether or not we see any enhancements or restoration on these segments?

Joseph Tung: Properly, I feel by way of auto, total sentiment continues to be very comfortable. However we’ve got been persevering with our development within the automotive enterprise, largely due to the market share acquire, which we’re leveraging on our automation to proceed to broaden our market share. For this 12 months. I feel by way of ATM, the automotive a part of the enterprise will characterize roughly 11% of the general gross sales. And we’ll see the momentum proceed to develop..

Operator: Now we have a query from Mr. Charlie Chan of Morgan Stanley.

Charlie Chan: So really, two follow-up questions from me. So to begin with, I feel Tien appears to recommend that the brand new CapEx for superior packaging margin ought to be above the company margin. However Joseph might make clear, is that each company common margin or above ATM margin?

Joseph Tung: Above company ATM margin.

Charlie Chan: Company ATM margin. That is clear. Sure. And in addition doubling this income subsequent 12 months. So it is doubling the 5% or doubling that USD 250 million incremental income?

Joseph Tung: Doubling, I imply, subsequent 12 months’s modern income shall be doubling this 12 months’s modern income.

Charlie Chan: So if this 12 months is round 5%, subsequent 12 months, it ought to be near 10% or greater than 10%.

Joseph Tung: Properly, we predict different elements of the enterprise to develop as nicely. So that is still to be seen, sure, whether or not it is going to be precisely 10% or slightly over or slightly beneath 10%.

Operator: Subsequent query is from Mr. Bruce Lu of Goldman Sachs.

Bruce Lu: I need to know once more for the superior packaging by way of funding course. As a result of in superior packaging for me, there are like 10 totally different expertise from TSMC, ASA, ORR, SOI, CPX or no matter. I imply, it appears to me it is very difficult. And the way do you determine which one is the course to go for ASE to take a position? That is one factor. The second factor was TSMC is speaking about ramping up the panel degree packaging in 2 years, so which implies it might be the case that they do not need to put money into the present cohorts. As a result of in 3 years, they’ll migrate to panel they usually’ve acquired to go away that to the present OSAT accomplice. In order that might be a short-term enterprise doubtlessly. So how can we stop this type of learn or what’s the course to go to?

Tien Wu: It is a good query. For instance, ASE has been engaged on the panel resolution for over 5 years. Simply to provide you a standing report. We began with a kind issue of 300-millimeter by 300-millimeter sq.. We have been doing that with fairly a number of key clients for plenty of years, certified a number of merchandise. Then we determined the 300-millimeter by 300-millimeter shall be naturally expanded to 600 by 600. After which we’re doing loads of examine with clients, companions, tools suppliers and supplies. Proper now, we’ve got firmed up the marketing strategy. So out of the CapEx that we speak about it, the 600 by 600 panel is also a part of the general CapEx that we make the funding. We imagine that by second quarter of ’25 subsequent 12 months, we can have all of the tools prepared. Within the meantime, we’re collaborating with our accomplice as was clients by way of the element quantity ramp. I feel expertise growth usually will take 10 years. By way of the quantity readiness, that is at all times the tough half. How can we do the general CapEx, whether or not OS, CoW, panel or totally different form of equal of expertise? that is actually the IP of OSAT. Now we have to work with companions in addition to a number of clients, not a single buyer or a single accomplice. Now there shall be fungibility between all the expertise: the widespread utilization, the sheer utilization and the pliability to transform if wanted. I do not suppose simple to say when expertise can simply exchange one other expertise. Every expertise will cater for a unique set of goal clients. So whenever you speak concerning the cohorts, there shall be totally different degree cohorts already stated that. Even with the panel, the panel we’re concentrating on at totally different line width, totally different traces of area. Every one is totally different. It’s totally difficult. However our job is to arrange the entire portfolio of toolbox, regardless of the buyer have a selected product combine they should ramp. We’re available to try this ramp for them. And that is why we have to work very intently with our foundry accomplice as nicely clients as a result of it is a very, very dynamic time. You’ll be able to’t actually know a priori what the quantity combine goes to be. However our job is to ensure we’ve got all the expertise growth, we’ve got all of the constructing prepared. After which when we have to, then our staff shall be very busy to transform one line to a different or the opposite again to a different simply to ensure we’ve got the operational effectivity.

Bruce Lu: Your panel dimension appears to be totally different with TSMC what’s making an attempt to do. Is that going to be totally different? Is there going to be a problem?

Tien Wu: I am not going to touch upon TSMC’s panel dimension. I feel it’s important to ask TSMC. However ASE is fairly decided. We’ll do 600 x 600. Our buyer appears to be comfy with that dimension. The tools shall be totally different. The method shall be totally different. However once more, as I stated, we can’t say one panel, there is no such thing as a a common, the definition of any course of. Properly, ASE is engaged on the 600 x 600 as a sure characteristic dimension, as a sure value mannequin. After which we’re working with our accomplice in addition to our buyer to ensure they’re comfy.

Bruce Lu: Are you able to disclose the predication for the panel’s buyer? Is that is for energy administration or for AI or…

Tien Wu: Truly, it is for all the above.

Bruce Lu: I see. Okay. My subsequent query is for gross margin within the second half. I feel, Joseph, you talked about that within the second half, ATM gross margin..

Operator: Our subsequent query is from Mr. Gokul Hariharan.

Gokul Hariharan: I had one fast query. In your smartphone phase, which is the most important phase, I feel, Joseph, you talked about some enchancment in demand from a specific set of shoppers. May you speak slightly bit about what’s the standing of the smartphone phase, each for high-end SoC in addition to for different speed up — auxillary merchandise. How is the stock degree? And are you seeing a extra broad-based enthusiasm from clients to truly order extra? Or issues are nonetheless fairly sluggish? Second a part of that’s for Tien. Tien, I feel you talked concerning the toolbox of portfolio of packaging applied sciences that you’ve got. Smartphone has been an space the place the packaging expertise has largely been stagnant for fairly a while, I suppose. May you speak slightly bit about are we seeing something within the horizon the place packaging expertise may evolve in the direction of one thing just like the 2D to 2.5D fan-out for the smartphone phase within the subsequent couple of years?

Tien Wu: The primary query is concerning the cellphone. And this 12 months, we’re seeing an uptick on cellphone. If we take a look at the Q3 and This fall forecast, the cellphone is ramping up within the — simply total. So I feel total, this 12 months, the cellphone over cargo, I imply, we’re not within the place to come back on that. However based mostly on the forecast we’re taking a look at, it appears to be reasonably constructive evaluating to, for instance, automotive and industrial. Okay. That is the primary remark. By way of the toolbox, additionally the — how may cellphone particularly, that phase, can make the most of a number of the new expertise we put in place. We imagine on the expertise highway map, with all the AI initiatives, over time, you could have two varieties of gadgets. First, when can we anticipate the high-performance computing sort of structure to permeate into the cellphone. That would be the first query. And we imagine with all the AI options coming in, if the market response is superb, I am fairly certain the main cellphone expertise suppliers will begin including both extra larger degree of reminiscence or higher-level, larger chips into it. If that’s the case, then the present expertise that is solely be relevant to high-performance computing naturally will take some form into the cellphone market. Now the second sort of factor would be the edge system. I feel one of many earlier remark that we didn’t get an opportunity to reply is with all the fabs, I feel statistically, we’ve got like 84 fabs arising proper now. They’re just about within the conventional, not the forefront. So within the subsequent few years, with all of this conventional fab, capability coming on-line, how can we stability the semiconductor over demand versus provider. I feel the overall business view is with AI, on the prime, over the following few years, there shall be extra edge gadgets corresponding to autonomous driving, corresponding to robots, corresponding to drones, begin popping out. Now in any form of edge system or edge system system, you’ll make the most of loads of actuator, MEMS, sensors, microcontrollers in an built-in and hydrogenous integration vogue. So if you concentrate on the potential robots, the potential autonomous driving, the potential drones, they are going to use loads of standard semiconductor gadgets in addition to the AI engine or the AI mind. Now the semi talked about it. In 2030, ’31, ’32, the business will hit about $1 trillion. If we need to hit $1 trillion, naturally, we’ll dissipate all the fab in the forefront in addition to the standard package deal degree. And the OSAT or ASE, all the automation that we put in place, all the constructing blocks we put in place are focused to seize not solely the high-performance computing in addition to the following technology AI mind to the sting system in addition to to robotic fingers for all the heterogeneous integration or any form of present package deal that our clients or system designer want to do. It is a very lengthy reply to your query, however I hope that is complete.

Gokul Hariharan: Sure, that is very clear. So one follow-up on that, Tien, is for those who needed to hazard a guess, when do you suppose smartphone or cellphone SoC begins utilizing chiplet? Is it within the subsequent 2 years, subsequent 3 years? Or is it a lot additional than that by way of expertise readiness and market acceptance?

Tien Wu: I feel the chiplet has already began. The chiplet actually is an idea. In different phrases, when you could have — whenever you begin integrating chip, it turns into a chiplet. So at the moment, we’re seeing the chiplet structure in a supercomputing, high-performance computing. However even whenever you clearly go to {the electrical} car or as the present technology of cellphone, you’ll be able to just about argue that is the start of the chiplet. So I feel the chiplet idea, the platform are being validated by the market. Over time, I feel the chiplet will change into extra pervasive. Due to this fact, the hydrogenous integration, the ability administration, the embedded, all of this expertise that we’re growing at the moment will change into very helpful. And that is the place the panel, for instance — the panel, I didn’t get an opportunity to remark, we take into consideration, on the energy administration degree, there shall be loads of built-in gadgets, built-in package deal. They’re excited about it. So the panel must be decrease value, versatile sufficient to accommodate the ability administration built-in package deal, but additionally must go excessive sufficient to accommodate the present type of high-performance computing. However any form of package deal can have a unique set of goal buyer. Should you’re speaking about 3D, you are speaking about 2.5D or interposer, that characteristic dimension can proceed to maneuver up change into smaller and smaller, to get the proportional to the lithography and likewise the density requirement. So our job is to ensure we’ve got an entire spectrum of expertise in our pocket. Each time the shopper is available in, they want 10% of excessive finish, 40% of mid-end and 50% of low finish, we are able to simply present them a complete collection of instruments in an automatic method.

Operator: [Operator Instructions] Now we have a query from Bruce Lu. Bruce, sorry about interrupting your query earlier.

Bruce Lu: Only one fast query. Joseph, you probably did point out that earlier, the second half gross margin for ATM will return to 25%, 30% as a result of higher product combine, higher testing, extra occasions. It appears to be barely decrease than steerage. Can we anticipate that to return to 25%, 30% in margin in fourth quarter? What slows us down for the gross margin restoration? .

Joseph Tung: I feel the general restoration was slower than we had been anticipating. And due to the quantity scarcity or the hole we at the moment are — the margin prospect for the second half appears to be slightly bit decrease than what we had been initially anticipating. We do anticipate that going into fourth quarter, we must always be capable of return into our structural margin vary and when the general utilization goes past 70%. And as I discussed, it is more difficult now. However I feel for the entire 12 months, we’re nonetheless making an attempt to wrestle to see if we are able to nonetheless attain the decrease fringe of the structural margin, which is about 24%.

Bruce Lu: However not — however the product combine enchancment and extra testing income continues to be intact in third quarter, is that proper?

Joseph Tung: I am sorry, the what?

Bruce Lu: The extra testing income or the extra superior packaging contribution in third quarter continues to be intact? Simply the standard packaging that you simply guys are attempting to get decrease. That was the primary purpose for decrease gross margin in third quarter. Is that proper understanding?

Joseph Tung: That is appropriate. By way of testing, we’re progressing as deliberate. However the total common market restoration appears to be slower. That is dragging our margin a bit, sure.

Operator: There isn’t a query from the ground.

Joseph Tung: If there is not any extra questions, we’ll finish the convention name at the moment. Thanks very a lot for attending, and we’ll see you subsequent quarter. Thanks.

Tien Wu: Thanks.

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