ASE Technology Holding Co., Ltd. 2026 Q3 Earnings Call

Hello, I am Ken Hsiang, the Head of Investor Relations at ASE Technology Holding. Welcome to our third quarter 2026 earnings release. I am joined today by Joseph Tung, our CFO. Thank you for joining us 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 you do not consent, please refrain from asking questions or leave the session now. 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 separately presented by our subsidiaries. For today's presentation, I will give a brief business update and then go through the Q3 results. Joseph will close with our Q4 outlook. During the third quarter, our ATM capacities ran at or near full utilization rates. Demand for our services continues to outpace our ability to supply such services within our LEAP in much of our non-LEAP capacities. Our revenues grew faster than we had initially expected, driven primarily by faster than expected installations of high-demand LEAP capacities. Non-LEAP also performed slightly better than initial expectations. Even though historically speaking, third quarters tend to be driven by seasonal strength, given the increasing mix of LEAP services, seasonality related to underlying consumer buying patterns are becoming less of a factor in our overall loading patterns.

Overall, ATM profitability also improved more than anticipated, primarily as a result of higher than expected LEAP loading. Our EMS business's third quarter grew slightly ahead of our expectations. The third quarter continues to exhibit strong underlying seasonal demand for our SiP-related products. Our EMS business's profitability was in line with our expectations. Please turn to page three, where you will find our third quarter consolidated results. For Q3, fully diluted EPS was TWD 5.84, and basic EPS came in at TWD 6.13. Year to date through Q3, our fully diluted EPS was TWD 13.40, and basic EPS was TWD 14.17. Consolidated net revenues reached a record TWD 244.2 billion, up 28% sequentially and 45% year over year. Gross profit was TWD 54 billion with a gross margin of 22.1%, up 1.1 percentage points sequentially and five percentage points year over year. The sequential improvement stems from higher LEAP content in our ATM business.

The annual improvement reflects higher ATM revenue and a more favorable NT dollar environment. Operating expenses totaled TWD 20.8 billion, up TWD 1.8 billion sequentially and TWD 5.1 billion year over year, primarily driven by higher headcount, profit-sharing expenses, and further R&D spend to support LEAP initiatives. As a percentage of revenue, operating expenses declined sequentially by 1.5 percentage points and annually by 0.8 percentage points to 8.5%. Our OPEX percentage declined principally from LEAP revenue growth after previous periods of R&D investment. We currently see operating expenses continuing to rise on an absolute level, but on a percentage basis should remain near the range demonstrated in the current year. This delivered an operating profit of TWD 33.1 billion, up 57% quarter over quarter and 151% year over year. We had an operating margin of 13.6%, expanding 2.5 percentage points sequentially and 5.8 percentage points annually.

Rising company profitability was primarily driven by higher loading and expanding LEAP product mix. Non-operating loss totaled TWD 0.4 billion. This amount includes net interest expenses of TWD 2.6 billion, up TWD 0.8 billion sequentially due to higher debt levels. Tax expense was TWD 4.8 billion. Our effective tax rate for the quarter was 14.8%. During the quarter, we saw beneficial changes to tax regulations and foreign currency movements, which positively affected our net deferred tax position. Given these changes, we now expect our full year effective tax rate to be between 16%-17%. Net income for the quarter was TWD 27 billion, up 28% sequentially and 148% year-over-year. On page 4 is a graphical view of our consolidated quarterly performance. For the third quarter 2026, our ATM business represented 62% of our consolidated holding company revenues, while representing 91% of our operating profits.

This is compared to 59% of consolidated holding company revenues, while representing 82% of operating profit in the third quarter of last year. As our ATM LEAP business continues to outgrow our other service areas, we continue to believe that our ATM business will continue to increase as a percentage of our overall business and profitability. On page 5 is our ATM P&L. For the third quarter of 2026, we recorded record revenues for our ATM business of TWD 151.5 billion, up TWD 25.3 billion sequentially and TWD 51.2 billion annually, representing an increase of 20% sequential and 51% annual growth. Gross profit for our ATM business was TWD 46.4 billion, up TWD 11.9 billion sequentially and up TWD 23.7 billion year-over-year.

ATM gross profit margin was 30.6%, up 3.3 percentage points sequentially and 8 percentage points annually, driven by higher operating leverage and a more favorable revenue mix, particularly a higher mix of LEAP. Our gross margin has surpassed our historical structural margin ceiling. A theoretical structural margin for our ATM business would now substantially depend upon the amount of expected LEAP product mix. Given that our LEAP business continues to grow rapidly, our margin range now appears to be dynamic rather than fixed structurally. During the third quarter, operating expenses were TWD 16.2 billion, up TWD 1.5 billion sequentially and TWD 4.3 billion year-over-year. The sequential and annual increases in operating expenses are primarily related to higher overall labor costs and general R&D expenses. Our operating expense ratio was 10.7%, down 1 percentage point sequentially and 1.1 percentage points annually.

We are approaching our near term ATM OPEX percentage target as we balance cost in a more technology-led growth framework. During the third quarter, operating profit was TWD 30.2 billion, representing a sequential 53% increase of TWD 10.5 billion and a 178% annual increase of TWD 19.4 billion. Operating margin was 20%, up 4.3 percentage points sequentially and up 9.2 percentage points year-over-year. The NT dollar had a positive 0.5 sequential and a 3.3 annual percentage point impact to our gross and operating margins. On page 6, you'll find a graphical representation of our ATM P&L. The chart currently highlights our gross profit margin. Over the displayed timeframe, our margin improvement has been largely driven by improving utilization rates within traditional product lines and increasing LEAP product mix. In this timeframe from peak to trough, our gross profit margin percentage has climbed 8.7 percentage points.

On page seven is our ATM revenue by communications, computing, and consumer applications. LEAP services are primarily included within our computing applications, with a lesser amount being included in our communications applications. As can be seen here, our computing applications percentage continues to grow steadily. With a large amount of our LEAP services coming from computing, revenues for our computing application grew by 39%. Meanwhile, automotive, industrial, and consumer all grew by about 14%. Our communications application had the least amount of growth during the quarter, growing 8%. At this time, we continue to believe that our computing application will lead growth into 2027 and 2028. On page eight, you will find our ATM revenue by service type. At the beginning of the year, we believed that our test business, led by rapid expansion of our wafer sort business, would outpace growth of our assembly business.

However, during the year, our assembly business has been showing even stronger than expected growth, especially as it relates to our traditional businesses. The demand for our test services continues to be robust. However, as with much of our business expansion, test capacities are awaiting new facilities. As stated during the previous quarter, we believe that both our assembly and test businesses will grow at similar rates during the year. On page nine, you can see the third quarter results of our EMS business. Our EMS business has historically focused more on products closer to consumer-driven end markets. Many of these products are experiencing a higher component cost environment driven by shortages caused by the rapid AI build out. These extra pass-through costs are increasing both our reported revenues and raw material costs. When netted, this ultimately negatively impacts our EMS business' margin performance.

EMS revenues grew 42% sequentially and 35% annually to TWD 93.5 billion. Sequentially, our EMS business' gross margin decreased by 0.6 percentage points to 8.3%. This change was principally the result of higher pass-through component costs and product mix differences. EMS operating expenses increased by TWD 0.4 billion sequentially and by TWD 0.8 billion annually. Our third quarter EMS operating expense ratio was 5%, declining 1.5 percentage points sequentially and 0.6 percentage points annually. Operating margin came in at 3.3%, improving 0.9 percentage points sequentially and declining 0.4 percentage points annually. The sequential margin improvement is the result of product mix offset by the higher component cost environment. The annual decline is the result of higher component costs. Our EMS third quarter operating profit was TWD 3.1 billion, up TWD 1.5 billion sequentially and up TWD 0.6 billion annually.

On the bottom of the page, you will find a graphical representation of our EMS revenue by application. Generally, the moves in the consumer and communication categories are related to the seasonality of the underlying products we service. Though the communications application percentage looks to have declined, on an absolute dollar basis, our EMS communications application grew quarterly. Annually, the communications application percentage declined primarily due to underlying customer production timing changes. The growth in the computing application is largely driven by business related to AI accelerator products. From a longer-term perspective, we continue to pursue potential synergies between our ATM and EMS businesses to co-develop system-level solutions. By integrating critical EMS competencies with ATM technologies, we have the potential to optimize entire systems end-to-end, applying the same co-engineering disciplines that successfully scaled SiP architecture.

As complexities increase at the die and package level, the system level will need to follow suit. On page 10, you will find key line items from our balance sheet. At the end of the quarter, we had cash equivalents, and current financial assets of TWD 107.9 billion. Our total interest-bearing debt increased by TWD 100.2 billion to TWD 406.5 billion. Total unused credit lines amounted to TWD 457.3 billion. Our EBITDA for the quarter was TWD 58 billion. Our net debt to equity ratio this quarter was 66%. As expressed in previous quarters, the third quarter represents the near-term peak of our net debt to equity ratio. We expect this ratio to come down somewhat in the fourth quarter. On page 11, you will find our equipment capital expenditures relative to our EBITDA.

Machine and equipment capital expenditures for the third quarter in US dollars totaled $2.1 billion, of which $1 billion was used in packaging operations, $1.1 billion in testing operations, $41 million in EMS operations, and $5 million in interconnect materials operations and others. In addition to spending on machinery and equipment, during the quarter, we also spent TWD 1.8 billion on facilities and land. We continue to believe that the growth of the company is highly dependent upon the execution of our various facility teams to deliver new manufacturing space and install equipment in those buildings for scaled-up mass production. We believe the ability to accelerate CapEx at this point to be beneficial to the company, as it allows us to bring in new manufacturing capacity at a time when we are running full.