ASE Technology Holding Co., Ltd.ASXNYSE
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Kenneth Hsiang: Hello. I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our third quarter 2025 earnings release. I am joined today by Joseph Tung, our CFO. Thank you for attending our earnings release today. Please refer to the safe harbor notice on Page 2. All participants consent to having their voices and questions broadcast via participation in this event. If participants do not consent, please do not ask questions or you may leave the session at this time. I would like to remind everyone that the presentation that follows may contain forward-looking statements. These forward-looking statements are subject to a high degree of risk, and our actual results may differ materially. For the purposes of this presentation, dollar figures are generally stated in New Taiwan dollars unless otherwise indicated. As a Taiwan-based company, our financial information is presented in accordance with Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiary using Chinese GAAP. For today's presentation, I will go over the financial results, and Joseph will give the company's guidance. Afterwards, we will be available to take your questions during the Q&A session. With that, let's get started. During the third quarter, both our ATM and EMS businesses outperformed our original sales and profitability expectations. Packaging and testing utilization percentages were in the high 70s. Loading on LEAP and traditional advanced packaging lines were generally full. Our wire bond utilization also showed some improvement. Our test business continues to grow faster than our assembly business, with our chip probe testing leading the way. From a profitability perspective, with our factory loading being better than anticipated, we were able to extract higher operating leverage. However, the company's performance was still impacted significantly by foreign exchange. Despite the NT dollar's near-term decline in value against the U.S. dollar, for much of the third quarter, the NT dollar traded at a relatively appreciated level when compared with the second quarter. During the quarter, the NT dollar moved from an average exchange rate of TWD 31.2 to TWD 29.7 per U.S. dollar, strengthening by 4.6%. Simplistically, we estimate that for every percentage point appreciation of the NT dollar relative to the U.S. dollar, we see a corresponding 0.3 percentage point negative impact to margins at the holding company level and a 0.45 percentage point negative impact to margins at the ATM level. Using this simplified approach, foreign exchange had negative sequential impacts to our holding company and ATM margins of 1.4 and 2.1 percentage points, respectively. And annually, negative impacts to our holding company and ATM margins of 2.4 and 3.6 percentage points, respectively. Heading into the fourth quarter, we expect a more stable NT dollar environment with an average exchange rate of TWD 30.4 per U.S. dollar. Please turn to Page 3, where you will find our third quarter consolidated results. For the third quarter, we recorded fully diluted EPS of TWD 2.41 and basic EPS of TWD 2.50. Consolidated net revenues were TWD 168.6 billion, representing an increase of 12% sequentially and 5% year-over-year. On a U.S. dollar basis, our sales increased by 17% sequentially and 14% year-over-year. We had a gross profit of TWD 28.9 billion, with a gross margin of 17.1%. Our gross margin improved by 0.1 percentage points sequentially and 0.6 percentage points year-over-year. The sequential improvement in margin is primarily due to higher loading and our ATM business, offset in large part by foreign exchange. The annual improvement is primarily due to higher utilization and beneficial product mix, offset by foreign exchange. We estimate that foreign exchange had a negative 1.4 and 2.4 percentage point impact to our gross margins on a sequential and annual basis, respectively. Our operating expenses increased by TWD 0.2 billion sequentially and TWD 0.7 billion annually to TWD 15.7 billion. The sequential and annual increases in operating expenses are primarily due to higher R&D costs. Our operating expense percentage declined 1 percentage point sequentially to 9.3% and was flat annually. Operating profit was TWD 13.2 billion, up TWD 3 billion sequentially and TWD 1.7 billion year-over-year. Operating margin was 7.8%, up 1 percentage point sequentially and up 0.6 percentage points year-over-year. During the quarter, we had a net nonoperating gain of TWD 0.8 billion. Our nonoperating gain for the quarter primarily consists of net foreign exchange hedging activities, offset in part by net interest expense of TWD 1.4 billion. Tax expense for the quarter was TWD 2.6 billion. Our effective tax rate for the quarter was 19%. Net income for the quarter was TWD 10.9 billion, representing an increase of TWD 3.4 billion sequentially and TWD 1.2 billion annually. On the bottom of the page, we provide key P&L line items without the inclusion of PPA-related expenses. Consolidated gross profit, excluding PPA expenses, would be TWD 29.4 billion, with a 17.4% gross margin. Operating profit would be TWD 14 billion, with an operating margin of 8.3%. Net profit would be TWD 11.6 billion, with a net margin of 6.9%. Basic EPS, excluding PPA expenses, would be TWD 2.68. On Page 4 is a graphical presentation of our consolidated quarterly financial performance. 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 third quarter of 2025, we had record revenues for our ATM business of TWD 100.3 billion, up TWD 7.7 billion from the previous quarter and up TWD 14.5 billion from the same period last year. This represents an increase of 8% sequentially and a 17% increase annually. On a U.S. dollar basis, our ATM revenues were up 13% sequentially and 27% annually. Our test businesses growth as a whole continues to outpace our assembly business as a whole, growing 11% sequentially and 30% annually. Gross profit for our ATM business was TWD 22.7 billion, up TWD 2.5 billion sequentially and up TWD 2.9 billion year-over-year. Gross profit margin for our ATM business was 22.6%, up 0.7 percentage points sequentially and down 0.5 percentage points year-over-year. The sequential gross margin increase was due to equipment utilization rate improvement, offset in large part by NT dollar appreciation. The annual gross margin decline was primarily due to NT dollar appreciation, and to a much lesser extent, higher electricity rates, offset in large part by higher loading. On a constant currency basis, relative to our first quarter, we estimate our gross margin would be roughly 4.2 percentage points higher during the quarter. This difference would have put our adjusted third quarter gross margin of 26.8% in the middle of our previously stated structural ATM gross margin range. During the third quarter, operating expenses were TWD 11.8 billion, up TWD 0.4 billion sequentially and TWD 1.2 billion year-over-year. The sequential increase in operating expenses was primarily related to higher overall R&D costs, including labor, equipment and factory supplies. The annual increase is primarily the result of R&D ramp-up and labor-related expenses. Our operating expense percentage for the quarter was 11.8%, decreasing 0.5 percentage points sequentially and down 0.5 percentage points annually. The decline was primarily the result of higher revenues during the quarter. As we previously have mentioned, we believe our spending in R&D, on an absolute dollar level, will continue to increase. But as the associated LEAP revenue syncs up with the R&D spending, our operating expense percentage should continue to moderate. During the third quarter, operating profit was TWD 10.9 billion, representing a sequential increase of TWD 2.1 billion and an annual increase of TWD 1.7 billion. Operating margin was 10.8%, up 1.3 percentage points sequentially and up 0.1 percentage points year-over-year. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 23.1% and an operating profit margin would be 11.6%. On Page 6, you'll find a graphical representation of our ATM P&L. Please note the generally upsloping revenue bars. Using the first quarter's foreign exchange rate, we estimate the gross margin percentages for the second and third quarters would be 24.1% and 26.8%. On Page 7 is our ATM revenue by the 3C market segments. You can see here that the Computing segment continues to become a relatively larger component of our business. This was largely driven by a higher percentage of LEAP based revenues. On Page 8, you will find our ATM revenue by service type. Here, you can see the 2 service types containing LEAP services, bump and flip-chip and testing. Both are becoming a larger component of our overall business. We expect continued momentum in these areas heading into 2026. On Page 9, you can see the third quarter results of our EMS business. The annual seasonality of our EMS business has been inconsistent over the last few years due to differing device ramp-up schedules. As such, we believe the annual comparability of our quarterly results may be impacted. During the quarter, EMS revenues were TWD 69 billion, increasing 17% sequentially, while down 8% year-over-year. The sequential increase in annual decline were both primarily the result of differing underlying device seasonality. Sequentially, our EMS business's gross margin declined 0.2 percentage points to 9.2%. This slight change was principally the result of product mix. Operating expenses within our EMS business decreased by TWD 0.2 billion sequentially and declined TWD 0.5 billion annually. The sequential decline is primarily the result of lower compensation and professional fees. While on an annual basis, the decline is primarily related to lower compensation expenses. Our third quarter EMS operating expense percentage of 5.6% was down 1.3 percentage points sequentially, while annually, our EMS operating expense percentage declined slightly by 0.1 percentage points on lower spending and revenues. Operating margin for the third quarter was 3.7%, up 1.1 percentage points sequentially and up 0.4 percentage points year-over-year. The improvements are primarily the results of higher loading rate and some one-time inventory-related adjustments. Our EMS third quarter operating profit was TWD 2.5 billion, up TWD 1 billion sequentially and TWD 0.1 billion annually. On the bottom of the page, you will find a graphical representation of our EMS revenue by application. The third quarter application mix shows the seasonal ramp-up of our customers' consumer products, with our consumer segment growing while all other segments declining in application share. We believe, at a strategic level, our EMS business faces similar technological manufacturing trends as our ATM business does. Trends such as power delivery and thermal control are core themes at the forefront in both our ATM and EMS businesses. Having the ability to address customer challenges at both the ATM and EMS level allows us to provide a broader set of technical solutions to our customers. On Page 10, you will find key line items from our balance sheet. At the end of the year, we had cash, cash equivalents and current financial assets of TWD 83.4 billion. Our total interest-bearing debt increased by TWD 55.6 billion to TWD 295.7 billion. This increase was primarily due to the completion of a TWD 50 billion syndicated loan to fund our CapEx. Total unused credit lines amounted to TWD 344.7 billion. Our EBITDA for the quarter was TWD 32.6 billion. Our net debt to equity this quarter was 63%. On Page 11, you will find our equipment capital expenditures relative to our EBITDA. Machinery and equipment capital expenditures for the third quarter in U.S. dollars totaled $779 million, of which $534 million was used in packaging operations, $199 million in testing operations, $40 million in EMS operations and $6 million in interconnect material operations and others. In addition to spending on machinery and equipment, during the quarter, we also spent $716 million on facilities, which includes land and buildings. The overall environment appears to be strengthening. For us, the upward seasonality during the third quarter has been the strongest since the COVID timeframe. From a customer sentiment perspective, the pendulum appears to be swinging from booking capacity on an as-needed basis to prebooking capacities and making sure raw materials are available. As a whole, our customers are now looking for more assurance and security in their supply chains. For the quarter, LEAP and test services continue to lead growth for the company. LEAP continues to be driven by AI. Although we are seeing more customers target their products for use within the AI super cycle, many new products are inferring AI capability or AI readiness. Products are expanding new and smart AI capabilities and features. Newer generations of products are becoming more robust electronically, while allowing streamlined access to certain aspects of GenAI capability, such as video and document creation. The key is whether the end consumers are enticed to integrate new generations of products into their lives. And to that end, AI does appear to be upping the basic standards of quality in various contexts, not just limited to the school, office and social media. And there does appear to be the not so subtle ominous angle of you need AI to be competitive. This is bringing an intelligence and capabilities arms race to everyone's front door. In such a context, understanding the seemingly insatiable need for more capable chips and hardware seems fairly straightforward. From the packaging and test perspective, the higher the AI computational capability, the stronger the chips packaging and testing needs are. Critical improvement paths in power delivery, processing bandwidth and thermal performance will continue to drive our LEAP services. With that, I'll hand the presentation over to Joseph to present the company's outlook.
Joseph Tung: Thank you, Ken. Let me give you the fourth quarter guidance. Based on our current business outlook and the exchange rate assumption of USD 1 to TWD 30.4 versus in third quarter, we have TWD 29.7 exchange rate. Management projects overall performance for the fourth quarter of 2025 to be as follows. On a consolidated level, in NT dollar terms, our consolidated fourth quarter revenue should grow by 1% to 2% quarter-over-quarter. Our consolidated fourth quarter gross margin should increase by 70 to 100 basis points quarter-over-quarter. Our consolidated fourth quarter operating margin should increase by 70 to 100 basis points quarter-over-quarter. For ATM, in NT dollar terms, our ATM fourth quarter revenue should grow by 3% to 5% quarter-over-quarter. Our ATM fourth quarter gross margin should increase by 100 to 150 basis points quarter-over-quarter. For EMS, in NT dollar terms, our EMS fourth quarter revenue should stay flat or decline slightly quarter-over-quarter. Our EMS fourth quarter operating margin should be similar to fourth quarter 2024 level. With that, let me also give you some color for the full year. For ATM, we're seeing better-than-expected momentum of mainstream business, given the continuing recovery of the general market. While our leading-edge revenue, we are on track to reach the USD 1.6 billion mark as planned. Altogether, we expect ATM 2025 full year revenue to exceed our target and grow over 20% year-over-year in U.S. dollar terms. As for machinery CapEx, we expect to further increase our full year CapEx by another few hundred million U.S. dollars to meet customers' requests and to support continuing business momentum into 2026. The increase is largely for wafer probing for both AI and non-AI chips as well as for general capacity ramp and some new initiatives for year 2026. With that, let's give it back to Ken to open the floor for questions.
Kenneth Hsiang: Thank you, Joseph. During the Q&A session that follows, we would appreciate if questions can be kept concise and asked one at a time. I will be receiving each question and repeating the asked question to Joseph. Again, we'll be limiting the number of questions asked to 2 questions per turn, but asked one at a time.
Operator: The first question is from Gokul Hariharan of JPMorgan. Gokul?
Gokul Hariharan: First question, obviously, on LEAP, could you give us a little bit more color about how the progress has been on LEAP revenues this year? I think you had the TWD 1.6 billion guidance or additional TWD 1 billion guidance. What are we tracking to compare to that guidance now? And any indications for what it could do next year? I think based on our own math, it looks like it could easily double next year. And you're also raising capacity and CapEx pretty much every quarter. And also, on LEAP, what is the margin contribution from LEAP-related business? Is it already accretive or it will turn accretive once you reach a certain kind of revenue run rate, and any indications on that? That's my first question.
Joseph Tung: Gokul, you are looking for revenue progress and generally kind of what you're thinking for this year.
Gokul Hariharan: Yes.
Joseph Tung: Okay. Like I said, the -- we are on track in reaching our TWD 1.6 billion mark this year. Everything is progressing well. I think we have shown very strong momentum in the AI and HPC related part of the business. In terms of the revenue mix, I think, because of the geopolitical uncertainties, in terms of packaging, we are a little bit short from our original target, but that was sufficiently replenished by our more than expected growth in our test business. So we are very, very confident that we will reach our TWD 1.6 billion mark for this year. And going forward into 2026, we see -- we continue to see very strong momentum. And we are very, very confident that we will gain another -- over TWD 1 billion kind of revenue increase for 2026 in this space. CapEx-wise, we will continue to make heavy investments in our leading edge, I think, to support the strong momentum that we are seeing today. And I think AI or HPC is really -- the momentum is here to stay. We're not going to be shy on making the necessary investment to not just secure our dominant position in this space, also to expand that dominance against our competitors and to fully support our customers' needs. In terms of margin and return, I think the -- as steady state, as we mentioned before, the LEAP would definitely be both margin as well as return accretive. And we are quickly reaching that point at this point.
Gokul Hariharan: Okay. That's very clear. Maybe one other question. Can you talk a little bit about pricing? I think, Ken mentioned in the opening remarks that you're pretty much running full on flip chip and bumping. You're pretty much running full on LEAP. I think last time around, I think Dr. Wu had discussed about potential price negotiations. Anything that you can report on what are we seeing on pricing for your overall offering? Should we expect that pricing should go up? I think OSAT pricing doesn't usually go up that much, but just wanted to understand how we should think about pricing going into next year.
Kenneth Hsiang: Gokul, you're looking for commentary on overall just pricing environment for us for this year and next year.
Gokul Hariharan: Yes. And maybe also specifically on LEAP as well as your flip chip and bumping kind of advance -- the mainstream advanced packaging business as well because the customer set is slightly different. LEAP, you're kind of largely partnering with the large foundry.
Joseph Tung: Well, without giving -- without getting into specific, I think, in general, I think our pricing remains to be resilient. And I think it's very sensitive to talk about pricing. But as a whole, I think we will continue to set the -- our pricing, the most suitable pricing structure based on the current situation. I think there are a lot of moving parts, and there are a lot of uncertainties in front of us. But in general, I think we will continue to make our pricing a very, very resilient level.
Gokul Hariharan: Maybe if I kind of tweak it a little bit, Joseph, like what is customer feedback? I think I'm sure that everybody is talking about this. We hear that from your fabless customers as well. But I just wanted to understand like what is customer feedback to pricing even in -- I wanted to think about a little bit more on the mainstream stuff, like flip-chip CSP or flip-chip BGA, where there is no super cycle of growth. Even in those areas, are you able to have some like value app programs coming through?
Kenneth Hsiang: Are you asking for expansion on the original pricing question there?
Gokul Hariharan: Yes, sir. Maybe talk a little bit more on the mainstream advanced packaging as well, yes.
Joseph Tung: For mainstream, I think we are seeing the continuing recovery of the general market. And therefore, I think pricing wise, I think, it's right now at a very stable level.
Operator: Next question is from Charlie Chan of Morgan Stanley. Charlie?
Charlie Chan: Yes. I just unmuted myself. First of all, congratulations for very good results and outlook. My first question is really on sort of supply chain related discussion. For example, what's the update plan for you to do the U.S. operation? Because your major customers -- major foundry partners are all very active in the U.S., and there seems to be -- your competitor, Amkor, in that presence. So one is that your updated plan for the U.S. operation to enjoy that ASME kind of growth. And also, we are very concerned about the sort of T-Glass shortage. I think a lot of customers are going through with your fab to see if they can secure more substrates, right? So I'm not sure if they would be kind of a gating factor for your next year's growth. So this is the first question.
Kenneth Hsiang: That's -- Charlie, that sounds like 2 questions. So let's start with question number one, the U.S. building out perspective.
Joseph Tung: Okay. Thank you for your question, and thanks for coming to my concert.
Charlie Chan: Yes, it was a great one.
Joseph Tung: U.S., we don't have anything new to report except that -- let me reiterate what we mentioned last time that we were invited by our customers to look at the investment opportunities in the U.S. We are currently still engaging in discussion with our customers and we're evaluating different opportunities, but no decision is made at this point. But whatever decision we will eventually make, it will have to make economical sense for us. In terms of the competition, I think Amkor has its own mind. So I think I'm not going to answer for Amkor. But overall, we will continue to be watchful on the overall competition landscape and see how we can better position ourselves in terms of meeting this competition.
Kenneth Hsiang: So Charlie, do you want your second question to be about your previous question on T-Glass and such?
Charlie Chan: Yes, maybe we can save it for maybe second round. But my major second question is really the final test completion. So I know this one is a little bit controversial, but I wanted to get your updates or confidence level about your final test market share at major customers' next-generation GPU. Yes, and by the way, congratulations for a very strong share price. So I think your efforts were recognized by foreign shareholders. Yes, so second question is really about your final test business updates.
Kenneth Hsiang: So you're looking for a more comprehensive explanation or update on our final test market share gains.
Charlie Chan: Yes. Because your Taiwanese competitor seems to be very aggressive in the cashless purchase and capacity expansion as well. So I hope both can win. Yes, so I just wanted to get a little bit more color about your realistic assumption about your final test market share.
Joseph Tung: I think, as we mentioned, we have been aggressive, and we have been pretty successful in terms of expanding our test business. I think for this year, our test business growth is going to be twice the packaging revenue growth. And we will continue to make large investment into our test capacity. But our resources are also limited. We don't have unlimited resources to try to cover everything in the market. So right now, the main focus for our investment in test is really on the wafer probing. And I think we will continue to on this effort for the time to come. And in terms of final test, I think we are making the investment -- necessary investment at this point to build up the capacity. And we're expecting to have meaningful revenue being generated in the later part of next year when we start serving the next-generation AI chips.
Operator: Next question is from Bruce Lu of Goldman Sachs.
Zheng Lu: Can you hear me?
Kenneth Hsiang: Yes.
Zheng Lu: Okay. My question is regarding to your revenue split for your incremental TWD 1 billion revenue in 2026 for your AI-related revenue. We understand that the revenue contribution is more geared to testing for this year. Are we able to see incremental more revenue contribution from packaging? And to be more specific, can we get more like packaging-related business from both outsourcing as well as your own packaging or AI packaging business?
Kenneth Hsiang: Bruce, you're asking for the incremental revenue for this year, right?
Zheng Lu: And next year, your -- because Joseph just said that we will see another additional TWD 1 billion revenue for next year, right?
Kenneth Hsiang: He may have said that. So yes, okay.
Joseph Tung: For the TWD 1 billion increase of our leading-edge revenue, I think the breakdown is TWD 650 million from packaging and about TWD 350 million from test for this year. For next year, well, we'll see how things go. I think the -- we'll kind of give you a ballpark number saying that we will be having maybe at least TWD 1 billion revenue growth. But in terms of the exact composition, I think that remains to be seen, and we'll base on the current situation to allocate our resources and to grow both of the business, but without -- right now, we don't have a set mind on what kind of breakdown it will be. But what I can say is that test seems to be -- continue to have stronger momentum at this point.
Zheng Lu: I see. So the testing will grow faster than packaging next year within this TWD 1 billion?
Joseph Tung: It has been growing faster than the packaging. But come next year when the new generation product comes on stream, the competition may have some changes. But what I'm saying is that we are seeing -- we're continuing to see strong momentum in test at this point.
Zheng Lu: I see. Okay. The second question is for -- again, I want to drill down a little bit for the U.S. plan. I mean, TSMC has utilized asset plan to build some CoW process, and Amkor committed to build some substrate process. So it seems to me that they have -- your customer, your competitor seems to have at least one supply chain in U.S., which probably -- what's the strategy for ASE at the current stage? Obviously, you probably don't need a 2 supply chain in United States, right? So the potential -- losing some market share for TSMC Automotive business is definitely a threat for our future business, right? So can we elaborate more about like what's the strategy from ASE?
Kenneth Hsiang: Bruce, you're looking for a reiteration on the U.S. plan on our behalf.
Zheng Lu: Yes. .
Joseph Tung: Well, we don't fight for market share just for market share's sake. We fight for the market share that makes sense or make profit for us. If we don't see return, if we don't see at least acceptable margin, then that's not the part of the business that we want to pursue. I think the -- like I said, regardless if it's U.S. or in any part of the world, for us to make an investment, it has to make economical sense. So that's -- if Amkor feels that with that kind of investment they can make a profit out of it, fine. But right now, we're not sure on that.
Zheng Lu: So there's no way to pass on the incremental cost to the customer in order to make the investment like profitable?
Joseph Tung: Well, it's not just about pricing, it's about the overall infrastructure, which -- that can support that kind of a business at a reasonable cost structure. And even with some premium pricing, whether that cost -- that can cover the costs associated with it remains to be seen. Right now, I think that's a very tall task actually.
Operator: Next question is from Laura Chen of Citigroup.
Chia Yi Chen: Can you hear me?
Operator: Yes.
Chia Yi Chen: I just want to consult, Joseph, your view on the gross margin outlook, and also, congratulations for the great result. Do you think we see quite full utilization rate like Ken just mentioned? At the same time, there is a stronger testing business. I recall, Joseph, you mentioned before that in the longer term, if the utilization rate get back to 80% plus, the gross margin could go back to high 20s. So just wondering how is the dynamic now. Are you also -- and also, you are increasing the CapEx for the future demand. So just wondering how should we think about the gross margin outlook into next year or longer term?
Kenneth Hsiang: Laura, are you looking for commentary on the relationship between utilization and our margin structure?
Chia Yi Chen: Yes. And also -- yes, and at the same time, we are also increasing CapEx. I believe that there's also some increasing in depreciation costs. So just wondering the dynamic right now, how should we think about the gross margin outlook?
Joseph Tung: Well, if we exclude the foreign exchange impact, I think we have already come back to our structural margin. Like Ken mentioned in third quarter, if we were on the same ForEx level as quarter 1, our margin should be around 26.8%. And going into fourth quarter, there will be further margin improvement. And again, at the same currency level, we should be over 27%. So what we mentioned before, once our utilization reaches 70% and above, then we should go back to our structural margin range. But unfortunately, the foreign exchange does have a pretty big impact on our overall margin. But having said that, I think we will continue to -- I think right now, the foreign exchange seems to be stabilizing now. We will start our margin effort from this level. And we are very confident that with the continuing expansion of our leading-edge business, we're confident that we will continue to see -- as the capacity being ramped up, we are confident that we will continue to see margin improvement. And right now, we are very confident that in 2026, for the whole year, we should be -- we should have a gross profit margin for ATM at the structural margin range.
Chia Yi Chen: We are looking for that. My second question is that -- about the leading-edge advanced packaging. ASE also developed your own focus technologies. Just wondering that how is the current progress in the customers' engagement. It's not just focused on the outflow opportunities on substrates. Also, how does ASE's -- your own focus progress?
Kenneth Hsiang: Laura, you're looking for an update on our internal advanced packaging solutions, just as a focus.
Chia Yi Chen: Yes. Right.
Joseph Tung: Well, obviously, in terms of the overall capacity, I think for CoWoS or CoWoS like 2.5D, I think our foundry partner as well as ourselves is still scrambling to try to make the necessary investment for our capacity to catch up with the demand. And so given the tightness, I think, obviously, there will be customers -- other customers that would like to have other alternatives or solutions for -- to meet their demand, and that creates a very good business opportunity for us to try to sell our own solutions. And on that, we are making the necessary investment at this point. And we do have engagement with multiple customers. And -- but these things take time. I think the -- what we're expecting is that by latter part of next year, we will start to see meaningful full process revenue coming in serving multiple customers.
Chia Yi Chen: Okay. So does this also included in your at least TWD 1 billion revenue increase into next year?
Joseph Tung: Yes.
Operator: Next question is from Sunny of UBS.
Kenneth Hsiang: Sunny, are you there?
Sunny Lin: Yes. Could you hear me okay?
Operator: Yes.
Sunny Lin: So congrats on the very good results and guidance. Glad to see LEAP business ramping up and gaining momentum going to 2026. So maybe a question on mainstream. Could you help us understand the recovery ahead? And so when you guide IC ATM sales to grow 3% to 5% sequentially, how is the growth by mainstream and LEAP? And how should we think about the cycle for mainstream going to 2026? Do you see the current utilization rate being a good base for critical recovery going to 2026?
Kenneth Hsiang: Sunny, you're looking for basically our more trailing edge capacity or trailing edge plus traditional advanced packaging capacity.
Sunny Lin: So mostly on the mainstream, so wire bonding, die bonding?
Kenneth Hsiang: Okay. You're looking for commentary on more traditional packaging and then -- for this year and into next year?
Sunny Lin: Yes. How should we think about the cycle from here?
Joseph Tung: Well, as I mentioned, the mainstream business is -- we're seeing better-than-expected performances. And I think that's a result of the general market recovery. And also, in some part of the -- in different sectors, we are also seeing ourselves gaining shares, particularly -- if we look at different sectors, I think communication and -- communications, and of course, PC or computing is recovering better than the other, like automotive and industrial. But nonetheless, I think the recovery is very obvious at this point. Maybe in terms of automotive, it's kind of moving in a slower pace than the other 3 sectors. But on that, we actually posted a very, very good growth in our automotive business. I think for ATM this year, we're going to see over 20% growth in this part of the business. I think that's largely as a result of we continuing getting -- gaining market share in this space through our factory automation. In general, I think, in the beginning of the year, we were saying that we will have our leading-edge giving us 10% growth and mid- to high single-digit growth coming from the mainstream. Obviously, as I mentioned in the beginning of the session, I told everybody that we're going to exceed our revenue growth target to over 20%. So that means the mainstream performance is much better than what we were expecting in the beginning of the year. And we're not seeing anything negative at this point in terms of mainstream business. So without giving you any further guidance for next year, but we do think that we are in a very healthy space at this point for both in the general market, and we're still seeing very strong momentum in the leading edge as well.
Sunny Lin: Maybe a very quick follow-up. So for Q4, is the utilization rate for mainstream continuing to recover a bit?
Joseph Tung: Yes. I think in the -- like what Ken just mentioned, I think our bumping and flip chip are pretty full. Wire bonding is improving, although it's not entirely full, but it is steadily improving.
Sunny Lin: Got it. My second question is on gross margin. So from here, one, with the improving measuring business, and then secondly, accelerating ramp probably for LEAP going to 2026 and a stabilizing FX, should we assume for IC ATM, the gross margin recovery should accelerate in the coming few quarters?
Kenneth Hsiang: Sunny, you're looking for an update in terms of forward-looking commentary regarding our gross margin structure.
Sunny Lin: Yes, especially on the pace of the improvement.
Joseph Tung: Well, we're not in a perfect world, right? There's still a lot of moving parts and uncertainties in front of us, which includes foreign exchange movements. So yes, I think the general trend is very certain because as we continue to expand rapidly in our leading-edge, which is margin accretive, so that gives us a very good pace for our margin improvement going forward. But in terms of the pace, I think there's still -- I think right now, it's still too early to give you a clear path of what kind of pace we're going to have in terms of our margin expansion.
Sunny Lin: Got it. Also, on LEAP, is there a margin difference between outsourcing and full-process CoWoS, meaning if you start to ramp more full process from second half of next year, will that further boost your gross margin for IC ATM?
Joseph Tung: I think, in terms of full process, we're still at the early stage, so it's kind of difficult to make any meaningful comparison at this point. I think both needs to be at really a more stable level for us to make the comparison. I think theoretically, regardless it's our own full process or outsourced, leading edge does give us margin accretion.
Operator: Our next question is from Felix Pan of KGI.
Junhong Pan: Can you, guys, hear me okay?
Operator: Yes.
Junhong Pan: Yes. So my first question regarding to -- I have seen your foundry partner incremental CP test outsourcing demand. Just correct me if I was wrong, but I found it very difficult to quantify how big for the TAM is. Maybe for you, it's really hard to comment on the same, but maybe on the TAM side or even the percentage of the BOM, can you just give us some sense how can we quantify, how big for the CP test demand? Just any color will be grateful. That's my first question.
Kenneth Hsiang: Felix, I think I'll take this one. In terms of the overall TAM, for something like that, I would say that that's not quantifiable, at least from our perspective. This is something that is probably known by our foundry partners. And you may want to address the amount of work that they want to outsource directly to them. We don't quantify that at this point.
Junhong Pan: Okay. Yes. So my second question is, I think during the TSMC's latest earnings call, I think C.C. emphasized customers of customers engagement. We do see the incremental engagement. From your perspective, do you see the similar pattern, the engagement from customer to customer as well? Or -- I think there's a lot of thing happening this month, so I just want to -- if any color you can share, is any business model change or you have seen incremental customers' customer engagement as a TSMC as well? Yes.
Kenneth Hsiang: Felix, you're asking for how we look at our overall market and whether we actually look into our customers' customers? Similar to...
Junhong Pan: Actually, my question is there's any customer -- your customers' customer jump your customer to have the engagement with you guys, like to secure some critical capacity or something like that.
Kenneth Hsiang: I don't know if we can talk about that. Joseph, if you want to take a step?
Joseph Tung: Yes. I think we have a very, very close communication with both our direct customers as well as our foundry partners. Those dialogues are being conducted on a routine basis so that we can better prepare ourselves in terms of our capacity and also our technology roadmap. So in this regard, we do talk to them. And I think our information source is not just coming from our customer, but our customers will definitely keep us informed of what they're expecting from their own customers and how the overall market will shape up. So it's a constant dialogue among the industry players to make sure that the demand is sufficiently being supported by the supply. That's an ongoing process that has been going on for them, maybe forever.
Operator: [Operator Instructions] Next question is from Gokul Hariharan of JPMorgan.
Gokul Hariharan: First one, could you help us understand what is the progress on the full stack focus or CoWoS like kind of processes going into next year? When do we expect this to start becoming more meaningful contributor to revenues, to the LEAP total revenues? And are the applications still similar in terms of like AI accelerator? Or are the applications becoming more diverse in terms of networking or server CPU and other kind of stuff as well?
Kenneth Hsiang: Gokul, you're looking for an update on our -- more on our full process type services, is that correct?
Joseph Tung: I talked about this earlier. I think we are continuing our investment in full process, and we are currently engaging with multiple customers to plan for the capacity, and we expect that come later part of next year, we should start seeing some meaningful revenue coming from full process rather than just only from outsourced part of the business. In terms of the application, I think there will be AI accelerators. There will be other adoptions in different chips requiring such capability. But at this point, I think it's a little bit too early to say the exact revenue -- scale of the revenue or the composition of that -- of such revenue. We just have to continue to work very closely with our customers, multiple customers to better understand what their demands will be, and we'll prep ourselves for the necessary capacity for them.
Gokul Hariharan: Got it. Maybe a slightly related question is on the CapEx. I think we are probably finishing this year above TWD 3 billion, well above TWD 3 billion in terms of machinery CapEx. How do we think about this investment cycle? Are we still going to be in this, like increased CapEx, likely to continue to increase CapEx over the next couple of years given the demand outlook that you're seeing from your customers and your customers' customers?
Kenneth Hsiang: Gokul, you're looking for an update on our overall CapEx view. And also in the frame of the leading-edge advanced packaging, how it works?
Gokul Hariharan: That's right. Yes.
Joseph Tung: Like I said, we stay very close with our foundry partner, and they -- our foundry partner being the dominant player, they cover all the who's and who's in the -- whoever has any demand, they will be the one to supply. So they really have a very, very close connection with their customers and their customers' customers. Since we have a very close communication with them, so whatever information that they're gathering, we do have the benefit of sharing some of that information to better prepare ourselves for capacity expansion. And as I said earlier, again, we're not going to be shy of making the necessary investment for -- particularly for the leading edge, so as to secure and also to expand our dominance in this space. And as such, we believe, at least for next year, we will continue to see pretty heavy investments in our capacity as well as technology in this -- in the leading edge.
Gokul Hariharan: So is it fair to say next year machinery CapEx is likely to be still higher than this year?
Joseph Tung: We will give you better guidance once we complete our budget cycle, which is starting now. And we will reserve this question to next quarter.
Operator: Next question is from Charlie Chan of Morgan Stanley.
Charlie Chan: Yes, that question is about T-Glass resulting on the shortage of substrates. I'm not sure if you've heard, there would be kind of a risk factor for ASE Group to grow your revenue next year because we start to hear some customers' hard time to get the substrate sourced. And how would the ASE to help our customers to get a more sufficient supply?
Kenneth Hsiang: Your -- Charlie, your second -- or your third question is regarding overall T-Glass supply and how it impacts our -- whether it would impact our overall supply chain going forward?
Charlie Chan: Yes, yes. And how would the ASE manage or help your customers on this period of shortage?
Joseph Tung: Like I said, there's a lot of uncertainties that's ahead of us, so -- like running any other business, there still is going to be ups and downs, there's going to be changes. But right now, I think whatever we're seeing today, maybe some of the materials or -- don't ask me what T-Glass is, but some of the materials may have a longer lead time. But at this time, we haven't seen any real disruptions on our service to our customers at this point. I think if anything else, being the dominant player, if there's any problem, we're the ones that our customers come to, and we certainly have the best leverage in trying to secure the needed materials or variable components that will be needed for the -- for serving them.
Charlie Chan: Got you. So I would assume, for those materials or substrate, if there will be any cost or price increase, ASE would fully pass-through to customers? Is it right or you would charge some markup because those materials are getting harder to get?
Joseph Tung: We will find the most suitable pricing for current situation.
Operator: Next question is from Bruce Lu of Goldman Sachs.
Zheng Lu: I think I asked this question last quarter, but I want to ask it again. What is the CapEx to revenue nowadays? Or is there any changes in terms of like how long does it take to see the revenue after you invest your CapEx? The reason I ask this is that you invest for TWD 1.8 billion CapEx last year and 3-point something billion this year, right? But you generate additional TWD 1 billion of revenue this year, but you also can only generate additional TWD 1 billion next year. Theoretically, should be able to generate a bit more than $1 billion next year, right? Is there any changes in terms of CapEx to revenue or trying to generate revenue?
Kenneth Hsiang: Bruce, you're looking for the magic solution in terms of CapEx to revenue, right?
Zheng Lu: Which Joseph used to give us.
Joseph Tung: Well, first of all, the TWD 3 million plus CapEx is not entirely for leading-edge. I think -- for this year, I think 55% of that is for leading edge. And bear in mind that that's just a number. We don't make capacity expansion overnight. Equipment needs to be delivered. You don't have this equipment all delivered at once, right? Things move progressively. So just simple math, if it's TWD 1.8 billion worth of CapEx, that means now, on average, TWD 900 million worth of new capacity being put in. So this year, if it's a TWD 1 billion increase, that ratio seems to be still on track. Of course, the other half of the investment will start to generate revenue, but there is always a time gap between when the machineries -- or the CapEx being spent and when the revenue is being generated. I'm not saying that. I'm not giving you -- I'm not saying that we can only generate TWD 1 billion worth of new revenue coming in. I'm just saying that at this point, we are very, very confident that we can have at least TWD 1 billion worth leading edge revenue -- new revenue coming in next year. For the majority of the leading edge at this point, we're still in the earlier stage at this point, and we're still gathering data to come up with the more meaningful investment intensity on this kind of investment. But from the limited data that we've gathered so far, I think the traditional TWD 1 of investment creating TWD 1 of annual revenue seems still be the case for the main businesses that we are entering now, which is OS and test.
Zheng Lu: So one to one. That's the major number. It still works.
Joseph Tung: Still applies. But like I said, we are still in the process of gathering more data. And bear in mind that the -- our capacity is not in full ramp at this point. So it's going to take a little bit more time.
Zheng Lu: My plan is simple, right? 45% of your TWD 3-point-something billion CapEx is USD 2 billion, right? I mean, you just mentioned that TWD 3.8-something billion, 55% is for matured technology. Let's say, 45% -- let's say, 50% of your TWD 3-point-something billion CapEx this year, that's close to TWD 2 billion for next year in terms of incremental new revenue from AI. That's how the math works.
Kenneth Hsiang: No, that's not how the math works. We don't live on math. We live in the real world.
Zheng Lu: Well, I only know math.
Kenneth Hsiang: Well, if you're calling me conservative, well, call me conservative.
Operator: There's no question on the floor.
Kenneth Hsiang: Okay. I guess, time has pretty much run out. I would like to thank everyone for participating in the call. I look forward to seeing you all, either during the quarter or at the next earnings release.
Joseph Tung: Okay. We are having a good run, and we'll continue to have a good run going into next year. And we're confident that we will continue to deliver good performances and good numbers for you. We'll see you next quarter. Thank you very much.