ASE Technology Holding Co (NYSE:ASX) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.
Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.
View the webcast at https://zoom.us/webinar/register/WN_sTYQk8hGQ56BOt8Ob9nnng#/registration
Summary
ASE Technology Holding Co reported a 24% year-on-year revenue growth for the first half of 2026, with APM revenues up 35%, and expects to maintain this momentum into the second half.
The company is heavily investing in R&D, human capital, and infrastructure to support multi-year growth, with a focus on AI applications and hardware infrastructure as key strategic priorities.
For Q2 2026, consolidated net revenues increased by 27% year over year, with gross profit reaching $40.2 billion and a gross margin of 21%. Net income rose 180% year over year.
The company anticipates Q3 2026 consolidated revenue growth of 21% to 22% quarter over quarter, with an expected gross margin of 20.5% to 21.5%.
ASE Technology Holding Co is expanding its U.S. operations and collaborating with partners like Intel on EMIB technology, emphasizing its non-conflict position in the ecosystem.
The company is addressing capacity constraints by investing in new facilities and equipment, with an additional $2 billion in capex for 2026.
LEAP services revenue is projected to double in 2027 as assembly and test services grow in parallel, driven by strong demand across various applications.
Full Transcript
Kenneth Hsiang, Head of Investor Relations
Hello, I am Ken Shung, the head of Investor Relations at ASE Technology Holding Co. Welcome to our second quarter 2026 earnings release. I am joined today by Dr. Tien Wu, our COO, and Joseph Tung, our CFO. Thank you for joining us today. Please refer to our Safe Harbor notice on page 2. 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, Dr. Tien Wu will begin with a mid-year business update. I will then walk through the Q2 results and Joseph will close with our third quarter outlook. With that, let me hand the presentation over to Dr. Tien Wu.
Tien Wu, CEO of ASE and USI
Good afternoon. I would like to give you the first half 2026 recap and also the full year outlook. For my presentation, it will be all in US dollars. Consolidated revenue grew 24% year on year in the first half of 2026, with APM revenues up 35% year on year for the first half. Leading-edge, advanced packaging and overall testing outpaced growth for the ATM business. We expect to maintain the same growth momentum into the second half for the full year.
Leap services revenue is tracking ahead of prior guidance of US$3.5 billion, while the general segment is expected to grow by 30% year on year versus previous guidance of 13%. So for the full year we expect the ATM business revenue to grow by 35%. Machinery capex was US$2.7 billion; building, facility, and automation was US$1.4 billion in the first half. Joseph will give you more detail for the full year. Stepping up investment in R&D, human capital, advanced capacity and also automation, smart factory infrastructure to support multi-year growth.
On the second page, I would like to give you some highlights on market dynamics and positioning. There are many moving parts in the market today. You're reading the same newspapers and watching the same news as I do. What I'm trying to present to you is the company view. We will try to present the logic for why we are making particular decisions at this particular juncture of time. AI-enabled new applications with bigger scale and potential — I'm not going to articulate the detail.
If you're interested, we can talk more in the Q&A. That's our current view. I think very few of you will disagree with this statement that AI is a paradigm shift, and we do have potential for bigger scale and multiple applications. And that's our current view in terms of when and how we are monitoring the progress. I believe we are at the beginning of the AI paradigm shift. There will be multiple stages of transition. We can talk more in the Q&A. The second comment is how we feel AI demands new hardware that did not exist previously, in size, complexity, and integration. You can argue about the computation intensity, the memory, the power, the linkage, the bandwidth. All in all, what we're trying to develop right now is a brand new platform to support the potential AI applications — the data center, the agentic, and, in the future, the physical AI humanoid. All of the hardware will be different than what we have been producing so far.
There is a growing need for industrial power, connectivity, and storage devices because of the AI transition, evolution, or paradigm shift. The company is seeing all three right now from all of our customers on a multi-year basis. Let me talk about ASE's strategic priorities. Again, this is the company view. We have to have a blueprint, a plan, a vision in order for the 100,000 employees to act on. And what I'm trying to present to you is the highlight for that blueprint.
Hardware infrastructure is a bottleneck. With AI, the hardware requirement is new, insatiable, and more complicated and more complex. And today there are very few manufacturers capable of producing hardware. Therefore, it is the bottleneck today — from our capacity, for automation, and more importantly from an innovation perspective. We can talk a little bit more detail about a panel, about CoAs, about glass substrate, about VRM, about silicon photonics.
I can go on and on, but all of these are tied to the infrastructure and your capability to ramp with the complexity, integration, and the design blueprint the customer is asking you to do. All in all, I call all of this hardware infrastructure, and that is the new bottleneck. We have not experienced this for the last 40 years. Packaging is moving up in the system architecture value chain. For me, as a designer by training, the system architecture always is at the top of the value chain.
Packaging is approaching the system architecture value by providing the new complexity and integration capability with the variables that I just talked about. Now if you believe hardware is the new bottleneck and that packaging is moving up in the value chain of the system architecture, then ASE has a unique position to support the AI migration, evolution, or paradigm shift and align with all customers' long-term objectives today. ASE's competitive position — I talk about this many times — the ecosystem position, cluster, or Taiwan cluster; scale, or the AI data center Taiwan scale and other digital scale; the efficiency — I want to single out the pure play. The pure play enables you to have a seamless cooperation with all supply chain players. In the future, this could be one of the competitive advantages for ASE as a pure-play OSAT: we have no conflict with foundry, no conflict with substrate providers. We have no conflict with anybody. Therefore, we have a good way not only to collaborate with our customers long term, but also to collaborate with all the ecosystem players.
That will turn critical for the overall complex, integrated nature for the AI transitional evolution. The first-mover advantages — I'm very specific about the first-mover advantages: technology, speed, capacity, and most importantly, trust. So everything the company does circles around the long-term business objectives as well as the seamless integration with the ecosystem players, and gives you the speed, the efficiency, and earns the customer trust.
So that's the highlight for me for the second half. Okay, thank you.
Joseph Tung (Chief Financial Officer)
Okay, now for third quarter 2026 outlook. Based on our current business outlook and exchange rate assumption of US$1.00 to 31.9 NT dollars versus last quarter 31.6, management projects overall performance for the third quarter of 2026 to be as follows. On a consolidated basis, in NT dollar terms, consolidated third-quarter revenue should grow by 21% to 22% quarter over quarter. Our consolidated third-quarter gross margin should be between 20.5% to 21.5%.
Our consolidated third-quarter operating margin should be between 11.5% to 12.5%. For ATM, in NT dollar terms, our ATM third-quarter revenue should grow by 11% to 13% quarter over quarter. Our ATM third-quarter gross margin should be between 28% to 29%. On EMS, in NT dollar terms, our EMS third-quarter revenue should grow by around 40% quarter over quarter. Our EMS third-quarter operating margin should be between 3.2% to 3.4%. With that is the 2026 third-quarter outlook.
Now adding a bit of color for the full year and next. First, on capex. Given stronger demand for LEAP in 2026 and beyond, we will need to add another $1 billion each this year for facilities and equipment, so the total is adding another $2 billion for capex. While the additional investment for facilities and most of the equipment are for LEAP, we also need to add capacity for mainstream advanced packaging and testing to support the general market demand.
On LEAP, while this year's LEAP service revenue is tracking ahead of our prior quarter guidance of US$3.5 billion as business momentum continues to be very strong, we are aiming to double our LEAP revenue in 2027. Lastly, on ATM profitability, with expanding margin-accretive LEAP and test businesses, our second-quarter ATM gross margin of 20.3% came in ahead of our guidance. We continue to expect sequential margin improvement, with fourth-quarter ATM gross margin likely to exceed our structural margin ceiling of 30%.
At such point, we will start to review if we would adjust our structural margin range. With that, thank you.
Kenneth Hsiang, Head of Investor Relations
During the Q and A session that follows, we would appreciate if your questions could be as clear and concise as possible and asked singularly. We will start by taking questions from live participants and then alternate in questions from our online participants. I, as the moderator, will be receiving each question and repeating and directing each asked question. After an initial question, the participant may ask a follow up question, clarifications of the earlier question, or another question entirely.
Then we'll move to the next participant. Participants may return to the queue for any additional questions and or clarifications. Thank you.
Charlie, Analyst
So just to follow our conversation, your industry seems to be more aggressive in the U.S. operation. Not just the NCOR but also KY even announced to do that, right? So I want to ask you about kind of your partnership with the U.S. customers and also your operation in the U.S. I guess it's a little bit separate question, but can you also comment a little bit about the Intel EMIB involvement by ASE? Thank you.
Kenneth Hsiang, Head of Investor Relations
Charlie. You're asking about the competitive landscape that we're facing and, secondly, EMIB. Dr. Wu,
Tien Wu, CEO of ASE and USI
Well, let me answer the U.S. operation first. What I'm going to talk about, I have repeated several times for the last two years. We do have U.S. operation: IC test development and also services in California. We have one factory in Fremont, California. We have one factory in San Jose. We're in the process of expanding to number three and number four factories. These are particularly required by our customers during the, well, for the last 20 years in Bay Area for upfront chip design, test development, also technology development, and that is ongoing.
Right now the agreement that we have with our leading customer is the following. We will develop and build a fully automated, efficient line in Taiwan. When we are comfortable with our resources and efficiency, in due time we will migrate and move the operation to other places in the world. It could be United States, could be somewhere else. That has always been the case. So it's not like we're not supporting. We are supporting development, R and D, also architectural design.
In terms of manufacturing process development, for now we are focusing on Taiwan until we build the appropriate scale, having the appropriate resources and know-how and efficiency. Upon that time we will work with our customers to move to the other part of the world for better logistics. The second comment is EMIB. I'm going to repeat what TSMC has responded: right now it is really capacity constrained. If there's any other alternative technology that can offer the same yield to resolve the bottleneck that we have for the AI infrastructure, we're welcome to see that.
For ASE, we're also collaborating with other customers along the same line, including EMIB. The following question is if EMIB poses potential threat or competitive advantages over CoWoS. Right. That's always a possibility. I have been working in the packaging industry for 40 years. I've gone through about a thousand different packaging designs. At the end of the day, probably 20 will live but will be here. So there's always a competing technology, alternative materials.
That's always been the focus of R and D for EMIB. We're happy to see if EMIB can ramp up in terms of efficiency and performance. That's up to the system as well as the market to decide. We're not going to make a judgment call who has the superiority. Our focus is to support the CoWoS. We're trying to ramp up the CoWoS scaling efficiency as fast as we can. If a customer asks for other alternative technology, ASE will also include that in our roadmap.
I don't think there's a potential threat. Again, we are a pure play. If the EMIB substrate becomes the right alternative, we just buy in the substrate and we do the assembly. There is no conflict. So anything is welcome. It's not like a zero-sum game, like you can only choose one. I mean it's never been the case. Right. The world is a big place.
Kenneth Hsiang, Head of Investor Relations
More question from the floor.
Rick, Analyst
Hi Dr. Wu and Joseph. Ken, thank you for taking my question. My first question is, can you give us a little bit more detailed guideline for your Q3 AT and demand driver for both for LEAP and also for general packaging and testing, the more detailed demand driver across the key applications or products?
Kenneth Hsiang, Head of Investor Relations
Rick, you're asking for maybe segmented drivers of what's helping the industry or our results pick up at this point, is that correct?
Rick, Analyst
Yeah. Right. Demand driver.
Tien Wu, CEO of ASE and USI
The question is the Q3 driver. Again, we have a very awkward and peculiar position because we're capacity constrained. So we talk about 12 to 13% growth. That means we have to add 12 to 13% capacity. The demand overall is strong. I'm not going to comment about the memory pricing or any consumer devices, but overall all of our customers are asking for more devices for Q3 and Q4.
Kenneth Hsiang, Head of Investor Relations
Follow up.
Rick, Analyst
No, not follow up. The second question, can you elaborate your development of the full CoWoS-like, and this year roughly about how much is still coming from outsourcing? And what's your development and progress into next year of your internal for your full process development?
Kenneth Hsiang, Head of Investor Relations
Rick, you're looking for the composition of our LEAP services between what is potentially OS type services and full process and test. Okay.
Joseph Tung (Chief Financial Officer)
Basically we are on track with our full process business development for this year. We said that we're going to have about $300 million worth of revenue coming from that space and things are on track. We are aggressively expanding that capacity and by next year I think we will have pretty substantial growth in that area as well. And again, this is something that under development we have now fully. I think margin-wise is not fully reflected at this point.
But going forward, I think full process will also be another margin accretive business for us with pretty good substantial growth coming into next year.
Kenneth Hsiang, Head of Investor Relations
We have our next question coming from online. Next question is from Sunny Lin of UBS. Sunny,
Sunny Lin, Analyst at UBS
Hello. Could you hear me okay?
Kenneth Hsiang, Head of Investor Relations
Yes, we can hear you.
Sunny Lin, Analyst at UBS
Thank you very much. Good afternoon. Congrats on the very strong outlook. Sorry for not being able to attend in person. So my first question is maybe to follow up on 2027 LEAP outlook and so maybe take a step back. We are guiding for this year LEAP to exceed 3.5 billion. So should we be looking at maybe 4 billion or maybe between 3.5 to 4 billion, and then for 2027 for it to double? Have we already had an idea in terms of breakdown by full process, outsourcing for substrate, and also test?
Kenneth Hsiang, Head of Investor Relations
Sunny, you're looking for an update on our LEAP guidance for this year and then looking forward into 2027, whether we have any nuggets of information for you, is that correct?
Sunny Lin, Analyst at UBS
Right. Thank you Ken.
Joseph Tung (Chief Financial Officer)
Thank you. Currently, well, I think Tien mentioned that we are ahead of our LEAP revenue this year. And by ahead I think we will be adding another couple hundred million dollars worth of revenue coming out of this year. And on top of that for next year, we still see very strong momentum and we believe at this point that we should be able to double the revenue next year. In terms of we are going full speed ahead with both our assembly as well as test.
And as Ken mentioned, at this point assembly is also catching up in terms of its growth momentum with test. So by next year I think the combination will be pretty much similar to what we've seen this year.
Sunny Lin, Analyst at UBS
Well, but sorry, maybe let me clarify if I may. So just want to get a bit more color in terms of LEAP breakdown going to 2027. I do assume that full process should account for a much larger portion for 2027. So any color will be very helpful.
Kenneth Hsiang, Head of Investor Relations
Probably two quarters from now we'll give you a better color. Thank you.
Sunny Lin, Analyst at UBS
Sure. So maybe if I may, second question. Dr. Wu, want to double click on your earlier comment regarding AI driving lots of new applications with different complexities and scope, and so if I may, maybe based on your current engagement with the clients, what type of devices you are seeing better visibility that then if we could see more meaningful ramp in the coming few years.
Kenneth Hsiang, Head of Investor Relations
Sunny, you're looking for a little bit more color in terms of what potential applications and devices that we may see coming in the future.
Sunny Lin, Analyst at UBS
Yeah, AI to AI.
Tien Wu, CEO of ASE and USI
I would like to separate the technology statement versus business. Business statement: technology would take 15 to 20 years to develop, and the business statement: typically you're interested in four quarters, probably the longest lead time. So let me comment on the CoWoS, for example, or EMIB and other alternative technology. The AI data center is driving computational intensity. Therefore the reticle size becomes bigger and bigger — that we know already.
Everybody demands more bandwidth from logic, ASIC as well as memory. Therefore the immediate upgrade will be the panel or more complicated CoWoS to accommodate a bigger chiplet or reticle size. That's one dimension that we're dealing with. We also comment that somewhere along the line, towards the end of the year, the CPO will start launching. Initially could be in small volume. However, we will have critical benchmark information in terms of bandwidth and the system performance and also the thermal dissipation that can resolve depending on the cost/performance ratio and also the yield.
We will learn critical information. When the reticle becomes bigger and the optics becoming in a different hierarchy, then the power delivery becomes the next immediate question. This will be deployed in the next two to three years. On a much longer term, there are other things people are working on. For example, today we're primarily dealing with digital and digital. There's a lot of activity going on to start accommodating sensor, analog, mixed signal with digital.
If you think about the humanoid applications, other than the brain, the eyes, ears, fingers — they're all analog. So what are the technologies that can provide the low power, the bandwidth as well as the fully automated high-volume integrated capability to do digital-analog, mixed signal? These are the infrastructure a pure-play OSAT supplier should work with the customer, trying to develop the technology — it takes 15 to 20 years to develop. All of the business we're taking or deploying now are the results of the past 15 years of effort. So I would like to make that separation. But if you're interested, I think the AI has a very long leg. You can listen to all the smart people about the infrastructure, AI data center, about agentic and also the physical interface. I also would like to give you some color on how I see the AI. I'm not the best person to talk about it. I have a very simple view to look at AI: AI is for a new pattern recognition in the domain knowledge you're familiar with.
When people start crossing domain — IT versus pharmaceutical, IT versus medical — the new pattern gets recognized. When you recognize the pattern, that's the potential application. We're at the beginning of the knowledge collection and the early stage of pattern recognition. That's what AI does. But today we only talk about single field. Eventually in the world — I do not know how many — it's got to be 100 domains. How do you bridge all of the domain knowledge and start creating something hybrid?
The medicine, the surgical, humanoid — all of these are the potential applications. All of the technology we use — exactly the building block that we're developing today. So what we're doing is not just for AI data center. If all we're thinking about is AI data center for a specific customer, then we really miss the point of what engineering does. Engineering is to build elegant solution for the future demand, regardless how difficult it is. It takes 15 to 20 years.
This is not a stock trade. But what you're seeing is we are the first mover. We already have the cluster efficiency in the early stage of this AI transition. I think that means a lot, if you really understand what I'm trying to tell you.
Sunny Lin, Analyst at UBS
No problem. Sounds good. Thank you very much for sharing, Dr. Tien.
Tien Wu, CEO of ASE and USI
Thank you, Sunny.
Kenneth Hsiang, Head of Investor Relations
Next online question is from Goku Hariharan.
Goku Hariharan, Analyst
Okay, good afternoon. Thanks, Dr. Wu, Joseph. And the first question just to Dr. Wu. You have been working in very close partnership with the lead foundry partner for the last few years, which has been helping the LEAP revenue growth quite nicely. They seem to be transitioning a little bit towards 3D, panel-level kind of future technologies, at least pretty aggressively. It looks like in the next two, three years compared to the last three, four years have largely been about CoWoS and various forms of CoWoS.
So as they are embarking on that partnership, on that kind of transition, Dr. Wu, could you help us understand what is ASE's role? Is it getting elevated further in that partnership? And obviously some of the full-process CoWoS is also result of them leaving some of the older areas to you as well. So just could you outline what you talked about on the technology side in relationship to how this partnership with the lead foundry is going to work out in the next maybe two, three years?
Kenneth Hsiang, Head of Investor Relations
First, Goku, you're asking about, as our foundry partner progresses further down their technology roadmaps, what our plans are to intermix and or interlink with them in this process. Is that correct?
Goku Hariharan, Analyst
Yeah. And do you get more value add out of it as they kind of migrate out to more complicated packaging?
Tien Wu, CEO of ASE and USI
The collaboration is long term. Once again I want to focus on the pure-play. The foundry ideally is a pure-play for wafer. Testing, bumping, packaging are enablers to support the delivery of the wafer to the correct customer in the correct timing, also with the correct efficiency. Packaging pure-play is to develop a packaging architecture — all the Lego pieces — to facilitate that. When the pure-play foundry with the pure-play packaging collaborate, that boundary is very clear.
So today there are packaging that needs to be taken by the foundry people, because access to the leading-edge wafer is simply not available to the others, or some architectural requirement that has strict IP that we would like to honor and respect — the customer as well as the foundry. That is a domain that the pure-play wafer people need to decide. But, preclude from that, the collaboration will cover all aspects in the packaging arena. In terms of where do we start the line, when do we start the line?
That depends on the wisdom of the management team of the ecosystem collaborator. I'm not sure how to give you a better answer, but as you can see, the OS, the full process — all of the collaborations are the full spectrum. In terms of future, we do not know. But it really depends on the pure-play IP as well as the customer's requirement. But we will try to navigate through all of the complexity. But the important thing is we all understand we would like to provide speed — the most elegant solution in the quickest amount of time — to our customers collectively.
That understanding is very clear and it's very obvious for the next three years as well as the ramp-up in the next few years.
Goku Hariharan, Analyst
Got it. That's very clear. Thank you, Dr. Wu. My next question is just on a couple of the guidance increases that you have. One is on LEAP for 2027. I think previously we were expecting, I think $1.9 billion or so additional. Now we're expecting doubling of the revenue. Is that primarily coming from having more line of sight into capacity availability? Because I think demand is probably still much higher than what you can really support even next year.
And secondly, mainstream — you're expecting the growth to be close to 20% this year from the, I think, 13% previously. Where is that upside coming from on the mainstream growth?
Kenneth Hsiang, Head of Investor Relations
Goku, you're looking for incremental explanation related to what is driving our LEAP 2027 outlook and also what has helped us drive our mainstream expectations of this year. Is that correct?
Goku Hariharan, Analyst
That's right, yeah.
Tien Wu, CEO of ASE and USI
We have clear line of sight in terms of who needs what. We also have a clear line of sight on the building — the facility that we're building today. When we make a comment that this year, by year-end we're tracking ahead of the $3.5 billion, that comment is made because we see our yield and execution. That gives us the confidence to tell you that by year-end we will achieve that target. By the same token, we also give you a comment that whatever the target has been achieved by year-end, with the next 12 months building new facility and adding new machines, we will be able to double that.
That line of sight is there. The uncertainty exists in terms of how can we execute. So the business demand is not a concern. It's our own capability to execute the two lines of sight which is clear in front of us. In terms of the general devices, we see very strong demand in industrial power, connectivity, and storage devices. I do not know what the general market or semiconductor this year — I don't have that number. Right. I believe we will outperform the general market simply because of our association with a stronger AI infrastructure development.
Also our superior capability to have fully automated lines for most of the general devices. So if people want to build devices to go into electrical vehicle, AI data center, or any high impact, high risk applications, chances are they will use our fully automated line. That's why we're having very good attraction. So in terms of capacity expansion, not only do we need to expand the LEAP, we also need to expand the general market. That's putting tremendous amount of pressure on ASE, which is why I think during the shareholders meeting I complained that ASE is building 13 new facilities simultaneously this year and we just bought another seven brownfield.
So we're building, we're buying, and we're spending capex. We're not happy about it. But the question now is that is our obligation. This is why we're here. We want to make sure we are providing the critical capacity to the best of our capability to satisfy the long-term objective for all of our customers.
Goku Hariharan, Analyst
Sorry. Yeah, that's... yeah, thanks. Thanks very much, Dr. Wu.
Tien Wu, CEO of ASE and USI
Thank you.
Kenneth Hsiang, Head of Investor Relations
Charlie, do you want to shout out another round of questions there? Yeah, go ahead. Microphone.
Charlie, Analyst
Thanks. Ken, I do have two questions, but can I make a clarification on the previous Q and A?
Kenneth Hsiang, Head of Investor Relations
Please, go ahead.
Charlie, Analyst
So about the LEAP revenue next year. Right, so just, you talk about the mix would be very similar to this year next year, the LEAP revenue mix. Right. But according to our analysis, it seems like you have four kind of a 2.5D — the end customer is at x86 CPU. That part is growing 3x, right. And I assume your testing business is also growing more than double. So how come the rest of the kind of substrate kind of outsourcing can also double next year?
Because NVIDIA, I think the Street consensus is like next year is growing 50% and case and ecosystem extension is like 70%.
Joseph Tung (Chief Financial Officer)
Well, we have — I think I was referring to in general — assembly and test seems to have the same momentum, but assembly includes not just OS. There are full process, there are other steps or process steps that we are entering, so also some new packages that are coming on stream. So I think that's a general description of what we are seeing next year in terms of between assembly and test.
Charlie, Analyst
Anyway we were very happy to see that strong growth. I just want to make sure we get a breakdown. And next question is a little bit joking but I just see that your quarterly capex is feeding your EBITDA. So is that your free cash flow is also turning negative? Do you think share price will react negatively tomorrow?
Joseph Tung (Chief Financial Officer)
Yeah, I think we will continue to have very heavy CapEx for this year. Not only this year but also going into next year. So I think the negative cash flow situation will remain for some time. But at the same time we're still maintaining a very healthy balance sheet and we do have multiple cost-effective funding sources to fund the upcoming CapEx requirement. So at this point I think we are, we're pretty confident that we will be able to support our growth in a healthy manner.
And you know we are still at the early stage of this megatrend and so like I said last time, we are not going to be shy in making the necessary investment not just to support our customer but also to maintain our clear leadership position in this field.
UNKNOWN, Analyst
Okay, thanks, Joseph. Yeah, we really like to hear you have more funding need. So last one is pricing and margin. So we keep hearing from your customers that you hiked price aggressively in second half. Can we confirm if this is the case, whether it's more price hike in the traditional service or the advanced packaging? I think it's a power one. And secondly, how does that translate into your kind of long-term gross margin outlook? I think you were having this 26 to 29% margin range for several years.
Do you think you can correct to the 30% anytime soon?
Joseph Tung (Chief Financial Officer)
Thank you. Yeah, I think it's like I said in the outset, we will be, we're very likely to exceed the margin ceiling in fourth quarter and at that point of time I think we will start to review whether we should adjust our structural margin range. Of course, when I say adjust, I mean upward adjustment. I think we are still in a very, very kind of a friendly pricing environment. I think of course we saw a lot of inflationary pressure in terms of materials and components.
So far we can definitely pass on these cost increases to our customers through our pricing arrangements. And of course we'll continue to seek the most suitable pricing strategy considering the situation as well as our margin return requirement.
Kenneth Hsiang, Head of Investor Relations
Are you okay? Okay, so the next question, we will go back online. Our next online question is from Hash Hugh of COA.
Hash Hugh, Analyst
Hi, can you hear me? Thank you so much for your time today. Yeah, so just a few questions from me. I think first one is that when you commented on the gross margins is likely to exceed the ceiling of your structural gross margins range in fourth quarter, would you be able to please share with us how much of that would actually be contributing from your part of business and how much of that would be potentially driven by your growing mix in the lead contribution?
Thank you.
Kenneth Hsiang, Head of Investor Relations
Haas, you were kind of breaking up, but I think you're asking what is contributing to our positive outlook in terms of maybe perhaps hitting our structural margins.
Hash Hugh, Analyst
Yeah. Yes, that's correct. And specifically I wanted to know which part of the sector is more important. Is it the lead business contributing more or is it because the mature packaging businesses, you are trying your pricing strategy to make better that impact?
Kenneth Hsiang, Head of Investor Relations
Haas is looking for the prime contribution for structural margin.
Joseph Tung (Chief Financial Officer)
Well, I think margin improvement is a combination, is a result of any combination of different factors, including the margin-accretive business growth, including improvement in efficiency, including the continuous expansion of our automated factories. You know, operating leverage does a—of course it plays a very important role. As well as we continue to see volume growth. You know, on the operating side, we are also seeing our past investments start paying off.
We are seeing on an annual basis, we're seeing OPEX ratio continue to drop. I think overall the efficiency is much, much improved and we have a much solid base in terms of our revenue coming on stream. So that gives us the confidence that we should be continuing to see margin expansion on a sequential basis at least for this year and next. And like I said, once we pass the structural margin range, we will start reviewing that and see how far we can go.
Hash Hugh, Analyst
That's great. Thank you so much. And then just a quick follow-up on your CapEx. We should be able to provide a breakdown since you also mentioned that the general market demand is also very strong as well. We should be able to provide a breakdown for your growth for your CapEx for this year and for next year. I know you probably will not be able to give qualitative guidance at this stage for CapEx, but we should be able to discuss that. Which part of the business is probably going to outgrow from the spending perspective?
Is it going to be advanced or mature business is going to still be pretty solid from the spending.
Kenneth Hsiang, Head of Investor Relations
Thank you. Haas is looking—you're looking to understand what the CapEx makeup is of what's driving the increase, or what components are driving the increase this year, and then maybe if we have any type of nuggets of wisdom related to next year's CapEx.
Joseph Tung (Chief Financial Officer)
Well, I think obviously we are seeing a stronger demand forecast coming from not just customers but also our foundry partner. And the requests that are coming in require a lot of new investments not just for this year but also for next year as well as we continue to see very, very strong business momentum in both assembly and test. Like I stressed again, also there are new projects or new products, new process steps that we are entering into. We will not just put in the necessary equipment to pack CapEx.
We also have to have the new facilities to house those capacity and also spending quite a bit of money for the R&D to support those new products or new projects that are coming on stream. So, you know, our CapEx is really based on what's necessary coming out of our customers' demand and we want to put the right resources onto those high potential revenue bases for us to continue to invest.
Hash Hugh, Analyst
Okay. And your expansion going forward will probably be just based on your boundary—your production, you are going to probably focus more on the areas that you can convert capacity from one to the other. For example, foundry you can both use in the mature business as well as in the advanced business. So that is probably the area that you have to spend more money.
Kenneth Hsiang, Head of Investor Relations
You're looking to—well, Haas, we got to try to limit those questions to two in the future again. But I guess we can try to comment a little bit on where we're spending the CapEx as it relates to—maybe this is an opportunity to talk about construction and our difficulties in terms of building buildings or getting enough buildings. Okay.
Joseph Tung (Chief Financial Officer)
But this year we're raising the CapEx by another 2 billion. That brings up the total to about $10.5 billion. And out of this 10.5, 4 will be for new factory buildings and facilities and 6.5 for equipment. Like Ken just mentioned, in terms of these new capacity that we're going to put in, we need to have the more advanced factory buildings and facilities to house this capacity. So at the same time, at this very moment we are having 13 greenfield projects going on.
We have another eight brownfield projects. By brownfield we mean that we are buying existing factories and trying to renovate them to suit our needs. I think the current projects will be sufficient for us to carry ourselves into maybe some part of '29 and we will continue to look at the situation and find suitable new locations for further expansion going forward. And with these 20 projects going on at the same time, it puts a lot of challenge on us, puts a lot of pressure on us in terms of we really need to have a very, very efficient and very responsive construction partner for us to make sure everything is delivered on time, all the qualities according to spec. And this is something that we are working on. And hopefully—I think Tien mentioned that execution is everything—we manage there. What we need to do is really to execute whatever we're set out to do.
Hash Hugh, Analyst
Got it. Thank you so much, Joseph.
Kenneth Hsiang, Head of Investor Relations
Do we have another question online there? Yes, we have an online question from Goku Hariharan of JP Morgan.
Goku Hariharan, Analyst
Yeah, hi. Thanks for taking my follow-up questions. First of all on CapEx, Joseph, I know that you're not guiding for next year, but looking at what Dr. Wu mentioned, it definitely feels like CapEx is still likely to keep rising into 2027. Is that a fair statement to make given the gap between supply and demand that you're currently facing, especially for revenue?
Kenneth Hsiang, Head of Investor Relations
Goku, you're looking for some hint in terms of 2027 CapEx?
Joseph Tung (Chief Financial Officer)
Well, I think it's better if we—I know it's going to be big, but how big? I think we want to wait for another quarter or so to have a better clarity on how much we need to spend next year.
Goku Hariharan, Analyst
Okay, understood. Could you also talk a little bit about anything that you're seeing on the CPOs or the panel-level packaging development? Based on your current assessment, when do you expect this to potentially start entering production given that there are so many different views out there in the market?
Kenneth Hsiang, Head of Investor Relations
Goku, you're looking for an update on our panel processes? Panel process?
Tien Wu, CEO of ASE and USI
The different panel process—for ASE Technology Holding Co's panel process, our fully automated line will start production by Q1 of next year and that is in the form factor of 310 by 310. In terms of the CPOs, I know there are many alternative materials that people are evaluating. R&D people are working with substrate supplier, foundry as well as customer to evaluate the feasibility, also the economics of it. Right now we do not have the glass substrate in production—not for the next 12 months, if that's the question you're asking.
Thank you.
Goku Hariharan, Analyst
Got it. And how does ASE's 310x310 solution differ? Is it for a completely different kind of market or customer compared to the foundry's core? Or is it quite complementary compared to what they are trying to offer?
Tien Wu, CEO of ASE and USI
They're quite complementary. It's actually the same customer set. Similar. The reticle size in terms of the pitch size, line width, they're all identical—cover the similar range. But in terms of which customer will adopt what, not only depends on the capacity and the performance and also the speed of execution.
Goku Hariharan, Analyst
Okay. Okay, that's clear. Yeah, thank you very much.
Joseph Tung (Chief Financial Officer)
On CapEx, I want to give you guys a bit of a clarification. I think for this year, out of the total CapEx, like I said, 4 billion is for factory and facilities, 6.5 for equipment. And for equipment I think it's about 56% is for assembly, 40% for test and the remaining for EMS and some for material. In terms of assembly and test breakdown, in terms of the leading edge, I think 70% of the equipment CapEx is for leading edge for this year. Goku, we got you covered there.
Kenneth Hsiang, Head of Investor Relations
Yeah. Okay, another online question.
Sunny Lin, Analyst at UBS
Thank you very much for taking my follow-ups. So my first follow-up will be on CPO. And so maybe good time if you could share with us, given the complexity of the technologies, what type of services ASE as a group will be able to offer? And then based on the current development, when do you think the revenue contribution for ASE could become more meaningful? And then given USI, they also acquired optical module company as well earlier. And so what are the synergies that you think you could drive since you have IC-ATM and also EMS capabilities?
Kenneth Hsiang, Head of Investor Relations
Sunny, you're looking for an update on what particular we would be doing in regards to CPO and also potential linkages with our EMS business, is that correct?
Sunny Lin, Analyst at UBS
Yeah. Thank you.
Tien Wu, CEO of ASE and USI
On the CPO, I would like to wait for two quarters before I give you more detail. The CPO service, as was the revenue, also the 2027 outlook. I prefer to have a little bit more time to talk about that. In terms of the optical hierarchy, the hybrid between the electrical signal and also the optical signal, I think that direction is definitive. The question now is when and how could we execute that as a system architecture from near field to outer field.
Some optical devices are quite mature. It has been used for many, many years in some near field at a chip level. At a substrate level, that needs to be created, which is very, very difficult, which is why the industry has taken so much time trying to develop. I think by the end of the year we'll have some database in terms of how that is behaving, how that is working and whether, how much benefit, how much ramp up. I think in two quarters' time. By the way, we have been working on this for about 20 years, so two more quarters I think we can wait.
Sunny Lin, Analyst at UBS
Sure. Looking forward to that.
Tien Wu, CEO of ASE and USI
Thank you.
Sunny Lin, Analyst at UBS
Yeah, looking forward to that update, and my second question, I'll be very quick. So for your full-process co-ops, given you have better visibility now for 2027, I want to understand your progress in terms of diversifying for your client. Also, product base, should we assume for 2027 CPU should be very major, or should we assume good volume coming from the other applications like accelerators as well?
Kenneth Hsiang, Head of Investor Relations
Sunny, you're looking for probably something that can't be answered, but in terms of—you're looking for what our product set would be in terms of our full-process services.
Sunny Lin, Analyst at UBS
Yeah, basically your progress in terms of product-based specification for full process.
Tien Wu, CEO of ASE and USI
I think for the full process we should be able to give you a better visibility in a quarter or two. Right now we do have line of sight in terms of full process; we're tracking nicely. And also for the next year we do have line of sight, we have full visibility in terms of capacity that we're developing now. In terms of the customers, we need a little bit more time to digest how much information can we share. I think in two quarters' time we should be able to give you the following: our leading edge, our lead services revenue for next year and also the OS full process and others, the assembly and test—I think that we can share.
But in terms of GPU, CPU, ASIC, we need a little bit more time to digest how much information we can share. But right now our clientele portfolio covers all of them, which is good, and we're just waiting for a clear execution such that we know our yield and also how well the system performs in the marketplace, and that we're waiting anxiously. Thank you.
Kenneth Hsiang, Head of Investor Relations
Thank you very much. Our next online question is from Michael Rasnikos.
Michael Rasnikos, Analyst
Hi, how are you? Thank you for the call here. I just want to clarify, when you gave Q3 guidance, did you say that EMS will grow 40% quarter on quarter revenues?
Kenneth Hsiang, Head of Investor Relations
Michael, you're looking for a little bit of explanation behind the EMS growth?
Michael Rasnikos, Analyst
Yeah, so it's a pretty huge, huge quarter-on-quarter growth. So yeah, I just want to clarify what's going on there.
Joseph Tung (Chief Financial Officer)
I think the 40% growth is a little bit abnormal seasonality. I think this is largely because of the component price hikes, particularly in the memory sector. So if we take that part of the number out, I think the third quarter EMS should see a typical seasonality kind of movement.
Michael Rasnikos, Analyst
Makes sense. And how about Q4 in terms of quarter on quarter? Is it still growing over Q3, or will revenues—EMS—shrink? Revenues shrink in Q4 versus Q3?
Joseph Tung (Chief Financial Officer)
At this point we're seeing a pretty similar level of revenue in the fourth quarter for EMS.
Michael Rasnikos, Analyst
Oh, okay. That's okay. That's very helpful. And so overall for the year, I think—did you say in your overall comments that you're looking for 25% plus full-year growth? Revenue growth.
Kenneth Hsiang, Head of Investor Relations
Michael, you're looking for full-year guidance or full-year outlook for EMS and ATM?
Michael Rasnikos, Analyst
Yeah, overall revenue growth. I thought there was a comment about sort of 25% plus type of revenue growth. Is that right?
Joseph Tung (Chief Financial Officer)
EMS at this point, I think during the full year is a sub-20% kind of growth for the year.
Michael Rasnikos, Analyst
Okay, so that's sub 20. And the ATM business will be 35% plus type of growth also. Okay, got it. And what is the impact on EMS margins with the big memory component and larger revenues? Is it flat year over year, or is there an increase or decrease relatively?
Joseph Tung (Chief Financial Officer)
I can talk about the third quarter. I think if we take out the component price hikes, I think the operating margin will be very similar to typical seasonality of ours—3.7, 3.8% level.
Michael Rasnikos, Analyst
Okay. And so the memory is just sort of a pass-through type of cost for you guys?
Joseph Tung (Chief Financial Officer)
That's correct.
Michael Rasnikos, Analyst
Okay, thank you for that clarification and, yeah, congratulations on very strong performance.
Joseph Tung (Chief Financial Officer)
Thank you. Thank you.
Kenneth Hsiang, Head of Investor Relations
Do we have more questions online? More questions on the floor? No. Okay, very good. Thank you very much. I would like to thank everyone for attending our conference call today. Joseph, do you want to close up?
Joseph Tung (Chief Financial Officer)
Well, I'm sure we're going to have another good quarter in third quarter and we'll bring you some more new good news next quarter. I'll see you next quarter.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
Login to comment