ASE Technology Holding Co., Ltd. (ASX) Q2 2024 Earnings Call Transcript

ASE Technology Holdings, a leading player in semiconductor manufacturing, recently held its second quarter 2024 earnings call, providing valuable insights into the company's financial performance and strategic direction. The call, led by Ken Hsiang, Head of Investor Relations, Tien Wu, Chief Operating Officer, and Joseph Tung, Chief Financial Officer, highlighted key themes and trends that are shaping ASE's business landscape.

Financial Performance and Outlook

ASE reported a consolidated net revenue of NTD 130.7 billion for the second quarter of 2024, a 6% sequential increase and a 3% year-over-year growth. The company's financials were driven by a bifurcated market, with traditional products showing signs of reemergence but lacking the strength for sustained growth. Conversely, leading-edge products displayed increasing demand, with equipment utilization near full capacity. To support this market segment, ASE plans to increase investments in labor and equipment, particularly in the leading-edge space.

The company's gross profit margin improved by 0.7 percentage points sequentially and 0.4 percentage points year-over-year, reaching 16.4%. This growth was attributed to Taiwan Dollar depreciation and product mix changes at both the ATM and EMS businesses. Operating expenses increased by NTD 1.7 billion year-over-year, primarily due to continued R&D staff-up and other labor-related costs. Operating profit was NTD 9 billion, up NTD 1.5 billion sequentially but down NTD 0.4 billion year-over-year.

Looking ahead, ASE expects its third quarter 2024 revenue to grow by high single digits for ATM and mid- to high teens for EMS. The company aims to maintain a steady operational expense percentage increase, holding it within 75 basis points of the 2023 level. CapEx is also set to double from the previous year, with a focus on assembly and test operations.

Strategic Initiatives and Competitive Landscape

ASE is expanding its footprint geographically, with plans to start volume production in Malaysia in Q1 '25 and acquire two Infineon operations in the Philippines and Korea. These moves are aimed at shortening the lead time for capacity ramp-up and addressing the growing demand for leading-edge advanced packaging.

In terms of technological advancements, ASE is investing heavily in advanced packaging and testing capacity, with a particular focus on 2.5D advanced packaging. The company expects this segment to contribute significantly to its revenue, potentially reaching 10% of its ATM revenues next year. ASE is also collaborating with leading foundry partners to ensure a seamless transition to advanced packaging solutions, mitigating any potential overflow risk.

Challenges and Opportunities

ASE faces challenges in managing costs, particularly in light of higher utility costs and ramping labor needs. The company is also dealing with capacity constraints in the traditional business segment, which is experiencing a slower recovery compared to the leading-edge segment.

However, ASE's strategic investments in advanced packaging and testing are expected to yield significant returns, positioning the company for growth in the next super cycle. The company's focus on expanding its portfolio of products and services, as well as its geographical reach, underscores its commitment to staying at the forefront of the semiconductor manufacturing industry.

Conclusion

ASE Technology Holdings' second quarter 2024 earnings call painted a mixed picture of the company's financial performance and strategic direction. While the company faces challenges in its traditional business segment, its investments in advanced packaging and testing are poised to drive growth and innovation. ASE's strategic expansion and collaborations with leading industry partners position it well for future success in the dynamic semiconductor manufacturing landscape.

As ASE moves forward, investors and stakeholders will be watching closely to see how the company navigates its bifurcated market and capitalizes on the opportunities presented by the next super cycle. The company's ability to manage costs, maintain operational efficiency, and leverage its technological expertise will be key factors in its future success.