ASE's Q3 2025: Contradictions Emerge on LEAP Growth, Pricing Resilience, and AI Market Share

Business Commentary:

• AI Market Growth and Demand Increase:
• The AI market is projected to grow dramatically from $189 billion in 2023 to over $4.8 trillion in 2033, a 25-fold increase.

• This is driven by the increasing reliance on AI applications across various sectors such as healthcare, telecommunication, and financial services, all fueled by the growing data consumption.

• AI Spending and Compute Trends:

• In Q2 2025, AI spending hit a new high of $87 billion by eight major hyperscale builders.
• 

• The trend reflects a 45% increase in CapEx for revenues, driven by the need to invest in compute capabilities to keep pace with evolving AI models and large language models.

• Challenges and Requirements in AI Packaging:

• As AI models push for higher performance, there is a significant demand for larger network bandwidth and memory capacity, leading to increased package area and power requirements.
• This necessitates advanced packaging solutions to address issues like area constraints, power delivery, and thermal management, which are key challenges in supporting AI applications.

• ASE's Position in Advanced Packaging Innovation:

• ASE is focusing on innovations like FOCoS, VIPack, and silicon photonics to support AI growth by improving data transfer rates and power efficiency.
• These innovations aim to meet the insatiable demand for compute power and bandwidth in AI systems, positioning ASE as a key player in the AI ecosystem.

Contradiction Point 1

LEAP Revenue and Growth Expectations

It involves differing expectations and statements regarding the growth and revenue potential of the Leading-Edge Advanced Packaging (LEAP) segment, which is a strategic focus area for the company.

What is the current progress on LEAP revenues this year? What is the current performance against guidance? Are there any projections for next year? - Gokul Hariharan (JPMorgan Chase & Co)

2025Q3: We are on track in reaching our TWD 1.6 billion mark this year. The AI and HPC part of the business shows strong momentum, and we believe we will reach the TWD 1.6 billion mark. For next year, we expect another TWD 1 billion increase in revenue from LEAP. - Joseph Tung(CFO)

Could you share how the outlook for ASE's LEAP and testing segment has evolved by 2026, given management's October guidance of over $1 billion in sales upside on top of this year's $1.6 billion? - Sunny Lin (UBS Investment Bank, Research Division)

2025Q3: The commentary for 2026 thus far, we have not given a tremendous amount of color. The only real comment as of now that we've talked about is that leading-edge advanced packaging will be growing by more than $1 billion next year. - Kenneth Hsiang(CRO)

Contradiction Point 2

Pricing Resilience and Expectations

It involves differing statements regarding the resilience and expectations for pricing in the company's operations, which directly impacts financial performance.

How should we think about pricing for next year? - Gokul Hariharan (JPMorgan Chase & Co)

2025Q3: Pricing remains resilient, and a suitable pricing structure is in place. There are uncertainties, but the pricing is sensitive to the current situation. There are moving parts, and it's difficult to talk specifically about pricing, but there's a resilience in pricing. - Joseph Tung(CFO)

How large is the TAM for foundry partners' incremental CP test outsourcing demand? - Junhong Pan (KGI Securities)

2025Q3: Basically, if you look at the different level of surface mount, we have a very good mix of the different types of high-end, mid-end, low-end volume type product coming on stream this year. - Kenneth Hsiang(CRO)

Contradiction Point 3

AI Revenue and Market Share

It involves the growth expectations and market share of AI revenue, which are crucial for understanding the company's strategic positioning and financial outlook.

How has the outlook for ASE's LEAP and testing segment's growth to $1.6 billion in 2026 evolved since management previously guided to over $1 billion in sales upside by 2026? - Sunny Lin(UBS Investment Bank, Research Division)

2025Q3: We do believe that leading-edge advanced packaging will be growing by more than $1 billion next year. The components of that are not particularly talked about, but I think it would be fair to say that they are being led by our traditional LEAP services, meaning on substrate and also, to a certain extent, the testing related to such devices. - Kenneth Hsiang(Head of Investor Relations & Senior VP)

What steps will restore ASE's gross margins to the mid- to high 20s by 2026? - Gokul Hariharan(JPMorgan)

2025Q2: In the long run, we believe leading edge advanced packaging will continue to prosper. However, growth may still be relatively moderated in 2022 and 2023 as market demand was impacted by macro headwinds. - Joseph Tung(CFO)

Contradiction Point 4

Capacity Constraints and Demand

It involves the company's ability to meet demand due to capacity constraints, which can impact revenue projections and customer satisfaction.

How should we think about the technology ramp for the full-service package by mid-2026? - Sunny Lin(UBS Investment Bank, Research Division)

2025Q3: We continue to see strength in demand in AI, wireless, industrial and automotive. We have a strong order book for the second half of the year. - Tien Yu Wu(CEO)

How can you explain the high fab utilization despite the slow market growth in PC, smartphones, and automotive, excluding AI? - Charlie Chan(Morgan Stanley)

2025Q2: 2025 second quarter revenue exceeded our expectations. The growth was driven by demand from AI, wireless, industrial and automotive sectors. - Tien Yu Wu(CEO)

Contradiction Point 5

EMS Revenue Seasonality

It involves the company's explanation of seasonality in EMS revenue, which could affect investor understanding of revenue patterns and financial performance.

Does your U.S. investment evaluation consider geopolitical factors? Can you provide an update on AI testing market share and growth drivers? - Bruce Lu(Goldman Sachs)

2025Q3: Q2 is typically the lowest EMS quarter. First-half demand was stronger due to pull-in. - Joseph Tung(CFO)

What factors are causing the Q2 EMS revenue decline compared to Q1? Has there been any update to the 2025 CapEx guidance? - Sunny Lin(UBS)

2025Q1: Q2 is typically the lowest EMS quarter. First-half demand was stronger due to pull-in. - Joseph Tung(CFO)