ASE Technology Q1 Earnings Call Highlights

Key Points

• ASE reported Q1 diluted EPS of TWD 3.08 and consolidated revenue of TWD 173.7 billion (‑2% q/q, +17% y/y), with the ATM segment now representing 65% of revenue and 91% of operating profit and delivering record ATM revenue and stronger margins.
• Management is ramping LEAP capacity and raised full‑year LEAP revenue target to >$3.5 billion, but said depreciation and CapEx will rise ahead of revenue as full‑process LEAP lines are tuned; most incremental machinery (particularly wafer sort) is expected to deploy in Q4 and 2027 could be another CapEx‑heavy year funded partly by borrowing.
• For Q2 ASE guided sequential growth—consolidated revenue up 7–9% q/q, consolidated gross margin up 20–100 bps, ATM revenue up 9–11% q/q with ATM gross margin 26–27%—while EMS shows seasonal slowdown but improving computing/AI demand.

ASE Technology NYSE: ASX reported first-quarter 2026 results that management said demonstrated resilience despite typical seasonality in electronics manufacturing services (EMS). Kenneth Hsiang, head of investor relations at ASE Technology Holding, said demand for the company’s assembly, testing and materials (ATM) services “did not slow at all,” helping ATM revenue grow sequentially even with fewer working days in the quarter.

Hsiang said the company continued to see strength in its LEAP services within traditional advanced packaging, while wire bond activity also “saw some pickup.” He added that as product mix shifts toward AI-related products, “typical seasonality may become more muted as AI-related products do not appear to follow the same seasonal patterns as typical consumer-driven devices.”

Consolidated results and profitability drivers

For the first quarter, ASE posted fully diluted EPS of TWD 3.08 and basic EPS of TWD 3.24. Consolidated net revenues were TWD 173.7 billion, down 2% sequentially and up 17% year-over-year. On a U.S. dollar basis, sales declined 4% sequentially and rose 22% year-over-year.

Gross profit was TWD 34.8 billion, with gross margin of 20.1%, up 0.6 percentage points sequentially and up 3.3 percentage points from a year earlier. Hsiang attributed the sequential margin improvement primarily to New Taiwan dollar depreciation, while the year-over-year improvement was driven mainly by a higher mix of ATM revenue and higher ATM utilization, offset partly by annual NT dollar appreciation. He estimated foreign exchange contributed a positive 0.6 percentage point to gross margin sequentially and a negative 1.2 percentage point impact year-over-year.

Operating expenses rose to TWD 17.3 billion, up TWD 0.3 billion sequentially and TWD 2.1 billion year-over-year, primarily due to higher R&D labor-related costs. Operating profit totaled TWD 17.5 billion, down slightly sequentially but up TWD 7.9 billion year-over-year, with operating margin of 10.1%.

ASE reported a net non-operating gain of TWD 0.7 billion, primarily from net foreign exchange hedging activities, partially offset by net interest expense of TWD 1.6 billion. Tax expense was TWD 3.6 billion, with an effective tax rate of 20.0%. Net income was TWD 14.1 billion, down 4% sequentially and up 87% year-over-year.

Hsiang also highlighted the growing weight of ATM in the overall business: in the first quarter, ATM represented 65% of consolidated revenue and 91% of operating profit, compared with 58% of revenue and 86% of operating profit in the year-ago quarter.

ATM posts record revenue as LEAP investment ramps

ASE’s ATM segment delivered record first-quarter revenue of TWD 112.4 billion, up 2% sequentially and up 30% year-over-year. Hsiang said the company “was able to avoid a seasonal decline” and exceeded internal expectations, citing computing-related demand and improved equipment utilization.

ATM gross profit was TWD 29.2 billion, with gross margin of 26.0%, down 0.3 percentage points sequentially but up 3.4 percentage points year-over-year. Hsiang said the sequential decline reflected higher labor costs during the Lunar New Year holiday and higher depreciation as equipment is prepared for expansion, largely offset by favorable foreign exchange and higher loading efficiencies.

Management also detailed the impact of LEAP-related capital spending on near-term financials. Hsiang noted depreciation is rising faster than revenue as ASE invests in LEAP capacity, describing full-process LEAP lines as requiring installation “at scale and together as a full set of differing machinery,” which can take longer to bring up and qualify than traditional packaging capacity. He said full-process LEAP lines are currently in tuning and qualification, implying depreciation will increase ahead of revenue, with revenue ramp “mostly during the fourth quarter.” Despite that timing, Hsiang said the company continues to believe margins will improve sequentially and reach the higher end of structural margins by year-end.

EMS slows on seasonality while computing demand improves

The EMS business saw the expected seasonal slowdown. First-quarter EMS revenue declined 10% sequentially and 1% year-over-year to TWD 61.9 billion. EMS gross margin improved 0.5 percentage points sequentially to 9.5%, which Hsiang attributed primarily to product mix.

EMS operating margin was 3.1%, up 0.3 percentage points sequentially and up 0.5 percentage points year-over-year. Operating profit was TWD 1.9 billion, down slightly sequentially and higher year-over-year. Hsiang said communications application revenue declined due to seasonality, while computing applications increased “due to a pickup in new AI accelerator products.”

Balance sheet and capital spending

At quarter end, ASE reported cash equivalents and current financial assets of TWD 114 billion. Total interest-bearing debt declined by TWD 7.6 billion to TWD 265.3 billion, and unused credit lines totaled TWD 419.4 billion. EBITDA was TWD 38.2 billion, and net debt to equity was 40%.

Machinery and equipment capital expenditures in the first quarter totaled $1.0 billion, including $636 million for packaging operations and $327 million for testing. ASE also spent TWD 771 million on facilities during the quarter.

CFO Joseph Tung said the company is increasing full-year capital expenditures, including an additional TWD 0.9 billion for buildings and infrastructure and an incremental $0.6 billion in machinery. Tung said the machinery increase is driven by stronger demand for LEAP services in 2026 and 2027, with most of the incremental machinery CapEx allocated to LEAP—particularly wafer sort—and expected to be deployed in the fourth quarter to support a 2027 capacity ramp.

Guidance: sequential growth expected in Q2; LEAP outlook raised

For the full year, Tung said ASE now expects LEAP services revenue to be around 10% above prior guidance, “reaching over $3.5 billion,” while the mainstream segment “remains on track to grow at a similar rate with last year.” He added that the company continues to see “very, very strong momentum” into 2027 and expects stronger incremental LEAP revenue growth than in 2026, though he did not provide a specific 2027 revenue figure.

On profitability, Tung said ASE’s first-quarter ATM gross margin of 26% was ahead of its original expectation of 24.5%. He said management still expects sequential ATM margin improvement through the year, with second-half gross margin reaching the upper end of the company’s structural range, although second-quarter improvement will be partly offset by higher costs linked to early resource deployment for product transitions.

Based on an exchange rate assumption of US$1 to TWD 31.8, ASE guided second-quarter 2026 results as follows:

• Consolidated revenue: up 7% to 9% quarter-over-quarter (NT dollars)
• Consolidated gross margin: up 20 to 100 basis points quarter-over-quarter
• Consolidated operating margin: up 50 to 120 basis points quarter-over-quarter
• ATM revenue: up 9% to 11% quarter-over-quarter; ATM gross margin between 26% and 27%
• EMS revenue: at least 10% year-over-year growth; EMS operating margin similar to second quarter 2025 levels

During the question-and-answer session, Tung said LEAP growth is being driven by “stronger than anticipated demand,” and he described LEAP’s current mix as about 75% assembly and 25% test, with the test portion split roughly 75% wafer sort and 25% final test. He also said ASE is primarily focusing resources on wafer sort due to facility and capacity constraints.

On co-packaged optics (CPO), Tung said ASE is working closely with foundry and customer partners and expects to be a “very critical partner” once CPO reaches volume scale, but he said the company does not yet have a revenue number or timeline for meaningful contribution. Tung also said ASE has installed a fully automated pilot line for panel-based packaging and expects to start with “small mass production volume starting from next year.”

On end-market conditions, Tung said PC and cellphone softness “continues and it seems to be softening a bit more,” but he said demand for “AI peripheral” and “AI adjacent” chips—such as power, connectivity, and sensors—along with recovery in automotive and industrial, supports the company’s view that the general market segment can repeat last year’s growth rate.

Looking ahead on investment levels, Tung told analysts that 2027 “could be another CapEx heavy year,” and that any funding gap in 2026 would “mostly be funded by additional borrowing.” He added that ASE would not rule out a further CapEx increase this year given the pace of changes in forecasts and demand.

About ASE Technology NYSE: ASX

ASE Technology Holding Co, Ltd. NYSE: ASX, commonly referred to as ASE, is a Taiwan-based provider of semiconductor assembly and testing services. The company focuses on back-end semiconductor manufacturing and related services that prepare integrated circuits and other semiconductor devices for final use. Its core activities include advanced IC packaging, final testing, wafer probing, and related engineering and supply-chain support for semiconductor customers.

ASE offers a range of products and technical capabilities designed to meet increasingly complex packaging and system-in-package requirements.

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