What ASE Technology (ASX) Said on Its Q3 Earnings Call

Key Points

• Record Q3 performance: Revenue rose 45% year over year to TWD 244.2 billion, while net income surged 148% to TWD 27 billion. Results were driven by strong demand and near-full utilization across advanced packaging and testing capacity.
• LEAP drives margins and growth: Advanced packaging boosted ATM gross margin to 30.6%, and ASE raised its 2026 LEAP revenue outlook above $4 billion while maintaining expectations for LEAP revenue to double in 2027. Computing is expected to remain the company’s leading growth market through 2028.
• Investment and outlook increase: ASE raised 2026 capital spending to $11.5 billion to expand LEAP and mainstream capacity. For Q4, management expects revenue to grow 6%–8% sequentially, with consolidated gross margin of 23%–24%.

ASE Technology NYSE: ASX reported record third-quarter 2026 revenue and sharply higher profitability as demand for its leading-edge advanced packaging and testing services continued to exceed available capacity.

Consolidated revenue reached TWD 244.2 billion, up 28% from the prior quarter and 45% from a year earlier. Net income rose 28% sequentially and 148% year over year to TWD 27 billion. Fully diluted earnings per share were TWD 5.84, while basic EPS was TWD 6.13.

Ken Hsiang, head of investor relations, said advanced testing, assembly and materials, or ATM, capacity operated at or near full utilization during the quarter. Revenue exceeded the company’s prior expectations, primarily because of faster-than-expected installation of high-demand leading-edge advanced packaging, or LEAP, capacity.

“Demand for our services continues to outpace our ability to supply such services” in much of the company’s LEAP and non-LEAP capacity, Hsiang said.

Margins Expand on LEAP Mix

Consolidated gross profit was TWD 54 billion, producing a gross margin of 22.1%, up 1.1 percentage points sequentially and 5 percentage points from the prior year. Operating profit increased 57% from the second quarter and 151% year over year to TWD 33.1 billion, with operating margin expanding to 13.6%.

The ATM business accounted for 62% of consolidated revenue and 91% of operating profit in the quarter. ATM revenue rose 20% sequentially and 51% annually to a record TWD 151.5 billion. Its gross margin reached 30.6%, up 3.3 percentage points from the prior quarter and 8 percentage points from a year earlier, while operating margin increased to 20%.

Management attributed the gains to higher utilization, operating leverage and a richer LEAP revenue mix. Hsiang said the company’s historical structural gross-margin ceiling for ATM no longer appeared fixed because profitability increasingly depends on the level of LEAP product mix.

Chief Financial Officer Joseph Tung said the company now views the prior structural gross-margin ceiling as a base level for future performance. He said management expects continued quarterly ATM margin improvement in 2027 as LEAP capacity ramps and the company operates in what he described as a “pricing-friendly environment.”

LEAP services are primarily included in the company’s computing applications. Computing revenue grew 39% during the third quarter, while automotive, industrial and consumer applications each rose about 14%. Communications grew 8%. Management expects computing to lead growth into 2027 and 2028.

LEAP, Full-Process and CPO Outlook

Tung raised ASE’s 2026 LEAP revenue outlook to more than $4 billion, from the $3.7 billion forecast cited in the previous quarter. For 2027, the company continues to expect LEAP revenue to double.

For full-process business, management maintained its expectation for approximately $300 million in 2026 revenue and projected more than $1 billion in 2027. Tung said multiple customers are engaged with the company, but available capacity remains the primary constraint. He added that yields have reached levels that support mass production and major shipments.

The company also expects more than $500 million in 2027 revenue from co-packaged optics, or CPO, which will be included in LEAP revenue. Tung said CPO mass production began in the fourth quarter and will continue into 2027. He said CPO and near-packaged optics, or NPO, are expected to coexist, with their adoption dependent on differing performance requirements.

While both assembly and test demand remain strong, Tung said assembly growth is likely to outpace testing growth next year because of resource limits. Within testing, the company plans to prioritize wafer probe, or wafer sort, investment over final test. He said space is a greater constraint for test operations because assembly uses available manufacturing space more efficiently.

EMS Revenue Rises as Component Costs Pressure Margins

ASE’s electronics manufacturing services, or EMS, revenue rose 42% sequentially and 35% annually to TWD 93.5 billion. Gross margin declined 0.6 percentage points sequentially to 8.3%, reflecting higher pass-through component costs and product mix changes. EMS operating margin was 3.3%, up 0.9 percentage points sequentially but down 0.4 percentage points from a year earlier.

Management said component shortages tied to the rapid expansion of AI infrastructure have increased both reported EMS revenue and raw-material costs, reducing margins after those pass-through expenses are netted. Tung said AI-related high-performance computing represented roughly the mid-teens percentage of EMS revenue and was ramping rapidly. The company also plans to focus EMS efforts on optical, silicon photonics and power-related devices.

Higher Capital Spending and Fourth-Quarter Guidance

ASE spent $2.1 billion on machinery and equipment during the third quarter and an additional $1.8 billion on facilities and land. Year-to-date capital expenditures totaled $8 billion, including $4.8 billion for equipment and $3.2 billion for facilities.

The company has 22 building projects underway in Taiwan and expects more than half to begin supporting some level of revenue between now and 2027. Tung increased the company’s 2026 capital expenditure plan to $11.5 billion from $10.5 billion. Of the additional $1 billion, half will go to facilities and half to equipment, with 60% of the equipment increment allocated to LEAP and 40% to mainstream operations.

Total interest-bearing debt increased TWD 100.2 billion during the quarter to TWD 406.5 billion. Net debt to equity was 66%, which management described as a near-term peak expected to decline somewhat in the fourth quarter.

For the fourth quarter, ASE forecast consolidated revenue growth of 6% to 8% sequentially, gross margin of 23% to 24%, and operating margin of 14.5% to 15.5%. ATM revenue is expected to increase 11% to 13% sequentially, with ATM gross margin rising by 100 to 200 basis points. EMS revenue is expected to be roughly flat sequentially, with operating margin near 2%.

About ASE Technology (NYSE:ASX)

ASE Technology Holding Co, Ltd. is a Taiwan-based provider of semiconductor manufacturing services. Through its subsidiaries, the company offers outsourced semiconductor assembly and test services, helping chip designers and manufacturers package, assemble and evaluate integrated circuits after wafer fabrication.

Its services include wafer probing, wafer bumping, semiconductor packaging, final testing and advanced packaging technologies such as flip-chip, system-in-package and fan-out solutions.

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