ASE Technology Holding(ASX) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Consolidated net revenues increased 14% sequentially and 4% year-over-year to TWD26.4 billion with a gross margin of 16.5%, improving 0.1 percentage points sequentially and 0.3 percentage points year-over-year [4] - Operating profit was TWD11.5 billion, up TWD2.5 billion sequentially and TWD0.1 billion year-over-year, with an operating margin increase of 0.8 percentage points sequentially [5] - Net income for the quarter was TWD9.7 billion, representing an increase of TWD1.9 billion sequentially and TWD0.9 billion year-over-year [6] - The NT dollar depreciated 0.3% against the US dollar sequentially and 2.7% annually, positively impacting gross and operating margins by 0.1 percentage points sequentially and 0.7 percentage points annually [6][7] Business Line Performance - ATM revenues were TWD85.8 billion, up 10% sequentially and 3% annually, with a gross profit margin of 23.1%, up 1 percentage point sequentially and 0.9 percentage points year-over-year [9][10] - EMS revenues were TWD75.4 billion, improving 20% sequentially and 6% year-over-year, with a gross margin decline of 0.6 percentage points sequentially to 9% [15] - Test business grew 6% year-to-date compared to 1% for the assembly business, with test business expected to see a more pronounced pickup in Q4 [14] Market Performance - Leading-edge advanced packaging and seasonal ramps of communications devices drove better-than-anticipated Q3 performance [3] - The Automotive segment showed an increase in overall business, contributing to EMS revenue growth [17] - The company expects leading-edge advanced packaging revenues to double in FY2025, driven by AI, high-performance computing, and high-end networking and communications [20][21] Strategic Direction and Industry Competition - The company is investing heavily in leading-edge advanced packaging and testing, with capital expenditures expected to exceed annual depreciation and amortization levels of $1.9 billion [22][23] - The company is focusing on expanding capacity for leading-edge services, which are becoming more complex and require higher precision, leading to increased capital intensity [21][22] - The company is preparing for significant growth in leading-edge packaging and testing, with a focus on AI, networking, and communications [20][21] Management Commentary on Operating Environment and Future Outlook - The company expects Q4 ATM revenues to grow slightly quarter-over-quarter with flattish gross margins, while EMS revenues are expected to decline mid-single-digit quarter-over-quarter with a 1 percentage point decline in operating margin [27] - The company anticipates a challenging environment for EMS due to earlier seasonality and lackluster general demand [26] - Leading-edge products, particularly in AI and networking, are expected to drive strong growth, while seasonal products like communications and handset-related products remain stable [24][25] Other Important Information - The company had cash, cash equivalents, and current financial assets of TWD78.4 billion at the end of Q3, with total interest-bearing debt increasing by TWD29.3 billion to TWD213.2 billion [18] - Machinery and equipment capital expenditures for Q3 totaled$603 million, with $312 million used in packaging operations and$274 million in testing operations [19] Q&A Session Summary Question: Update on leading-edge advanced packaging revenue targets for 2025 - The company maintains its target of doubling leading-edge packaging and test revenue, with leading-edge expected to account for low teens percentage of overall ATM revenue [32][33] Question: Relationship with TSMC and competition from Amkor - The company is partnering with TSMC to expand capacity, with a natural division of work based on customer requests and economic considerations [39] - The company is focused on meeting current demand and is not overly concerned about competition from Amkor in the near term [39] Question: Gross margin trends and impact of leading-edge advanced packaging - The company expects margins to improve in 2025 as leading-edge capacity expands and test business grows, but margins will be front-end loaded due to higher investment costs [64][65] Question: Customer concentration in leading-edge advanced packaging - Customer concentration is high currently but is expected to become more broad-based in 2025 as demand diversifies [54] Question: Utilization rates and semiconductor market outlook - Utilization rates for packaging and testing were 65% to 70% in Q3 and are expected to remain similar in Q4 [55] - The general semiconductor market is expected to remain lukewarm in 2025, with leading-edge and AI-related business being the bright spots [57] Question: Investment in testing business and return profile - The company is investing across all aspects of testing, including wafer sort, final test, and burn-in, with a focus on turnkey services [61] - The return profile for leading-edge advanced packaging is expected to remain close to the rule of thumb of $1 of investment generating$1 of revenue [73] Question: Impact of edge AI on communications segment - Edge AI is expected to drive growth in the communications segment, but the timing and magnitude of this impact remain uncertain [76] Question: Smartphone and automotive demand trends - The company sees typical seasonality in smartphone demand and stable conditions in other segments, with some softness in automotive and industrial [87] Question: Burn-in testing and cost structure - The company is not yet able to comment on the cost structure for burn-in testing, as it depends on future business requirements [88]