ASE Technology Holding Co., Ltd. Q4 FY2024 earnings call

• 2024 recap: Consolidated revenues grew 2% year - on - year, ATM revenues up 3% year - on - year. Leading - edge advanced packaging and testing had strong demand, testing business grew 9% in 2024 and 18% in Q4 '24. Machinery CapEx was USD 1.9 billion, up by USD 1 billion vs 2023, mainly for advanced packaging and testing.
• 2025 outlook: ATM business to outgrow logic semiconductor market driven by leading - edge advanced packaging and testing. Leading - edge advanced packaging and testing revenues to increase by USD 1 billion vs 2024, accounting for about 10% of 2025 growth. General segment expected to grow mid - to high single digit year - on - year. Continue to accelerate investment in R&D, human capital, advanced packaging and testing capacity, factory automation and smart factory buildings.
• Market landscape and positioning: Total semiconductor revenues likely to reach $1 trillion in next decade driven by AI, robotics, etc. ASE well positioned to benefit from leading - edge advanced technology and growing volume of peripheral chips, with comprehensive technology toolbox and scale advantages.

In 2024, consolidated revenues grew 2% year - on - year. ATM revenues were up 3% year - on - year. Leading - edge advanced packaging and testing revenues were over USD 600 million in 2024, accounting for around 6% of ATM revenues, up from USD 250 million in 2023. Testing business grew 9% year - on - year in 2024 and 18% year - on - year in Q4 of '24. For the fourth quarter, ATM business outperformance was driven by some communications - related business and test business which grew 11% quarterly. EMS business was flattish for the full year, with fourth - quarter EMS revenues declining 1% sequentially and 5% year - over - year. In 2024, ATM business revenues improved by 3%, with packaging and test businesses up 2% and 9% respectively. Gross profit for ATM business in 2024 improved 6% to TWD 73.2 billion, with a gross margin of 22.5%. EMS business had 2% revenue growth for the full year, with a 2.9% operating margin.

• First quarter 2025 outlook: In NT dollar terms, ATM first quarter 2025 revenue expected to decline by mid - single - digit quarter - over - quarter, gross profit margin to decline by slightly more than 1 percentage point quarter - over - quarter. In NT dollar terms, EMS first quarter 2025 revenue expected to decline slightly year - over - year, EMS first quarter 2025 operating margin to decline by 30 basis points year - over - year.
• 2025 ATM business: Leading - edge packaging and testing revenue to increase by USD 1 billion vs 2024, accounting for about 10% of ATM revenue growth. Expect ATM gross margin to recover to structural GM target of 24% - 30% in 2025 full year. Machinery and equipment CapEx expected to be annualized amount of 2024 Q4 number, 60% for leading - edge, over 30% for testing. Facilities CapEx expected to double to around USD 2 billion in multiple new sites.

• U.S. BIS new regulation: Uncertainty regarding detailed execution, rules, capacity requirement, pricing and type of package for clients affected by the regulation.
• Operational challenges: Inflationary environment with elevated costs like electricity and logistics, high ramp - up costs of manpower and capacity, uncertainty related to facilities investment.
• Geopolitical impact: Impact of U.S. BIS新规 on Chinese clients and ASE's ability to serve them, with unclear clarity on current situation and potential impact on business.

Q: Can you clarify what the $1 billion of revenue for the leading - edge contribution is, additional new or overall advanced packaging would contribute about $1 billion?

A: In 2023, leading - edge revenue was around $250 million, grew to over $600 million in 2024, and will add another $1 billion extra revenue in 2025, altogether over $1.6 billion from leading edge, with 75% related to advanced packaging and 25% related to testing.

Q: Regarding the U.S. BIS new restrictions, do we see surge requests or order, what would that impact our deterioration rate or like a potential the order visibility or outlook in the near term?

A: We are working aggressively with foundry partner and customers to understand detailed execution, rules and capacity requirement. Currently, the number provided does not include this potential upside. We understand there will be upside, but no definitive plan on when it will happen, pricing and type of package.

Q: Can management talk about what ASE Group can do for this CPO advanced package and testing business?

A: ASE is playing a critical role in the supply chain. Working with foundry partner, ASIC suppliers, system design and end system. Been working on this for quite some time, ramping up revenue, but no major development to reveal yet.

Q: My first question is on test. I think you mentioned, Dr. Wu, that a test will accelerate in terms of growth this year. Is that an acceleration from the 18% year - on - year growth that we saw in Q4? Any color you can give us on the test growth this year? Also, previously, I think you talked about reaching 25% of revenues as like a mid - term target. Could you talk a little bit about when do you have that insight for test to reach 25% of revenues? And lastly, I think I just wanted to understand what are the margins for testing like, are they still in the low to mid - 30% levels?

A: The momentum of test business is continuing to grow, investment in test will occupy over 30% of overall CapEx this year, test business will outgrow packaging business by twofold. Test business has relatively stable margin, around 35% - ish gross margins, continuing into 2025.