管理層發言
Hello, I am Ken Hsiang, the Head of Investor Relations for ASE Technology Holdings. Welcome to our fourth quarter and full year 2024 earnings release. Thank you for attending our earnings release today. Please refer to our safe harbor notice on Page 2. All participants consent to having their voices and questions broadcast via participation in this event. If participants do not consent, please disconnect at this time. I would like to remind everyone that the presentation that follows may contain forward-looking statements. These forward-looking statements are subject to a high degree of risk, and our actual results may differ materially. For the purposes of this presentation, dollar figures are generally stated in new Taiwan dollars, unless otherwise indicated. As a Taiwan-based company, our financial information is presented in accordance with Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented by our subsidiary using Chinese GAAP.
I am joined today by Dr. Tien Wu, our COO, and Joseph Tung, our CFO. For today's presentation, Dr. Wu will be giving the company's key message. I will be going over the financial results, and then Joseph will then go through our company's guidance. Both Tien and Joseph will then be available to take your questions during the Q&A session that follows. During the Q&A session, I will be moderating, receiving and as needed, clarifying and condensing each interaction down to a single question. With that, let me hand the presentation over to Dr. Tien Wu. Tien? Thank you.
First of all, a bit late Happy Chinese New Year to all of you. Let me give you the recap for 2024. Our consolidated revenues grew 2% year-on-year in 2024, with ATM revenues up 3% year-on-year. We have seen a very strong demand for leading-edge packaging and testing, while the mainstream segment was a mixed bag. We saw a soft recovery in some segments and some other segments due to inventory correction as well as end market demand lagging behind the general market. Leading-edge advanced packaging and testing revenues were over USD 600 million, accounting for around 6% of ATM revenues, up from USD 250 million in 2023. Our testing business grew 9% year-on-year in 2024 and in particular, grew 18% year-on-year in Q4 of '24. We expect the testing revenue will have accelerated momentum into 2025. Our increased turnkey, as well as expanding leading-edge test. Our machinery CapEx was USD 1.9 billion, up by USD 1 billion versus 2023, mainly driven by advanced packaging and testing.
Next, let me give you 2025 outlook. Our ATM business is to outgrow the logic semiconductor market, driven by strong momentum of our leading-edge advanced packaging and testing business. Leading-edge advanced packaging and testing revenues will increase by USD 1 billion versus 2024. That will account for about 10% of our growth in 2025. While the general segment will be better than 2024, we expect them to grow mid- to high single digit year-on-year. On investment in R&D, human capital, advanced packaging and testing capacity, and also factory automation and all of the smart factory buildings, we will continue to accelerate in preparation for the AI-led super cycle which we believe has started in 2024, and we will see the momentum in 2025, 2026 and beyond. Lastly, let me give you a market landscape and ASE's positioning. We believe total semiconductor revenues are likely to reach $1 trillion in the next decade, driven by AI, robotics, electrification of all systems, also energy, and IoT-related products.
ASE is well-positioned to benefit from the strong demand for leading-edge advanced technology as well as the growing volume of peripheral chips on accelerating edge AI adoption. A comprehensive technology toolbox, 3D, 2.5D fan-out, large panel SiP, copackage optics, power, automation, scale advantages, and the geographic diversification of ASE make ASE the preferred partner for customers. ASE's strong financial performance and flexibility and agility in handling business model evolutions further widen the moat against competitors. Let me pass the floor back to Ken.
Dr. Wu. I will now go over the financial results. The fourth quarter ATM and EMS businesses came in slightly better than originally anticipated. Our ATM business's fourth quarter outperformance was driven primarily by some communications-related business. Strength was driven by our test business with a growing 11% quarterly. For the full year, our ATM business grew by 3%. Our leading-edge advanced packaging business accounted for most of this growth. And though testing finished strong, we believe our test growth will be even stronger during 2025. Our overall equipment utilization was in the mid- to high 60s. For our EMS business, despite a muted fourth quarter outlook due to earlier seasonality, our SiP product flow came in slightly ahead of our expectations during the fourth quarter. For the full year, our EMS business was flattish. We believe that this is somewhat in line with the electronics industry as a whole.
It should be noted that earlier seasonality somewhat distorts our annual comparisons for our EMS business and to a lesser extent, also at the holding company level. Please turn to Page 6 where you will find our fourth quarter consolidated results. For the fourth quarter, we recorded fully diluted EPS of $2.07 and basic EPS of $2.15. Consolidated net revenues increased 1% sequentially and year-over-year. We had a gross profit of $26.6 billion with a gross margin of 16.4%. Our gross margin declined by 0.1 percentage points sequentially and improved by 0.4 percentage points year-over-year. The sequential decline in margin is principally due to lower profitability from our EMS business. Our operating expenses increased by $0.4 billion sequentially and by $1.5 billion annually to $15.4 billion. The sequential increase in our operating expenses is primarily due to leading-edge advanced packaging and testing services ramp-up and timing of equity compensation-related expenses from our ATM business.
The year-over-year increase in operating expenses is primarily attributable to continued R&D staff-up and other labor-related costs. Our operating expense percentage increased sequentially by 0.2 percentage points and annually by 0.8 percentage points year-over-year to 9.5%. Our operating expense probably requires a bit of explanation here. Extensive preparation and groundwork for our leading-edge advanced packaging-related businesses started in late 2023 and ramped during 2024. We have been aggressively hiring and training new employees throughout 2024. We also needed to ramp our new product introduction efforts, including perfecting tooling and process flows that eventually needed to be in place. Finally, semiconductor manufacturing has become very visible throughout the world. The skill sets necessary to prepare, manage, and run manufacturing also are in high demand. Retention of our employees has become increasingly important, and all of this has been done in an inflationary environment.
As such, these expenditures have created a ramp in our operating expenses that started in 2024. We see our operating expenses continuing to rise on an absolute basis but will level off in the middle part of 2025. Further, as revenues related to these efforts grow, our operating expense percentage should start to decline during the back half of 2025. Operating profit was TWD 11.2 billion, down $0.3 billion sequentially and TWD 0.6 billion year-over-year. Operating margin declined 0.3 percentage points sequentially and declined 0.5 percentage points year-over-year. We believe this margin decline was primarily driven by higher compensation and ramp-up expenses related to leading-edge advanced packaging and geographical scale-up across our ATM and EMS businesses. During the quarter, we had a net nonoperating gain of $0.2 billion. Our nonoperating gain for the quarter primarily consists of net foreign exchange hedging activities, profits from associates, and other nonoperating income, offset in part by net interest expense of $1.3 billion.
Tax expense for the quarter was $1.9 billion. Our effective tax rate for the quarter was 16%. The effective tax rate during the quarter was lower than expected, primarily as a result of higher tax investment credit recognition. Net income for the quarter was TWD 9.3 billion, representing a decrease of TWD 0.4 billion sequentially and TWD 0.1 billion year-over-year, the NT dollar appreciated 0.5% against the U.S. dollar sequentially while depreciating 0.75% annually. From a sequential perspective, we estimate the NT dollar appreciation had a 0.1 percentage point negative impact on the company's gross and operating margins. While from an annual perspective, we estimate the NT dollar depreciation had a 0.2 percentage point positive impact on the company's gross and operating margins. On the bottom of the page, we provide key P&L line items without the inclusion of PPA-related expenses. Consolidated gross profit, excluding PPA expenses, would be TWD 27.3 billion with a 16.8% gross margin.
Operating profit would be TWD 12.1 billion with an operating margin of 7.5%. Net profit would be TWD 10.2 billion with a net margin of 6.3%. Basic EPS, excluding PPA expenses, would be TWD 2.36. Please refer to Page 7 and here, you will find the 2024 consolidated full-year results versus 2023 full-year results. Fully diluted EPS for the year was TWD 7.23 while basic EPS was TWD 7.52. For 2024, consolidated net revenues improved 2% as compared with 2023. ATM improved by 3%, while EMS business improved 2% annually. Gross profit for the year was TWD 96.9 billion, improving TWD 5.2 billion year-over-year or by 6%. In 2024, our consolidated gross margin improved 0.5 percentage points to 16.3%, principally as a result of foreign currency fluctuation and improved operating leverage from our ATM business, offset in part by higher utility costs. Operating expenses increased TWD 6.4 billion for the year and came in at TWD 57.8 billion.
Higher operating expenses, as discussed earlier, are the result of the ramp-up of leading-edge advanced packaging services and higher labor-related costs. Our overall operating expense percentage also increased to 9.7% as a result of these increases. Operating profit for the year was TWD 39.2 billion for the year, declining TWD 1.1 billion. Operating margin for the year was 6.6%, representing a decline of 0.3 percentage points from 2023. We recorded a net nonoperating gain of TWD 2.5 billion for the year, including a net interest expense of TWD 4.9 billion versus TWD 4.7 billion in 2023. And though interest rates may appear to be moderating, we believe that our interest expenses will most likely increase or stay near current levels heading into next year, given additional borrowing necessary to fund our expansion. Most of the nonoperating gains were associated with our foreign currency hedging activities.
Total tax expense was TWD 7.8 billion. The effective tax rate for the year was 18.6%. Current year income tax expense came in lower as a result of recognized deferred tax assets from increased government incentive programs on R&D. For the coming year, we believe our ongoing effective tax rate will be lowered by increased government incentive programs and offset in part by recent global minimum tax applications. We expect that the effective tax rate for the coming year will be slightly below 20%. Net income for the year increased by 2% to TWD 32.5 billion. On a full-year basis, we estimate that the depreciating NT dollar had a positive 0.8 percentage point impact to gross and operating margins. Removing the effect of PPA depreciation, our gross margin would be 16.9%. Our operating margin would be 7.3%. Our basic EPS would be $8.54. On Page 8 is a graphical presentation of our consolidated quarterly financial performance.
On a year-over-year basis, gross margins have been gradually improving. On the operating margin front, as was stated earlier, operating expenses increased in preparation of leading-edge advanced packaging capacity labor staff up, offshore site expansion costs from our EMS businesses, and equity compensation. On Page 9 is our ATM P&L. The ATM revenue reported here contains revenues eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses. For the fourth quarter of 2024, revenues for our ATM business were TWD 88.3 billion, up TWD 2.6 billion from the previous quarter and up TWD 6.4 billion from the same period last year. This represents a 3% increase sequentially and an 8% increase annually. Gross profit for our ATM business was TWD 20.6 billion, up TWD 0.8 billion sequentially and up TWD 1.4 billion year-over-year. Gross profit margin for our ATM business was 23.3%, up 0.2 percentage points sequentially and down 0.1 percentage points year-over-year.
The sequential margin improvement was primarily related to higher test and leading-edge advanced packaging business, offset in part by the impact of product mix shift. The annual margin decline is primarily the result of higher utility costs and product mix shifts, offset in part by favorable foreign exchange. During the fourth quarter, operating expenses were TWD 11.2 billion, up TWD 0.6 billion sequentially and TWD 1.2 billion year-over-year. The sequential increase in operating expenses was primarily driven by scaling up compensation costs, including headcount and timing of certain equity compensation. The annual operating expense increase was driven primarily by the continued scale-up of R&D labor and timing of equity compensation. Our operating expense percentage for the quarter was 12.6%, increasing 0.3 percentage points sequentially and up 0.4 percentage points annually. The sequential and annual increases were primarily due to labor ramp-ups preparing for higher leading-edge advanced packaging revenues.
During the fourth quarter, operating profit was TWD 9.4 billion, representing an increase of TWD 0.2 billion, both quarterly and annually. Operating margin was 10.7%, flat sequentially and down 0.5 percentage points year-over-year. For foreign exchange, we estimate that the NT to U.S. dollar exchange rate had a negative 0.2 percentage point impact on our ATM sequential margins and a positive 0.4 percentage point impact on a year-over-year basis. Without the impact of PPA-related depreciation and amortization, ATM gross profit margin would be 24% and operating profit margin would be 11.6%. On Page 10, we have our ATM full year P&L. 2024 revenues for our ATM business improved by 3%, with our packaging and test businesses up 2% and 9%, respectively. Gross profit for the year improved 6% to TWD 73.2 billion. Gross margin was 22.5%, up 0.7 percentage points. Margin improvement was the result of higher factory efficiency and a favorable foreign exchange environment, offset in part by higher utility costs and factory supply consumption due to shifting product mix.
Our operating expense percentage increased 0.9 percentage points to 12.6%. Operating profit nudged up TWD 0.2 billion to TWD 32 billion, while operating margin declined 0.3 percentage points to 9.8%. For foreign exchange, on a full year basis, we estimate that the depreciating NT dollar had a 1.4 percentage point impact on margins. Without the impact of PPA expenses, gross profit margin would be 23.5% and operating margin would be 11.1%. On Page 11, you'll find a graphical representation of our ATM P&L. On Page 12 is our ATM revenue by 3C market segments; you can see here the relative strength of our Communications segment during the fourth quarter. As previously mentioned, our leading-edge advanced services are currently spread across our computing and communications segments. On Page 13, you will find our ATM revenue by service type. The most prominent thing here is that our wire bond services saw gradual declines over the last 8 quarters.
Traditional wire bond products are in everyday electronics like WiFi, televisions, and household appliances. Frequently, they are not the main chip but mainly serve supporting roles as peripherals like a screen or power controller. This chart shows a somewhat simple concept; more basic products like many of those upgraded during COVID have a longer replacement cycle. We would expect to see a pickup in wire bond when a general recovery starts to happen. A corollary, you can see from this chart, is that there's strength in our advanced packaging and test businesses. We believe our efforts involved with growing our test business are continuing to pay off. Our test services have also managed to outgrow the corporate average, going from 16% to 18% of ATM. Our test business grew by 11% quarterly and 18% annually. As Dr. Wu mentioned earlier, we see our test business accelerating during 2025. On Page 14, you can see the fourth quarter results of our EMS business.
During the quarter, EMS revenues were TWD 74.9 billion, declining TWD 0.5 billion or 1% sequentially and TWD 4.3 billion or 5% year-over-year. The sequential and annual revenue declines are primarily the result of accelerated seasonality for the year. Sequentially, our EMS business's gross margin declined 0.7 percentage points to 8.3%. This change was principally the result of product mix and lowering operating leverage. Operating expenses within our EMS business declined TWD 0.1 billion sequentially and while increasing TWD 0.3 billion annually. The sequential expense decrease was primarily attributable to lower compensation expenses, while the annual increase is related to geographical expansion and acquisitions. Operating margin for the fourth quarter was 2.7%, declining 0.6 percentage points sequentially and declining 0.8 percentage points year-over-year. The sequential and annual declines were primarily due to product seasonality.
Our EMS fourth quarter operating profit was $2 billion down $0.5 billion sequentially while down $0.8 billion annually. For the full year, our EMS business experienced a somewhat muted electronics demand environment. For the full year, EMS revenues grew by 2%. Gross margin improved by 0.3 percentage points, primarily due to product mix. Operating margin for the year was 2.9%. The decline in our EMS operating margin was primarily due to geographical expansion and acquisitions with differing cost structures. Operating profit declined by $1 billion. On Page 15, you will find a graphical representation of our EMS revenue by application. There was a slight shift from consumer devices to communications devices. The shift here is generally due to underlying product seasonality. On Page 16, you will find key line items from our balance sheet. At the end of the year, we had cash, cash equivalents, and financial assets of $85.9 billion.
Our total interest-bearing debt increased by TWD 0.7 billion to TWD 213.9 billion. Total unused credit lines amounted to TWD 375.7 billion. Our EBITDA for the quarter was TWD 28.8 billion. Our net debt-to-equity this quarter was TWD 0.37. On Page 17, you will find our equipment capital expenditures relative to our EBITDA. Machinery and equipment capital expenditures for the fourth quarter and U.S. dollars totaled $640 million, of which $321 million were used in packaging operations, $290 million in testing operations, $23 million in EMS operations, and $5 million in interconnect material operations and others. Machinery and equipment capital expenditures for 2024 and U.S. dollars totaled $1.876 billion, of which $957 million were used in packaging operations, $815 million in testing operations, $89 million in EMS operations, and $15 million in interconnect material operations and others.
In addition to spending on machinery and equipment, we also spent $655 million on land and building or for simplicity's sake facilities during the fourth quarter while spending $1.1 billion for the full year. During 2024, we invested significantly in our facilities as part of our generational advancement in packaging technology. Given that our facilities spending is sporadic in nature, we have historically discussed our capital expenditures mainly as it pertains to our machinery and equipment spending for the sake of comparability. Our facilities were also previously more generic and not specialized as our machinery and equipment. But as factory automation, advancing technologies, and tighter building specifications are now driving new facility investments, the scale of investment steps up and now also represents significant technology advancements and competitive advantages for our businesses. At this point, I would like to hand the presentation over to Joseph for further discussion on our overall company outlook. Joseph?
Thank you, Ken. Let me give you a first quarter 2025 outlook. Based on our current business outlook and exchange rate assumptions, we project overall performance for the first quarter of 2025 to be as follows. For ATM, in NT dollar terms, our ATM first quarter 2025 revenue should decline by mid-single-digit quarter-over-quarter. And gross profit margin should decline by slightly more than 1 percentage point quarter-over-quarter. For EMS, in NT dollar terms, our EMS first quarter 2025 revenue should decline slightly year-over-year. Our EMS first quarter 2025 operating margin should decline by 30 basis points year-over-year. Now on top of our first quarter guidance, I would also like to give you some more color on our ATM business in 2025. First, on revenue. As Tien mentioned, our leading-edge packaging and testing business will continue to see very strong momentum, and we expect to add another $1 billion of revenue in this area, or 10% of our revenue, ATM revenue growth.
In terms of the general market, we expect our revenue to grow in line with the industry, giving us above mid-single-digit ATM revenue growth. To support such business prospects, we will need to further expand our CapEx in both capacity and matching facilities. For machinery and equipment, we expect our 2025 CapEx to be the annualized amount of the fourth quarter '24 number. Of which, 60% will be used for leading-edge to support the strong demand. Also, to support the aggressive expansion of both turnkey and pure testing businesses, over 30% of the total CapEx amount for the year will be allocated to testing. As mentioned by Ken, smart factory buildings have become an essential part of our overall leading-edge service offering. As such, we will need to double our CapEx and facilities to around USD 2 billion in multiple new sites, both in Taiwan and overseas. Secondly, I would like to talk about our profitability.
We ended 2024 with an ATM gross profit margin of around 22.5%, which is a bit short of our structural gross margin target of 24% due to a softer-than-expected recovery of the general market, which consequentially led to a sub-70% utilization rate. On top of that, our margin was also impacted by the inflationary environment with elevated costs, including electricity prices and logistics costs, etc. We're also experiencing higher ramp-up costs of manpower and capacity as we're in the investment and expansion mode at this point. Entering 2025, once we progressively complete the full ramp of our leading-edge capacity in the second half of this year, we expect ATM gross profit margin to reach the midpoint of our structural GM range with 2025 full year ATM gross margin recovering to structural GM targets of 24% to 30%, and we expect to see further improvement in profitability in 2026 as we continue to expand our business.
On operating expenses, the higher operating expenses are mainly due to active R&D investment, including the setup of R&D personnel, our Taiwan and overseas expansion, and upfront costs of some new facilities. We do expect in 2025 ATM operating expense ratio should decline by a notch but remain higher than previous years as we continue the investment in leading-edge technology, human capital, as well as varying upfront costs related to new facilities. We believe the operating leverage of these investments will become more meaningful starting in the latter part of 2025 or into 2026. And therefore, OpEx percentage will start leveling off as we enter the full ramp-up of the newly invested capacity. Finally, I would like to say that there are many uncertainties ahead that could very well change the overall landscape of our business prospects. But with that in mind, we will stay focused on effectively executing our plan for the year, and hopefully, we will have a very decent 2025 ahead of us. Thank you very much.
OpEx percentage will begin to stabilize as we fully ramp up the newly invested capacity starting in late 2025 or into 2026. There are many uncertainties that could impact our business prospects, but we will remain focused on successfully executing our plan for the year and we are optimistic about having a strong 2025. Thank you very much.
分析師問答
We have a question from Ms. Laura Chen of Citigroup.
Hello, can you clarify what you mentioned about the $1 billion in revenue related to the leading-edge contribution? Is this an additional new $1 billion, or is the overall advanced packaging expected to contribute about $1 billion? Thank you.
Tien mentioned that on top of the $600 million revenue we achieved in 2024, we will add another $1 billion of revenue in leading edge for the year.
Yes, that's very clear. And can you further also clarify that among that, can we kind of breakdown of that advanced packaging or 2.5Ds between like a GPU or potentially AI ASIC or maybe edge AI as well?
If it is blended, we will not give you the breakdown.
My second question is regarding the recent restrictions from the U.S. BIS. If clients, specifically Chinese clients at TSMC's advanced nodes, need to be packaged using approved SAT wires, TSMC may face challenges in shipping to those customers. From ASE's perspective, being on the whitelist, I am curious if we are seeing an increase in requests or orders and how that might impact our deterioration rate or potential order visibility and outlook in the near term.
Laura, you are asking about the BIS impact on our business, right, in general?
Right, right.
All right. This is a new regulation from BIS. And as we speak, we are working aggressively with our foundry partner as well as many customers. We're trying to understand the detailed execution, the rules, and also the capacity requirement. So all of these are in the process right now. The number that we have provided currently does not include this potential upside. We do understand there will be upside. However, we do not have a definitive plan in terms of when this upside will happen, the pricing as well as the type of package that are required. So at this point in time, we do understand this is an upside, and we are aggressively working with our partner and customer trying to fulfill that demand. But right now, we do not have any more details to provide.
Charlie.
So my first question is really about your new business developments, especially at the beginning, the opening remark, you mentioned about the co-packaged optics. Can management talk about what ASE Group can do for this CPO advanced package and testing business? Can we start from this topic?
Charlie, your question relates to copackage optics or are you asking in general about our R&D efforts?
The CPO, for example, what kind of service ASE Group can provide, timing, but it would be great if you talk about kind of the big picture, right, how you are working with that AI GPU customer supply chain and your foundry partner, this CPO development, right? Because I believe, it's kind of new, and there could be a lot of bottleneck in the supply chain, right? So I'm not sure how ASE is going to contribute to that.
Okay, Charlie wants to know about the overall CPO involvement that ASE has at this time, if you could first answer that.
Well, I think you have already said it's a new technology. And like any new technology, it takes some time to incubate, ASE is playing a critical role in the supply chain as part of the overall puzzle. So we're working with our foundry partner closely, the foundry technology is also evolving. We're working with our ASIC suppliers, their architecture and system design, as well as the request to the foundry partners are also evolving. And we're working with the end system. In other words, their overall thermal, electrical, power delivery, under all of this constraint, we firmly believe silicon photonics will be a vital incremental innovation to address many of these issues, together with other innovations. So as I said that ASE will play a critical role in this new innovation, in terms of how we work with our foundry ASICs and the system customers, I will not be able to reveal any development plan.
The only thing I can say is we've been working on this for quite some time. And then everybody's moving very hard as well as they are competing technology. But as we know, all of the competing technologies will have a plateau and will have a ceiling; we're firmly believe that optics will be a critical innovation for the whole supply chain, the ecosystem. That's pretty much I can tell you so far. In terms of revenue ramp-up, we are ramping up revenue. However, nothing major at this point in time, if that's what you're interested.
I have a second question, but somehow, can I have a clarification on Laura's question on your $1 billion revenue as well? Is that okay?
Yes, sure, sure. If we could clarify for Charlie and for Laura, the $1 billion extra revenue and the components of that?
Yes, yes. And then I have a second more important question. Why don't we go for the second one? I think that is also important to your investors because you can see those geographical dynamics, right? So your foundry partner may need to accelerate their U.S. production plan. So there has been some discussion about whether TSMC should also do CoWoS capacity in the U.S. And we kind of think that ASE becomes a more important partner with TSMC in CoWoS. So the reasonable question you said that whether ASE is considering your kind of advanced packaging opportunity or operation in the U.S.
Okay, Charlie would like first clarification on the $1 billion number. And then if we could follow up with the current U.S. geopolitical climate impact on our overall business at this time.
Yes, because the last time you talked about advanced packaging total revenues of $1 billion, but now you're talking about additional $1 billion. And your answer to Laura, you kind of talked about is the combining the leading-edge and advanced packaging. So I kind of get very, very confused.
We've got to let them answer first.
In terms of the additional $1 billion in revenue from leading-edge technology, I believe that about 75% will come from packaging, and the remaining 25% will be generated through advanced testing. Does that address your question regarding the first part?
Okay. So 25% is from advanced packaging and 75% from leading-edge packaging, is it...
75% related to advanced packaging, 25% related to testing, of leading-edge type products.
Oh, I see. I see. There's a huge upside, right? Because last year, you did USD 600 million. And your original guidance you said above $1 billion. So the original guidance you said that you're going to grow USD 400 million revenue, but now you are growing USD 1 billion revenue. Is that the right comparison, compared to your...
Let me clarify the numbers again. I think in 2023, we have leading-edge revenue of around $250 million and we grew that business in 2024 to over $600 million. And this year, we will add another $1 billion extra revenue from this new technology. So altogether, it will be over $1.6 billion from leading edge.
Okay. And your previous guidance is above $1 billion, but you didn't say how much above the $1 billion.
Correct. Correct.
Okay, then it's super clear. And can you go back to that major question? Your U.S. fab plan.
I'm trying to find the best way to respond to that question. We have been collaborating closely with our end customers and partners to determine the most efficient and visible method for ramping up various types of packaging globally. Currently, our plan is for ASE to establish the methodology, processes, automation, yields, and design database in Taiwan, where we are primarily focused. We will not expand beyond Taiwan until we are fully confident in our ability to execute the ramp effectively. Once we achieve that, we will consider relocating trained personnel, equipment, and materials to other regions. The leading edge is ever-evolving and requires significant resources and technological expertise. Achieving the necessary yield, investment, and qualification depends heavily on R&D, which cannot be managed in a satellite setup. It must be centralized at our headquarters to allow for constant adjustments and experimentation until we master the process.
Expanding overseas before that would not serve our customers or the destination country well, which has been our mutual understanding with our foundry partner and end customers. In short, we have these plans in the works, and we are in regular communication with all involved parties regarding our current status, production volumes, and acquired knowledge. I believe the end customers appreciate our approach, as it goes beyond financial considerations. Ultimately, we must focus on utilization, cost, and yield in leading-edge packaging. Currently, we lack the necessary knowledge and resources to operate effectively in a satellite environment.
Question from Mr. Gokul Hariharan of JPMorgan.
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? Is it like further acceleration? 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? Or is there some upside given that you're doing a lot more advanced testing?
So Gokul, you're asking about our general test business in relation to how it's going to grow and then eventually the target in terms of where we want to get it to and then overall margin structure, basically the test business as a whole?
Yes, that's right. Yes.
I think the momentum of our test business is continuously growing, and we do have a fairly aggressive growth plan for our test business as well in terms of it further increasing our turnkey ratio as well as trying to grab more pure testing business as well. So this year, as I mentioned earlier on, our investment in test will continue to occupy a large chunk of overall CapEx, roughly over 30% of the CapEx will be spent on test this year. And, again, I think this year, our test business will outgrow our packaging business by two-fold at this point.
Okay, does that answer your question?
Yes. Could you also talk a little bit about the gross margins? So 2x of packaging that that's quite clear. So that's definitely an acceleration compared to Q4. Could we also talk a little bit about the margins for test? I think our previous understanding has been it's like low to mid-30% gross margins. Is that consistent? Or is it even higher given that you have a lot more advanced testing business right now?
I think the test business, we continue to have a relatively stable margin, have a 35%-ish kind of margin that year in, year out, and we're seeing that continuing into 2025 as well.
My second question is on the leading-edge advanced packaging and testing revenues. I think our understanding and the market's understanding is right now that most of this is in partnership with the leading foundry. How is the business momentum for full-stack leading-edge advanced packaging and testing going? Are we starting to get more full-stack business also either on our own steam or in partnership with the leading foundry? And also, I think TSMC also talked about potentially CoWoS being applied to some non-AI applications also. Dr. Wu, could you talk a little bit about what are you seeing on this 2.5D and 3D packaging for non-AI applications given right now, most of it is AI?
So Gokul, you're asking about our leading-edge advanced packaging and, in terms of our, the developments within our focus-type solutions. And then to a certain extent, whether there's other R&D applications related to fan out at this point?
Yes, outside of AI because right now, it seems like mostly AI, but are you seeing this being adopted by other customers, whether that be in the HPC or even in the mobile space also?
It's typical for new technology to begin with a few early adopters before the industry identifies an anchor customer or group of customers. We've observed this trend with our new packaging technology, which has improved significantly over the past couple of years, becoming more sophisticated and reliable. As this technology matures, we expect to see more customers following suit. To answer your question, yes, we're working with other applications beyond AI, although it can be challenging to pinpoint what is non-AI these days, given the prevalence of AI integration. There are definitely other applications that are now utilizing the same platform. In the AI and related fields, we are seeing ASIC customers and system customers seeking their own versions of the architecture that align with our platform. From ASE's perspective, we prioritize clear communication with our partners, end customers, and foundry customers to ensure everyone knows their roles and contributions.
Our goal is to meet the ecosystem's needs effectively. As we progress, we're also focused on maintaining strong yields, regardless of the path we take. Currently, we're navigating this transition, with 2023 marking the beginning of our efforts. We anticipate 2024 to be a crucial year of transition, where all companies, including ASE, are figuring out their ramp-up strategies. The real impact from our deployments and investments will start to be felt in 2025, continuing into 2026 and 2027. To ensure a robust ramp-up from 2023 through 2025, we need contributions from both non-AI applications and ASIC/system designers. Additionally, as AI algorithms become more efficient, they will spur the development of new algorithms and applications, especially within AI edge devices, which will require more integrated system-level hardware. These will all utilize similar platforms, albeit with different configurations and materials. It's a comprehensive answer, but it's an important question. Thank you.
Maybe one clarification on outsourcing part from your partnership with the foundry versus your own full-stack solutions, including FOCoS and FOCoS-Bridge, like what is the kind of mix that you're expecting over the next maybe, I think, this year and maybe next year in terms of your visibility?
Gokul, can we revisit that a little bit later?
Sure. No worries.
Next question is from Mr. Brad Lin of BoA.
I have two questions. First, I would like to follow up on the growth component of leading-edge advanced packaging for this year. The revenue of at least $1.6 billion from this segment indicates strong upside, with 75% coming from packaging and 25% from testing. I would also like to know if there have been any changes in management's outlook regarding the revenue target for 2025, or if it remains consistent with expectations from three or six months ago. Additionally, if there is potential for upside, is it primarily from the packaging side, or is there a significant breakthrough expected from the testing side?
So Brad, you're asking what has changed in the meantime that led to the increase in the number, right? What are the factors that have been altered?
Yes. And then for the components in 2025, if there is upside, then well, upside to previous expectations, is that coming from packaging or testing?
To answer that question, I think the best way to put it is that there was no surprise. The only thing that affects Joseph and my previous estimate is our own ability to execute. The demand is definitely there. Clearly, we need to consider how we ramp our resources, facilities, and equipment, as we don't necessarily use all the same materials or equipment, and there has been a lot of collaboration on everyone's part. As we move through 2024, we are gaining confidence that we can execute our plan. So the short answer is that there was no unexpected news throughout 2024. Likewise, in 2025, while we are fulfilling our manufacturing commitments, we will continue to expand according to the roadmap established with our end customers and partners. Regarding the assembly and testing phases, there could be minor adjustments, but largely due to it being a turnkey operation, we have a good sense of the ratios involved.
Joseph and I discussed this, and this is the first time we've agreed to give you a very specific number as well as the mix because we have enough confidence in meeting this at least to 2025 levels. Around midyear, we will likely provide more clarity about 2026. I understand there are concerns about end market fluctuations, both positive and negative. However, based on our visibility for hardware demand, we believe we are still in an undersupply situation. Therefore, we are focused on ramping up to the best of our abilities. In terms of long-term capacity and other concerns, if you're investing in these capacities with a long-term view, say 5 to 10 years ahead, can you utilize them? We believe that AI is still in its early stages. We see a significant level of activity from hyperscalers, and over time, other applications that I have previously discussed, along with real volume in edge computing, will arise.
We believe the capacity we are adding will be fungible and adaptable, allowing us to tailor it for various applications and customers in the long run. Most importantly, as Ken mentioned, we believe this is the right time to strengthen our position by making prudent and affordable investments, focusing on creating smart factories and building extensive databases. The expertise in AI and brand-level platforms will greatly enhance our credibility and confidence with our system customers when they are ready to develop edge devices for their edge systems, which will involve many of the initiatives we are undertaking at the HPC level.
That's very clear. And then, well, may I follow up also? What was the mix? Yes, so how was the mix of the, well, testing and packaging for 2024, if I may?
Is this your second question.
No.
Well, why don't we go on to a wider question.
Okay. Yes, yes. So my second question would be on the, well, obviously, we are very happy to learn that this kind of advanced packaging, leading-edge advanced packaging, will be applied to many applications across GPU, ASIC and even the edge devices. And so does the management seeing the strengthening momentum maybe in the non-GPU side? Or if there is any option that management can take, would the management prioritize either ASIC, GPU or edge device, and how will be the criteria, maybe profitability or margins?
Your question is about our preference and the exposure to various devices beyond AI concerning these leading-edge advanced packages, is that correct?
Yes, and then, it would be good to know if whether ASIC or GPU or the edge device, with this kind of advanced packaging architecture, which one will be doing better or providing better margin for the firm?
I can probably answer that, but I'll pass it along.
Well, the correct answer is we're working with all of them, which is the truth. I mean in this space, there are limited end customers, so we'll not be able to go down to the detail because whatever I said, you can immediately link that to the end customers. There aren't that many of them. The truth is we're working with all of them trying to develop the appropriate architecture based on their requirements. And the requirement will change and will evolve based on their yield and manufacturability and cost. And we will provide you a better clarity when we believe it is the time to disclose. But right now, we won't be able to give you any kind of priority or who's taking what status. I only lump all of the leading edge. And there's one confusion I would like to clarify a little bit. The ASE versions of leading-edge is very leading-edge defined by our foundry customers, which is why $250 ramped up to $600 ramped up to $1.6 billion. The other advanced packaging, for example, a 7-nanometer is also advanced, but we do not count that as the leading edge. Such that we can give you better clarity, a little bit more specific, right? But there are other opportunities; 7-nanometer, the 14-nanometer, they also use pretty leading-edge, the pretty advanced packaging. It's a little bit confusing there, but I just want to make sure you understand what we're referring to for the $1.6 billion.
We have a question from Mr. Jason Tsang of CL Securities.
May I follow up the Laura's question in terms of the white list because we hear some rumors suggest that ASE's production line in China cannot support the client who are not in the white list. So I wonder if you can give us more details, is your whole group can all supports the clients or Chinese production cannot support. Wonder if you can give us more detail.
So Jason, your question relates to the U.S. BIS specifications in terms of our ability to work with the white list or be on the white list. Is that correct?
I mean your production line in China can also support the clients who are not in the white list. Is that okay or only non-China production line?
Okay. Jason would like to know more about our capabilities to support white list and non-white list customers within our China facilities.
Well, we want to be careful here because I don't want to give you any information that is not pertinent if that does not stick to the BIS requirement. Right now, we're in the process of clarifying, for example, our factory located inside of China, which set of customers can we serve? Until this is clarified, we will not give you any kind of official statement. We are in the process of working with our foundry partner as well as with the authority, on the precise requirement pertinent to that question. But what I can tell you is in case our China facility cannot support any customer per se, then we will explore the maximum probability of supporting that customer in Taiwan. And we're confident we will be able to come up with enough capacity in due time to support that. For other customers that would like to move to Taiwan, we are in the process of defining the required capacity, the investment while we're ramping up all of the other leading edge. However, ramping up other advanced capacity will be an easier task because ASE factories in Taiwan are all highly automated. So we don't believe that challenge is too daunting for us. However, we cannot give you a definitive answer because we do not have definitive clarity yet at this point. Maybe towards the second quarter, we'll have better clarity, and we'll be able to give you the right answer without misleading you. Thank you.
That's helpful. My second question is in terms of your outlook for your different kinds of applications. So could you please give some colors in terms of your gross momentum in terms of communication, computing, consumer or industrial, etc. And which kind of gross momentum did you expect for this year? Probably spend migrations or new market shares or in demand improvement?
So Jason, you're looking for clarification or more color on the various growth opportunities available to us. Is that correct?
Yes, in different kinds of applications for this year.
I believe it’s reasonable to expect that in the upcoming quarters, high-performance computing or computing will display the strongest growth. In terms of the overall market, communication appears to be recovering faster than other sectors. Most areas, except possibly automotive, are in recovery mode, and we expect business in these sectors to start improving in 2025. The automotive sector will take a bit longer, with the latest consensus suggesting we might see it returning to more stable levels around the third quarter of this year. Therefore, I think it's logical to assume that computing will increasingly represent a larger portion of our revenue in the forthcoming quarters.
Ken, do we have any other questions from analysts?
Yes. We have a question that was sent over from us from Sunny Lin of UBS. I think she may be having some problems with her Internet. She asks, regarding our collaboration with foundry on advanced packaging. Would we be able to do more with them? And in particular, whether the on-substrate component is the main business that we're seeking with them.
I think the right way to answer that question is, I think our foundry partner is open to all suggestions and feasibility. And then the requirement is can we fulfill the capacity with an acceptable yield and ramp-up quality. There is a step-by-step process with the strong support from our foundry partner to guide us together with our partner, and end customer and try to achieve that. I think we're trying to execute to that target, to that objective. In terms, can we expand the current portfolio into something else, I don't think our foundry partner is objecting to it. I think everything is possible, but at this point in time, we would like to hold that comment until we have better clarity.
And then her second question here relates to our investment in leading-edge advanced packaging, whether it's highly concentrated in terms of ultimate device or whether we view that this type of investment is widely usable or fungible going forward.
I thought I just answered that question.
Yes, kind of. Okay. Do we have another question?
So just belaboring this point on the leading-edge advanced packaging and testing, your foundry partner has talked about AI revenues for them growing mid-40% over the next 5 years. And when I look at ASE's leading-edge advanced packaging exposure, it also keeps track with these leading foundries, AI revenues with pretty much like a 1-year lag. So is that kind of like the growth rate that we could expect for your business also given your very tight partnership with this foundry partner? Like should we expect that you should also be able to grow those revenues at like 40%, 45% CAGR over the next 4, 5 years? Is that how you're planning thinking about the CapEx spend?
So Gokul, you're asking about whether our leading-edge advanced packaging aligns with foundry HPC growth, correct?
Foundry's AI growth. AI growth exactly. But they have given a 40% to 45% target for the next 5 years, yes.
We would like to take this 1 year at a time. I think there are leading indicators. If you look at our announcement on CapEx machinery that normally will give you a very good indicator, are we on the right track right or not. If we're not on the right track, we will try to reduce the spending because we know our trajectory is not heading in the right direction. So at this point in time, we would like to take a more conservative approach. Let's just take 1 year at a time. I think 2024, we deliver, we executed. 2025 is the first year we're trying to give a preposition. We give you a target for the full year, which we have never done that. I think we would like to be wait at least to the second quarter, the third quarter before we give you the '26 and '27 projections. Thank you.
Got it. And on this CapEx, could we talk a little bit about what is your kind of like payback? Or like how do you think about the CapEx and the ROI or ROCE attached to it? Maybe Joseph, how do you think about the CapEx and do we have a return number attached to it that we can share and in terms of what kind of timeline that you're looking at?
So you're looking for a general philosophy in terms of how we look at our CapEx?
Exactly. Because this year, I think the total CapEx seems like it's going to be north of $4 billion or so, right, including facility and machinery.
I think we're not yet at the steady state of these new investments. So I think it's a little bit premature to pinpoint exactly what kind of return or what kind of capital intensity that's required for the business. So we would like to reserve that until later. Maybe in the second half, we will have more accurate numbers to address this issue. But what I can say is, by the business that we're running today, I think the leading-edge is a margin-accretive business for us.
There's no other questions from the floor.
If there are no other questions, I think we can end it right here, we're getting close to about 1.5 hours. Thank you for attending our full-year earnings release. We will see you next quarter.
Thank you.