Kenneth Hsiang: Hello. I am Ken Hsiang, the Head of Investor Relations at ASE Technology Holdings. Welcome to our second quarter 2026 earnings release. I'm joined today by Dr. Tien Wu, our COO; and Joseph Tung, our CFO. Thank you for joining us 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 you do not consent, please refrain from asking questions or leave the session now. 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 separately presented by our subsidiaries. For today's presentation, Dr. Tien Wu will begin with a midyear business update. I will then walk through the Q2 results, and Joseph will close with our third quarter outlook. With that, let me hand the presentation over to Dr. Tien Wu.
Tien Wu: Good afternoon. I would like to give you the first half 2026 recap and also the full year outlook. For my presentation will be all in U.S. dollar terms. Consolidated revenue grew 24% year-on-year in the first half of 2026, with ATM revenues up 35% year-on-year for the first half. Leading-edge advanced packaging and overall testing outpaced growth. For ATM business, we expect to maintain the same growth momentum into the second half. For full year, LEAP services revenue is tracking ahead of prior guidance of USD 3.5 billion, while general segment is expected to grow by 30% (sic) [ 20% ] year-on-year versus previous guidance of 13%. So for the full year, we expect the ATM business revenue to grow by 35%. Machinery CapEx was USD 2.7 billion. Building facility automation was USD 1.4 billion in the first half. Joseph will give you more detail for the full year. Stepping up investment in R&D, human capital, advanced capacity and also automation and smart factory infrastructure to support a multiyear growth. On the second page, I would like to give you some highlight on market dynamics and positioning. There are many moving parts in the market today. You're reading the same newspaper watching the same news as I do. What I'm trying to present to you is the company view. We will try to present you the logic why are we making particular decision in this particular junction of time. AI enabled new applications with bigger scale and potentials. I'm not going to articulate the detail. If you're interested, we can talk more in the Q&A. That's our current view. I think very few of you will disagree with this statement that AI is a paradigm shift, and we do have potential bigger scale and multiple applications, and that's our current view. In terms of when, how we are monitoring the progress. I believe we are at the beginning of the AI paradigm shift. There will be multiple stages of transition. We can talk more in the Q&A. The second comment is how we feel. AI demands new hardware that does not exist previously in size, complexity and integration. You can argue about the competition intensity, the memory, the power, the linkage, the bandwidth. All in all, what we're trying to develop right now is a brand-new platform to support the potential AI applications. The data center, the Agentic and future in the physical AI, humanoid, all of the hardware will be different than what we have been producing so far. There is a growing need for industrial power, connectivity and storage devices because of the AI transition evolution or paradigm shift. The company is seeing all 3 right now from all of our customers on the multiyear basis. Let me talk about ASE's strategic priorities. Again, this is the company view. We have to have a blueprint, a plan, a vision in order for the 100,000 employees to act on. And where I'm trying to present to you is the highlight for that blueprint. Hardware infrastructure is a bottleneck. With AI, the hardware requirement is new, insatiable and more complicated and more complex. And today, there are very few manufacturers capable of producing hardware. Therefore, it is the bottleneck today for capacity, for automation and more importantly, from an innovation perspective. We can talk a little bit more detail about the panel, about CoWoS, about glass substrate, about VRM, about silicon photonics. I can go on and on. But all of these are tied to the infrastructure and your capability to ramp with the complexity, integration and the design blueprint the customer are asking to do. All in all, I call all of this to be hardware infrastructure, and that is the new bottleneck. We have not experienced this for the last 40 years. Packaging is moving up in system architecture value chain. For me, as a designer by training, the system architecture always is at the top of the value chain. Packaging is approaching the system architecture value by providing -- by providing the new complexity and integration capability with the variable that I just talked about it. Now if you believe hardware is the new bottleneck and the packaging is moving up in the value chain of the system architecture, then ASE has a unique position to support the AI migration, evolution or paradigm shift and align with all customers' long-term objective today. ASE's competitive position, I talked about this for many times, the ecosystem position cluster or Taiwan cluster, scale or the AI data center Taiwan scale and other digital scale, the efficiency, I want to single out the pure-play. The pure-play enables you to have a seamless cooperation with all supply chain players. In future, this could be one of the competitive advantage for ASE as a pure-play OSAT that we have no conflict with foundry, with no conflict with substrate provider. We have no conflict with anybody. Therefore, we have a good way not only to collaborate with our customers long term, also collaborate with all of the ecosystem players that will turn critical for the overall complex integrated nature for the AI transition or evolution. The first mover advantages, I'm very specific about the first mover advantages, technology, speed, capacity and most importantly, trust. So everything the company does circle around the long-term business objective as well as the seamless integration with ecosystem player and give you the speed, the efficiency and earn the customer trust. So that's the highlight for me for the second half. Thank you.
Kenneth Hsiang: Thank you, Tien. As Dr. Wu highlighted, our businesses performed extremely well throughout the first half of the year. For the quarter, we saw strong growth within both our LEAP and our general businesses. Non-LEAP capacities like wire bond and traditional advanced packaging were also tight. For test, our wafer sort and final test capacities were also running near full. Effectively, outside of equipment lines being placed into service, capacities were generally very close to being full. Our blended utilization rate for the quarter was between 80% to 85%. Our capability for near-term incremental growth is being gated by our abilities to install capital equipment and build out our buildings and facilities. From a financial perspective, second quarter ATM revenues came in ahead of our original expectations driven by higher loading from both our LEAP and general services. From the profitability perspective, we also saw our gross margin outpacing our original expectations, driven by higher loading, resulting in more operating leverage. Revenues for our EMS business were generally in line with our expectations. EMS profitability was slightly below our expectations due to product mix and higher component prices. Please turn to Page 5, where you will find our second quarter consolidated results. For Q2, fully diluted EPS was TWD 4.61, and basic EPS came in at TWD 4.80. We believe our earnings reflect strong core profitability and a few nonoperating items will outline shortly. Consolidated net revenues reached TWD 191.1 billion, up 10% sequentially and 27% year-over-year. Gross profit was TWD 40.2 billion with a gross margin of 21.0%, up 1 percentage point sequentially and 4 percentage points year-over-year. The sequential improvement stems from higher operating leverage in our ATM business. The annual improvement reflects both structural efficiency gains and a more favorable NT dollar environment. Operating expenses totaled TWD 19 billion, up TWD 3.5 billion year-over-year, primarily driven by higher labor costs and further R&D spend to support LEAP initiatives. As a percentage of revenue, operating expenses remained flat at 10% and declined 0.3 percentage points annually. This delivered an operating profit of TWD 21.1 billion, up 21% quarter-over-quarter and 107% year-over-year with an operating margin of 11.1%, expanding 1 percentage point sequentially and 4.3 percentage points annually. Nonoperating income totaled TWD 4.6 billion, compared to TWD 0.7 billion in the prior quarter. While this amount appears relatively elevated versus prior quarters, the increase primarily reflects some potentially nonrecurring gains. Our net nonoperating income includes mark-to-market equity gains related to our corporate investments of TWD 4.2 billion, foreign currency hedging gains of TWD 1.5 billion and other items, including equity method investment income, government grants, rent income and dividends totaling TWD 0.8 billion. These gains were partially offset by TWD 1.9 billion in net interest expenses. Tax expense was TWD 4.2 billion. Our effective tax rate came in at 16.4%. We saw a lower effective tax rate due to higher R&D credits generated during the quarter. We continue to expect an effective tax rate of 18% for the year. Net income for the quarter was TWD 21.1 billion, up 49% sequentially and 180% year-over-year. On Page 6 is a graphical view of our consolidated quarterly performance. For the second quarter 2026, our ATM business represented 66% of our consolidated holding company revenue while representing 94% of our operating profit. This is compared to 61% of consolidated holding company revenue, while representing 87% of operating profit in the second quarter last year. We see this being primarily driven by the growth of our ATM LEAP services over the last few years. On Page 7 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 second quarter of 2026, we recorded record revenues for our ATM business of TWD 126.1 billion, up TWD 13.7 billion sequentially and TWD 33.6 billion annually, representing an increase of 12% sequential and 36% annual growth. Gross profit for our ATM business was TWD 34.5 billion, up TWD 5.3 billion sequentially and up TWD 14.2 billion year-over-year. ATM gross profit margin was 27.3%, up 1.3 percentage points sequentially and 5.4 percentage points annually, driven by higher operating leverage and a more favorable revenue mix, particularly a higher mix of LEAP. During the second quarter, operating expenses were TWD 14.7 billion, up TWD 1.4 billion sequentially and TWD 3.3 billion year-over-year. The sequential and annual increases in operating expenses are primarily related to higher overall labor costs and general R&D expenses. Our operating expense ratio was 11.7%, down by 0.1 percentage points sequentially and 0.6 percentage points annually. We expect our ATM operating expense ratio should continue to improve during the back half of 2026. During the second quarter, operating profit was TWD 19.8 billion, representing a sequential 25% increase of TWD 3.9 billion and a 124% annual increase of TWD 11 billion. Operating margin was 15.7%, up 1.6 percentage points sequentially and up 6.2 percentage points year-over-year. The NT dollar had a positive 0.1 sequential and a 0.6 annual percentage point impact to our gross and operating margins. On Page 8, you'll find a graphical representation of our ATM P&L. The chart highlights the improvement in our gross profit margin. It should be noted here that our second and third quarter 2025 margins were heavily impacted by NT dollar strengthening. Over this time frame, our margin improvement has been largely driven by the recovery of our utilization rate related to our general manufacturing capacities and increasing LEAP product mix. On Page 9 is our ATM revenue by the 3C market segments. LEAP services are primarily included within our computing applications, with a lesser amount being included in the communications applications. As can be seen here, the computing application percentage continues to grow steadily. At this time, we see this trend continuing into 2027 and 2028. On Page 10, you will find our ATM revenue by service type. Despite the overall growth in our business, we did not see substantial shifts in service types during the quarter. All business lines appear to be keeping pace outside of small adjustments between materials and others. At the beginning of the year, we believed that our test business, led by rapid expansion of our wafer sort business would outpace growth in our assembly business. While our test business has shown the strong growth we initially expected, our assembly business has been showing even stronger-than-expected growth. Especially as it relates to legacy wire bond services. We now believe that both our assembly and test businesses will grow at similar rates during the year. On Page 11, you can see the second quarter results of our EMS business. EMS revenues grew 6% sequentially and 12% annually to TWD 65.8 billion. Sequentially, our EMS business' gross margin decreased by 0.6 percentage points to 8.9%. This change was principally the result of product mix differences. EMS operating expenses increased by TWD 0.3 billion sequentially and annually. Our second quarter EMS operating expense ratio of 6.5% was flat sequentially and down 0.4 percentage points annually. Operating margin came in at 2.4%, down 0.6 percentage points sequentially and 0.2 percentage points year-over-year. The sequential margin decline is the result of product mix and a higher component cost environment. Our EMS second quarter operating profit was TWD 1.6 billion, down TWD 0.3 billion sequentially and up TWD 0.1 billion annually. On the bottom of the page, you will find a graphical representation of our EMS revenue by application. Generally, the moves in the consumer and communication categories are related to the seasonality of the underlying products we service. The growth in the computing category is largely driven by business related to our AI accelerator products. From the holding company perspective, we continue to pursue synergies between our ATM and EMS businesses to co-develop system-level solutions, particularly in key areas such as optical interconnects, power delivery and thermal management. By integrating critical EMS competencies with ATM technologies, we have the potential to optimize entire systems end-to-end, applying the same co-engineering disciplines that successfully scaled SiP architecture. On Page 12, you will find key line items from our balance sheet. At the end of the quarter, we had cash, cash equivalents and current financial assets of TWD 107.4 billion. Our total interest-bearing debt increased by TWD 40.9 billion to TWD 306.2 billion. Total unused credit lines amounted to TWD 396.2 billion. Our EBITDA for the quarter was TWD 45.8 billion. Our net debt to equity this quarter was 47%. On Page 13, you will find our equipment capital expenditures relative to our EBITDA. Machinery and equipment capital expenditures for the second quarter in U.S. dollars totaled $1.7 billion, of which $840 million was used in packaging operations, $804 million in testing operations, $49 million in EMS operations and $2 million in interconnect materials operations and others. In addition to spending on machinery and equipment, during the quarter, we also spent $658 million on facilities. It is worth reiterating what Dr. Wu spoke of earlier. We are investing in capacities and facilities because what we do has immediate impacts on key bottlenecks in semiconductor supply, performance and efficiency, the AI build-out regardless of open or closed model waiting will require unprecedented hardware capacity and capability expansion. At this point, we are just trying to keep up. With that, I'll hand the presentation over to Joseph to walk through the company's outlook.
Joseph Tung: Okay. Now for third quarter 2026 outlook. Based on our current business outlook and exchange rate assumption of USD 1 to TWD 31.9 versus last quarter's TWD 31.6, management projects overall performance for the third quarter of 2026 to be as follows: -- on a consolidated basis, in NT dollar terms, our consolidated third quarter revenue should grow by 21% to 22% quarter-over-quarter. Our consolidated third quarter gross margin should be between 12.5% to 21.5%. Our consolidated third quarter operating margin should be between 11.5% to 12.5%. For ATM, in NT dollar terms, our ATM third quarter revenue should grow by 11% to 13% quarter-over-quarter. Our ATM third quarter gross margin should be between 28% to 29%. On EMS, in NT dollar terms, our EMS third quarter revenue should grow by around 40% quarter-over-quarter. Our EMS third quarter operating margin should be between 3.2% to 3.4% -- with that is the '26 third quarter outlook. Now adding a bit of color for the full year and next. First, on CapEx. Given stronger demand for LEAP in 2026 and beyond, we will need to add another USD 1 billion each this year for facilities and equipment. So the total is adding another USD 2 billion for CapEx. While the additional investment for facilities and most of the equipment are for LEAP, we also need to add capacity for mainstream advanced packaging and testing to support the general market demand. On LEAP, well, this year's LEAP service revenue tracking ahead of our prior quarter guidance of USD 3.5 billion, -- as business momentum continues to be very strong, we are aiming to double our LEAP revenue in 2027. Lastly, on ATM profitability, with expanding margin-accretive LEAP and test businesses, our second quarter ATM gross margin of 27.3% came in ahead of our guidance. We continue to expect sequential margin improvement with fourth quarter ATM gross margin likely to exceed our structural margin ceiling of 30%. At such point, we will start to review if we would adjust our structural margin range. With that, thank you.
Kenneth Hsiang: During the Q&A session that follows, we would appreciate if your questions could be as clear and concise as possible and ask singularly. We will start by taking questions from live participants and then alternate in questions from our online participants. I, as the moderator, will be receiving each question and repeating and directing each asked question. After an initial question, the participant may ask a follow-up question, clarifications of the earlier question or another question entirely. Then we'll move to the next participant. Participants may return to the queue for any additional questions and/or clarifications. Thank you.
Charlie Chan: Dr. Wu, So, just to follow our conversation. your industry peer seems to be more aggressive in the U.S. operation, not just Amkor, but also KYEC announced to do that, right? So I want to ask you about kind of your partnership with the U.S. customers and also your operation in the U.S. I guess it's a little bit separate question, but can you also comment a little bit about the Intel EMIB involvement by ASE?
Kenneth Hsiang: Charlie, you're asking about the competitive landscape that we're facing and secondly, EMIB. Dr. Wu?
Tien Wu: Well, let me answer the U.S. operation first. What I'm going to talk about it, I have repeated several times for the last 2 years. We do have U.S. operation, ISE, test development, also services in California. We have one factory in Fremont, California. We have one factory in San Jose. We're in the process of expanding to #3 and #4 factories. These are particularly required by our customers during the -- well, for the last 20 years in Bay Area for upfront chip design, test development, also technology development, and that is ongoing right now. The agreement that we have with our leading customer is the following: we will develop and build fully automated efficient line in Taiwan. We are comfortable with our resources and efficiency. In due time, we will migrate and move the operation to the other places in the world. It could be United States, could be somewhere else. That has always been the case. So it's not like we're not supporting. We are supporting development, R&D, also architectural design. In terms of manufacturing process development, for now, we are focusing on Taiwan. Until we build the appropriate scale, having the appropriate resources and know-how and efficiency, -- upon that time, we will work with our customers to move to the other part of the world for better logistics, okay? The second comment is EMIB. EMIB, I'm going to repeat what TSMC has responded. Right now, it's really capacity constrained. If there's any other alternative technology that can offer the same yield to resolve the bottleneck that we have for the AI infrastructure, we welcome to see that. For ASE, we're also collaborating with the other customers also along the same line, including EMIB. The following question is the -- if EMIB posting potential threat or competitive advantages over a CoWoS, right? That's always a possibility. I have been working in the packaging industry for 40 years. I've gone through about 1,000 different packaging design. At the end of the day, probably 20 will leave, will be here. So there's always a competing technology, alternative materials, that's always been the focus of R&D, right? For EMIB, we're happy to see if EMIB can ramp up. In terms of efficiency, performance, that's up to the system as well as the market to decide. We're not going to make a judgment call who has a superiority. But our focus is to support the CoWoS. We're trying to ramp up the CoWoS scale efficiency as fast as we can. If customers ask for other alternative technology, ASE will also include that in our road map, right? I don't think there's a potential threat. Again, we are a pure-play. If the EMIB substrate becomes the right alternative, which is by EMIB substrate, and we do the assembly, there is no conflict. So anything is welcome. It's not like a zero-sum game, like you can only choose one. I mean it's never been the case, right? The world is a big place.
Kenneth Hsiang: More question from the floor.
Rick Hsu: My first question is, can you give us a little bit more detailed guideline for your Q3 ATM demand driver for both for LEAP and also for general packaging and testing, the more detailed demand driver across the key applications or products.
Kenneth Hsiang: Rick, you're asking for maybe segmented drivers of what's helping the industry or our results pick up at this point. Is that correct?
Rick Hsu: Yes, right. Demand driver.
Tien Wu: The question is the Q3 driver. Again, the -- we have a very awkward and peculiar position because we're capacity constrained. So we talk about 12% to 13% growth. That means we have to add 12% to 13% capacity. The demand overall is strong. I'm not going to comment about the memory pricing or any consumer devices. But overall, all of our customers are asking for more devices for Q3 and Q4.
Kenneth Hsiang: Rick, follow-up.
Rick Hsu: No, not a follow-up. The second question. Can you elaborate your development of the CoWoS like? And this year, roughly about how much is still coming from outsourcing? And what's your development and progress into next year of your internal CoWoS development?
Kenneth Hsiang: Rick, you're looking for the composition of our LEAP services between what is potentially OS type services and full process and test.
Joseph Tung: I think basically, we are on track with our full process business development. But this year, we said that we're going to have about TWD 300 million worth of revenue coming from that space, and things are on track. We are aggressively expanding that capacity. And by next year, I think we will have pretty substantial growth in that area as well. And again, this is something that under development. We have not fully -- I think margin-wise, has not fully reflected at this point. But going forward, I think full process will also be another margin accretive business for us with pretty much -- pretty good substantial growth coming into next year.
Kenneth Hsiang: We have our next question coming from online.
Operator: Next question is from Sunny Lin of UBS.
Sunny Lin: Could you hear me okay?
Kenneth Hsiang: Yes, we can hear you.
Sunny Lin: Congrats on the very strong outlook. Sorry for not being able to attend in person. So my first question is maybe to follow up on 2027 LEAP outlook. And so maybe take a step back, you are guiding for this year LEAP to exceed $3.5 billion. So should we be looking at maybe $4 billion or maybe between $3.5 billion to $4 billion? And then for 2027, for it to double, have we already had an idea in terms of breakdown by full process outsourcing for on substrate and also test?
Kenneth Hsiang: Sunny, you're looking for an update on our LEAP guidance for this year. And then looking forward into 2027, whether we have any nuggets of information for you. Is that correct?
Sunny Lin: Right.
Tien Wu: Currently.
Joseph Tung: Well, I think Tien mentioned that we are ahead of our LEAP revenue this year. And by ahead, I think we will be adding another couple of hundred million dollars worth of revenue coming out of this year. And on top of that, for next year, we still see very strong momentum. And we believe at this point that we should be able to doubling that -- to double the revenue of LEAP revenue next year. In terms of -- we are going full speed ahead with both our assembly as well as test. And as Ken mentioned, at this point, assembly is also catching up in terms of its growth momentum with test. So for next year, I think the combination will be pretty much similar to what we're having seen this year.
Sunny Lin: Well, but sorry, maybe let me clarify, if I may. So I just want to get a bit more color in terms of LEAP breakdown going to 2027. I do assume that full process will account for a much larger portion for 2027. So any color would be very helpful.
Tien Wu: Probably 2 quarters from now, we'll give you a better color. Thank you.
Sunny Lin: Sure. So maybe if I may, a second question, Dr. Wu want to double-click on your earlier comment regarding AI driving lots of new applications with different complexities and scope. And so if I may, maybe based on your current engagement with the clients, what type of devices you are seeing better visibility that -- and then if we could see a more meaningful ramp in the coming few years?
Kenneth Hsiang: Sunny, you're looking for a little bit more color in terms of what potential applications and devices that we may see coming in the future?
Sunny Lin: Yes, due to AI.
Tien Wu: I would like to separate the technology statement versus business statement. Technology would take 15 to 20 years to develop. And the business statement typically, you're interested in 4 quarters, probably the longest lead time. So let me comment on the CoWoS, or example, for EMIB and other alternative technology, the AI data center is driving computation intensity. Therefore, the reticle size becomes bigger and bigger that we know already. Everybody demands more bandwidth from logic, ASIC as well as memory. Therefore, the immediate upfront will be the panel or more complicated CoWoS to accommodate a bigger chiplet or reticle size. Okay? That's one dimension that we're dealing with. We also comment that somewhere along the line towards the end of the year, the CPO will start launching. Initially, it could be in small volume. However, we will have a critical benchmark information in terms of the bandwidth and the system performance and also the thermal dissipation that can resolve. Pending on the cost performance ratio and also the yield, we will learn critical information. When the reticle size becomes bigger and the optics to come in a different hierarchy, then the power delivery becomes the next immediate question. This will be deployed in the next 2 to 3 years. On the much longer term, there are other things people are working on. For example, today, we're primarily dealing with digital and digital. There's a lot of activity going on to start accommodating sensor, analog, mixed signal with digital. If you think about the humanoid applications, other than the brain, the eyes, ears, fingers, they're all analog. So what are the technology that can provide the low power, the bandwidth as well as the fully automated, high-volume integrated capability to digital to do digital analog mixed signal. These are the infrastructure a pure-play OSAT supplier should work with the customer trying to develop. The technology takes 15 to 20 years to develop. All of the business we're taking are deploying now are the result for the past 15 years of effort. So I would like to make that separation. But if you're interested, I think the AI has a very long leg. You can listen to all the smart people about the infrastructure, AI data center, about Agentic and also the physical interface. I also would like to give you some color on how I see the AI. I'm not the best person to talk about it. I have a very simple view to look at AI. AI is for a new pattern recognition in the domain knowledge you're familiar with. When people start crossing domain, IT versus pharmaceutical, IT versus medical, the new pattern get recognized. When you recognize the pattern, that's the potential application. We're at the beginning of the knowledge collection and the early stage of a pattern recognition. That's what AI does. But today, we'll only talk about single field. Eventually, in the world, I do not know how many it's got to be 100 domains. How do you bridge all of the domain knowledge and start creating something hybrid? -- the medicine, the surgical, humanoid, all of this are the potential application. All the technology we use exactly the building block that we're developing today. So what we're doing, not just for AI data center, if all we're thinking about is AI data center for a specific customer, then we really miss the point of what engineering does. Engineering is to build elegant solution for the future demand regardless how difficult it is. It takes 15 to 20 years. This is not a stock trade. But what you're seeing is we are the first mover. We already have the cluster efficiency in the early stage of this AI transition. I think that means a lot if you really understand what I'm trying to tell you.
Operator: Next online question is from Gokul Hariharan.
Gokul Hariharan: Okay. Dr. Wu and Joseph, maybe first question, just to Dr. Wu. You have been working in very close partnership with the lead foundry customer -- sorry, lead foundry partner for the last few years, which has been helping the LEAP revenue growth quite nicely. They seem to be transitioning a little bit towards 3D panel level kind of future technologies, at least pretty aggressively, it looks like in the next 2, 3 years compared to the last 3, 4 years have been largely been about CoWoS and various forms of CoWoS. So as they are embarking on that part -- on that kind of transition, Dr. Wu, could you help us understand what is ASE's role? Is it getting elevated further in that partnership? And obviously, some of the full process CoWoS is also a result of them leaving some of these older areas to you as well. So just could you outline your -- what you talked about on the technology side in relationship to how this partnership with the lead foundry is going to work out in the next maybe 2, 3 years first?
Kenneth Hsiang: Gokul, you're asking about as our foundry partner progresses into their -- further down their technology road maps, how our -- what our plans are to intermix and or interlink with them in this process. Is that correct?
Gokul Hariharan: And do you get more value add out of it as they kind of migrate out to more complicated packaging?
Tien Wu: The collaboration is long term. Once again, I want to focus on the pure-play. The foundry ideally is a pure-play for wafer. Testing, bumping, packaging are enabler to support the delivery of the wafer to the correct customer in the correct timing also with the correct efficiency. Packaging pure-play is to develop a packaging architecture, all the Lego pieces to facilitate that. When the pure-play foundry with the pure-play packaging collaborate, that boundary is very clear. So today, there are packaging that needs to be taken by the foundry people because access to the leading edge wafer is simply not available to the others or some architecture requirement that has strict IP that would like to honor and respect the customer as was the foundry. That is a domain that the pure-play wafer people needs to decide. But preclude from that, the collaboration will cover all aspects in the packaging arena. In terms of where do we stop the line, when do we start the line, that depends on the wisdom of the management team of the ecosystem collaborator. -- right? I'm not sure how to give you a better answer. But as you can see, the OS, the full process, all of the collaboration are the full spectrum. In terms of future, we do not know, but it really depends on the pure-play IP as well as the customer's requirement, but we will try to navigate through all of the complexity. But the important thing is we all understand we would like to provide speedy, the most elegant solution in the quickest amount of time to our customers collectively. That understanding is very clear and it's very obvious for the next 3 years as well as the ramp-up in the next few years.
Gokul Hariharan: Got it. That's very clear. My next question is just on a couple of the guidance increases that you have. One is on LEAP for 2027. I think previously, we were expecting, I think, $1.9 billion or so additional. Now we are expecting doubling of the revenue. Is that primarily coming from having more line of sight into capacity availability because I think demand is probably still much higher than what you can really support even next year. And secondly, mainstream us expecting the growth to be close to 20% this year from the, I think, 13% previously. Where is that upside coming from on the mainstream growth?
Kenneth Hsiang: Gokul, you're looking for incremental explanation related to what is driving our LEAP 2027 outlook and also what has helped us drive our mainstream expectations up this year. Is that correct?
Gokul Hariharan: That's right. Yes.
Tien Wu: We have clear line of sight in terms of who needs what. We also have a clear line of sight on the building, the facility that we're building today. When we make a comment that this year, by year-end, we're tracking ahead of the $3.5 billion. That comment is made because we see our yield and execution that gave us the confidence to tell you that by year-end, we will achieve that target. But at the same token, we also give you a comment that whatever that target has been achieved by year-end, with the next 12 months, building new facility and adding new machines, we will be able to double that. That line of sight is there. The uncertainty exists in terms of how can we execute. So the business demand is not a concern. It's our own capability to execute the 2 line of sight, which is clear in front of us. In terms of the general devices, we see very strong demand in industrial, power, connectivity and storage devices. I do not know what the general market for semiconductor this year. I don't have that number, right? I believe we will outperform the general market simply because our association with a stronger AI infrastructure development, also our superior capability to have fully automated lines for most of the general devices. So people want to build devices to go into electrical vehicle AI data center or any high-impact, high-risk applications, chances are they will use our fully automated line. That's why we're having very good traction. So in terms of capacity expansion, not only we need to expand the LEAP, we also need to expand the general market. That's putting tremendous amount of pressure on ASE, which is why I think during the shareholders' meeting, I complained that ASE is building 13 new facility simultaneously this year. And we just bought another 7 brownfield. So we're building, we're buying, and we're spending CapEx. We're not happy about it. But the question now is that is our obligation. This is why we're here. We want to make sure we are providing the critical capacity to the best of our capability to satisfy the long-term objective from all of our customers.
Kenneth Hsiang: Charlie, do you want to shoot at another round of questions there? Yes, go ahead. Microphone.
Charlie Chan: Ken. I do have 2 questions, but can I make a clarification on the previous Q&A?
Kenneth Hsiang: Please Go ahead.
Charlie Chan: So about the LEAP revenue next year, right? So Joseph, you talked about the mix will be very similar to this year, next year's LEAP revenue mix, right? But according to our analysis, it seems like your kind of 2.5D, the end customer is 86 CPU, the part is growing 3x, right? And I assume your testing business is also growing more than double. So how come the rest of the kind of substrate kind of outsourcing can also double next year? Because NVIDIA, I think the Street consensus is like next year is growing 50% and TSMC CoWoS expansion is like 70%.
Joseph Tung: Well, we have I think I was referring to, in general, assembly and test seems to have the same momentum. But assembly includes not just OS. There are full process. There are other steps or process steps that we are entering. So also some new packages that are coming on stream. So I think that's a general description of what we are seeing in next year in terms of -- between assembly and test.
Charlie Chan: And we were very happy to see that strong growth. I just want to make sure we get a breakdown right. And next question is a little bit joking, but I just see that your quarterly CapEx exceeding your EBITDA, right? So is that your free cash flow is also turning negative? Do you think the share price will react negatively tomorrow?
Joseph Tung: Yes. I think we will continue to have very heavy CapEx for this year, not only this year, but also going into next year. So I think the negative cash flow situation will remain for some time. But at the same time, we are still maintaining a very healthy balance sheet, and we do have multiple cost-effective funding sources to fund the upcoming CapEx requirement. So at this point, I think we're pretty confident that we can -- we will be able to support our growth in a healthy manner. And we are still at the early stage of this mega trend. And so like I said last time, we are not going to be shy in making the necessary investment. to -- not just to support our customer, but also to maintain our clear leadership position in this field.
Charlie Chan: Okay. Thanks, Joseph. Yes, we very like to hear you have a more funding need. So last one is the pricing and margin. So we keep hearing from your customers that you hike price aggressively in the second half. Can we confirm if this is the case, whether it's more price hike in the traditional service or the advanced packaging, I think is part one. And secondly, how does that translate into your kind of long-term gross margin outlook? I think you were having this like 26% to 29% margin range for several years, right? Do you think you can break to the 30% anytime soon?
Joseph Tung: Yes. I think it's -- like I said in the outset, we will be -- we're very likely to exceed the margin ceiling in fourth quarter. And at that point of time, I think we will be -- we will start to review whether we should adjust our margin -- structural margin range. Of course, when I say adjust, I mean upward adjustment. I think we are still in a very, very kind of a friendly pricing environment. I think, of course, we saw a lot of inflationary pressure in terms of materials and components so far. So far, we can definitely pass on these cost increases to our customers through our pricing arrangements. And of course, we'll continue to see for the most suitable pricing strategy considering the situation as well as our margin return requirement.
Kenneth Hsiang: Are you okay? Okay. So the next question, we will go back online.
Operator: Our next online question is from Haas Liu of BoA.
Haas Liu: So just a few questions from me. I think first one is that when you commented on the gross margins is likely to exceed the ceiling of your structural gross margin range in fourth quarter. Would you be able to share with us how much of that would actually be contributing from the mature part of the business? And how much of that would be potentially lifted by your growing mix in the contribution?
Kenneth Hsiang: Haas, you were kind of breaking up, but I think you're asking what is contributing to our positive outlook in terms of maybe perhaps hitting our structural margins.
Haas Liu: Yes. In fourth quarter Yes, that's correct. In fourth quarter. And specifically, I wanted to know which part of the factory is more important. Is it the lead business contributing more? Or is it because the mature packaging business you are adjusting your pricing strategy to make [indiscernible].
Kenneth Hsiang: Haas is looking for the prime contribution for structural margin.
Joseph Tung: Well, I think margin improvement is a combination -- is a result of many combination of different factors, including the margin accretive business growth, including our improvement in efficiency, including the continuous expansion of our automated factories. Operating leverage does -- of course, it plays a very important role as well as we continue to see volume growth. On the operating side, we are also seeing our passive investments start paying off. We are seeing -- on an annual basis, we're seeing OpEx ratio continue to drop. I think overall, the efficiency is much, much improved, and we have a much solid base in terms of our revenue coming on stream. So that gives us the confidence that we should be -- continue to see margin expansion on a sequential basis, at least for this year and next. And like I said, once we pass the structural margin range, we will start reviewing that and see how far we can go.
Haas Liu: That's great. And then just a quick follow-up is on your CapEx. Would you be able to provide a breakdown since you also mentioned that the general market demand is also very strong as well. Would you be able to provide a breakdown for your CapEx for this year? And for next year, I know you probably will not be able to give quantitative guidance at this stage for CapEx. But would you be able to discuss that which part of the business is probably going to outgrow from the spending perspective? Is it going to be advanced or mature business is going to still be pretty solid from the spending?
Kenneth Hsiang: Haas is looking -- you're looking to understand what the CapEx makeup is. What's driving the increase or what components are driving the increase this year? And then maybe if we have any type of nuggets of wisdom related to next year's CapEx?
Joseph Tung: Well, I think, obviously, we are seeing a stronger demand of demand forecast coming from not just customers, but also our foundry partner. And the requests that are coming in require a lot of the new investments, not just for this year, but also for next year as well as we continue to see very, very strong business momentum in both assembly and test, I stress again, Also, there are new projects or new products, new process steps that we are entering into. We will not just put in the necessary equipment CapEx. We also have to have the new facilities to house those capacity and also spending quite a bit of money for the R&D to support those new products or new projects that are coming on stream. So our CapEx is really based on the -- what's necessary coming out of our customers' demand, and we want to put the right resources on to those high potential revenue basis for us to continue to invest.
Haas Liu: Okay. And your expansion going forward will probably be just pretty similar to your foundry peer, right? You are going to probably focus more on the areas that you can convert capacity from one to the other? For example, flip-chip and also bumping, you can both use in the mature business as well as in the advanced business. So that is probably the area that you are spending more money.
Kenneth Hsiang: You're looking to -- well, Haas, we got to try to limit those questions to 2 in the future again. But I guess we can try to comment a little bit on where we're spending the CapEx as it relates to -- maybe this is an opportunity to talk about construction and our difficulties in terms of building buildings or getting enough buildings.
Joseph Tung: Okay. But this year, we're raising the CapEx by another $2 billion. That brings up the total to about $10.5 billion. And out of this $10.5 billion, $4 billion will be for new factory buildings and facilities and $6.5 billion for equipment. Like Ken just mentioned, in terms of the new capacity that we're going to put in, we need to have the more advanced factory buildings and facilities to house this capacity. So at the same time, at this very moment, we are having 13 greenfield projects going on. We have another 8 brownfield projects. brownfield -- by brownfield, we mean that we are acquiring existing factories and trying to renovate them and to suit our needs. I think the current projects will be sufficient for us to carry ourselves into '28 and maybe into some part of '29. And we will continue to look at the situation and find a suitable new locations for further expansion going forward. And with these 20 projects going on at the same time, it puts a lot of challenge on us -- puts a lot of pressure on us in terms of -- we really need to have a very, very efficient and very responsive construction partner for us to make sure everything is delivered on time. All the specs are -- all the quality is according to spec. And this is something that we are working on. And hopefully, I think Tien mentioned that execution is everything. demand is there. What we need to do is really to execute whatever we're set out to do.
Kenneth Hsiang: Do we have another question online there?
Operator: Yes, we have. Online question from Gokul Hariharan of JPMorgan.
Gokul Hariharan: First of all, on CapEx, Joseph, I know that you're not guiding for next year, but looking at what Dr. Wu mentioned, it definitely feels like CapEx is still likely to keep rising into 2027. Is that a fair statement to make given the -- like the gap between supply and demand that you're currently facing, especially for LEAP?
Kenneth Hsiang: Gokul is -- you're looking for some hint in terms of 2027?
Gokul Hariharan: CapEx, yes.
Kenneth Hsiang: Yes, CapEx.
Joseph Tung: Well, I think it's better if we -- I know it's going to be big, but how big? I think we want to wait for another quarter or so to see -- to have a better clarity on how much we would need to spend next year.
Gokul Hariharan: Okay. Understood. Could you also talk a little bit about anything that you're seeing on the CoWoS or the panel level packaging development -- based on your current assessment, when do you expect this to potentially start entering production given that there are so many different views out there in the market?
Kenneth Hsiang: Gokul, you're looking for an update on our panel processes?
Gokul Hariharan: Yes, panel process, yes.
Tien Wu: The different panel process for ASE's panel process, our fully automated line will start production by Q1 of next year. And that is in the form factor of 310 by 310. In terms of the CoWoS, I know there are many alternative materials that people are evaluating. Our R&D people are working with substrate supplier, foundry as well as customer to evaluate the feasibility and also the economics of it. But right now, we do not have the glass substrate in production, not for the next 12 months, if that's the question you're asking.
Gokul Hariharan: Got it. And how does the ASE 310 by 310 solution differ? Is it for a completely different kind of market or customer compared to the foundry scope of kind of solution? Or is it like quite complementary compared to what they are trying to offer?
Tien Wu: They're quite complementary. It's actually the same customer set, similar the reticle size. In terms of the pitch size line width, they're all identical, cover a similar range. But in terms of which customer will adopt what, not only depends on the capacity and the performance and also the speed of execution.
Joseph Tung: On CapEx, I want to give you guys a bit of a clarification. I think for this year, out of the total CapEx, like I said, $4 billion is for factory and facilities, $6.5 billion for equipment. And for equipment, I think it's about 56% is for assembly, 40% for test and the remaining for EMS and some for material. In terms of assembly and test breakdown, in terms of the leading edge, I think 70% of the equipment CapEx is for leading edge for this year.
Kenneth Hsiang: Gokul, we got you covered there.
Gokul Hariharan: Yes.
Kenneth Hsiang: Okay. Another online question.
Operator: Yes. We have Sunny Lin of UBS.
Sunny Lin: So my first follow-up will be on CPO. And so maybe a good time, if you could share with us, given the complexity of the technologies, what type of services ASE as a group will be able to offer? And then based on the current development, when do you think the revenue contribution for ASE could become more meaningful? And then given USI, they also acquired optical module company as well earlier. And so what type of synergies that you think you could drive since you have IC ATM and also EMS capabilities?
Kenneth Hsiang: Sunny, you're looking for an update on what particular we would be doing in regards to CPO and also potential linkages with our EMS business. Is that correct?
Sunny Lin: Yes.
Tien Wu: On the CPO, I would like to wait for 2 quarters before I give you more detail. The CPO service as was the revenue, also the 2027 outlook, I prefer to have a little bit more time to talk about that. In terms of the optical hierarchy, the optical -- the hybrid between the electrical signal and also the optical signal, I think that direction is definitive. The question now is when and how can we execute that and the system architecture from near-field to outer-field. Some optical devices are quite mature. It has been used for many, many years. And some near field at a chip level, at a substrate level, that needs to be created, which is very, very difficult, which is why the industry has taken so much time trying to develop. I think by the end of the year, we'll have some database in terms of how that is behaving, how that is working and whether -- how much benefit, how much ramp up, I think in 2 quarters' time. By the way, we have been working on this for about 20 years. So 2 more quarters, I think we can wait.
Sunny Lin: Yes. Looking forward to that update. And my second question will be very quick. So for your full process CoWoS, given your -- you have better visibility now for 2027. So I want to understand your progress in terms of diversifying for your client also product mix. Should we assume for 2027, CPU should be very major? Or should we assume good volume coming from the other applications like accelerators as well?
Kenneth Hsiang: Sunny, you're looking for probably something that can't be answered. But in terms of -- you're looking for what our product set would be in terms of our full process services. Is that.
Sunny Lin: Basically your progress in terms of product-based diversification for full process.
Tien Wu: I think for the full process, we should be able to give you a better visibility in a quarter or 2. Right now, we do have line of sight in terms of the full process. We're tracking nicely. And also for the next year, we do have line of sight. We have full visibility in terms of capacity that we're developing. Now in terms of the customers, that is the -- we need a little bit more time to digest how much information can we share. I think in 2 quarters' time, we should be able to give you the following: our leading edge, our LEAP services revenue for next year and also the OS, full process and others. The assembly and test, I think that we can share. But in terms of GPU, CPU, ASIC, we need a little bit more time to digest how much information we can share, right? But right now, our clientele portfolio covers all of them, which is good. And we're just waiting for a clear execution such that we know our yield and also how well the system performs in the marketplace, and that we're waiting anxiously. Thank you.
Operator: Our next online question is from [ Michael Resnickers ].
Unknown Analyst: I just want to clarify, when you gave Q3 guidance, did you say that EMS will grow 40% quarter-on-quarter revenues?
Kenneth Hsiang: Michael, you're looking for a little bit of explanation behind the EMS growth.
Unknown Analyst: Yes. So it's a pretty huge, huge quarter-on-quarter growth. So yes, I just want to clarify what's going on there.
Joseph Tung: I think the 40% growth, it is a little bit abnormal seasonality. I think this is largely because of the component price hikes, particularly in the memory sector. So if you take that part of the number out, I think the third quarter EMS should see a typical seasonality kind of movement.
Unknown Analyst: Makes sense. And how about Q4 in terms of quarter-on-quarter? Is it still growing over Q3? Or is there -- will it shrink? Will revenues -- EMS revenue shrink in Q4 versus Q3?
Joseph Tung: At this point, we're seeing a pretty similar level of revenue in the fourth quarter for EMS.
Unknown Analyst: Okay. Okay. That's very helpful. And -- so overall for the year, did you -- I think -- did you say in your overall comments that you're looking for a 25% plus full year growth -- revenue growth?
Kenneth Hsiang: Michael, you're looking for full year guidance or full year outlook for EMS and ATM. Is that?
Unknown Analyst: Yes, overall revenue growth. I thought there was a comment about sort of 25% plus type of revenue growth. Is that right?
Joseph Tung: EMS at this point, I think the full year is a sub-20% kind of growth for the year.
Unknown Analyst: Sub-20%?
Joseph Tung: Correct.
Unknown Analyst: Okay. So that's sub-20% and the ATM business will be 35% plus type of growth.
Joseph Tung: Also correct.
Unknown Analyst: Okay. Got it. And what is the impact on EMS margins from -- with the big memory component and larger revenues? Is it flat year-over-year? Or is there an increase or decrease?
Joseph Tung: I can talk about the third quarter. I think if we take out the component price hikes, I think the operating margin will be very similar to typical seasonality of around 3.7%, 3.8% level.
Unknown Analyst: Okay. And so the memory is just sort of a pass-through type of cost for you guys?
Joseph Tung: That's correct.
Unknown Analyst: Got it. And congratulations on very strong performance.
Kenneth Hsiang: Do we have more questions online? More questions on the floor? No, okay. Very good. Thank you very much. I would like to thank everyone for attending our conference call today. Joseph, do you want to close up?
Joseph Tung: Well, I'm sure we're going to have another good quarter in third quarter, and we'll bring you some more good news next quarter. We'll see you next quarter.
