and Jiang Hao Mian.

Hello, I am Ken Hsiang, the head of investor relations at ASC Technology Holdings. Welcome to our second quarter, 2026 earnings release. I'm joined today by Dr. Tien Yu Wu, our COO, and Joseph Tung, our CFO. Thank you for joining us today. Please refer to our safe harbor notice on page two. 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 mid-year 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.

Good afternoon. I would like to give you the first half of the 2026 recap and also the full year outlook. For my presentation, it will be all 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 $3.5 billion. While general segment expected to grow by 30% year-on-year versus previous guidance of 13%. So for the full year, we expect the ATM business revenue to grow by 35%. Machinery Cap Hacks was $2.7 billion. Building, Facility, Automation was $1.4 billion in the first half. Joseph will give you more detail for the full year. Stepping Up Investment, R&D, Human Capital, Advanced Capacity, and also Automation, Smart Factory, Infrastructure to Support Multi-Year 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 Thank you very much. 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 three right now from all of our customers on the multi-year 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 our capacity, for automation, and more importantly, from innovation perspective. We can talk a little bit more detail about a panel, about co-op, 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 is 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 the new complexity 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 objectives today. ASE's competitive position, I talk 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 enable 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 OSAP 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 transitional evolution. The first movers advantage, I'm very specific about the first movers 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. Okay, thank you.

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 percent. 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 $4.61 and basic EPS came in at $4.80. Thank you for watching. 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 $19 billion, up $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 $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. Non-operating income totaled $4.6 billion compared to $0.7 billion in the prior quarter. While this amount appears relatively elevated versus prior quarters, the increase primarily reflects some potentially non-recurring gains. Our net non-operating income includes mark-to-market equity gains related to our corporate investments of $4.2 billion, Foreign Currency hedging gains of $1.5 billion and other items including equity method investment income, government grants, rent income, and dividends totaling $0.8 billion. These gains were partially offset by $1.9 billion in net interest expenses. Tax expense was $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 $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 $126.1 billion, up $13.7 billion sequentially, and $33.6 billion annually, representing an increase of 12% sequential and 36% annual growth. Gross profit for our ATM business was $34.5 billion, up $5.3 billion sequentially, and up $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 $14.7 billion, up $1.4 billion sequentially, and $3.3 billion year-over-year. Technology Holding Co., Ltd. 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 $19.8 billion, representing a sequential 25% increase of $3.9 billion and a 124% annual increase of $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 ATMP and 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 timeframe, 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 three C 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 $65.8 billion. Sequentially, our EMS business's gross margin decreased by 0.6 percentage point to 8.9%. This change was principally the result of product mix differences. EMS operating expenses increased by $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 $1.6 billion, down $0.3 billion sequentially and up $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 coengineering 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 $107.4 billion. Our total interest-bearing debt increased by $40.9 billion to $306.2 billion. Total unused credit lines amounted to $396.2 billion. Our EBITDA for the quarter was $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 weighting, 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.

Okay, now for third quarter of 2026 outlook. Based on our current business outlook and exchange rate assumption of $1 to $31.9 NT dollars versus last quarter $31.6, management projects overall performance for the third quarter of 2026 to be as follows. On a consolidated basis, in NT dollar terms, a consolidated third quarter revenue should grow by 21% to 22% quarter over quarter. A consolidated third quarter growth margin should be between 20.5% to 21.5%. A 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%. Our 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 26th 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 US $1 billion each this year for facilities and equipment. So the total is adding another $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, while this year's LEAP service revenue tracking ahead of our prior quarter guidance of US$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 20.3% 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.

During the Q&A session that follows, we would appreciate if your questions could be as clear and concise as possible and asked 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.

Dr. Wu, so just to follow our conversation, your industry seems to be more aggressive in the U.S. operation, not just MCOR, 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 operations. I guess it is a little bit separate question, but can you also comment a little bit about the Intel EMIP-T involvement by ASE?

Thank you. Charlie, you're asking about the competitive landscape that we're facing, and secondly, EMIP.

Dr. Wu? Well, let me answer the U.S. operation first. When I'm going to talk about it, I have repeated several times for the last two years. We do have U.S. operation, ISE, test development, also services in California. We're one factory in Fremont, California. We are one factory in San Jose. We're in the process of expanding to number three and number four 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. The second comment is EMIP. EMIP, I'm going to repeat what TSMC has responded. Right now, it's really capacity constraint. 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're 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 EMIP posting potential threat or competitive advantages over a co-op, right? That's always a possibility. I have been working in the packaging industry for 40 years. I've gone through about a thousand different packaging design. At the end of the day, probably 20 will leave, but we'll be here. So there's always a competing technology, alternative materials. That's always been the focus of R&D. For EMEB, we're happy to see if EMEB 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 the superiority? Our focus is to support the co-ops. We're trying to ramp up the co-op scale efficiency as fast as we can. If customers ask for other alternative technology, ASA will also include that in our roadmap. I don't think there's a potential threat. Again, we are a pure play. If the in-nib substrate becomes the right alternative, We do the assembly. There is no conflict. Anything is welcome. It's not like a zero-sum game. You can only choose one. It's never been the case. The world is a big place.

More questions from the floor?

Hi, Dr. Wu and Joseph, Ken. Thank you for taking my question. My first question is, can you give us a little bit more detailed guideline for your Q3 ATM demand driver for LEAP and also for general packaging and testing, the more detailed demand driver across the key applications or products?

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? Yeah, right.

The question is the Q3 driver. Again, we have a very awkward and peculiar position because we're capacity-constrained. So we're talking 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.

Rick, follow-up? No, not follow up the second question. Can you elaborate your development of the four cores? 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 four cores development?

Rick, you're looking for the composition of our LEAP. Thank you for joining us.

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 $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 the full process will also be another margin of credit business for us, and with pretty good substantial growth coming into next year.

We have our next question coming from online.

Next question is from Sunny Lin of UBS. Sunny?

Hello, could you hear me okay?

Yes, we can hear you.

Thank you very much. Good afternoon. 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 LIB outlook. And so maybe take a step back. You are guiding for this year LIB to exceed $3.5 billion. So should we be looking at maybe $4 billion or maybe between $3.5 to $4 billion? And then for 2027, for it to double, have we already had an idea in terms of breakdown by food process, outsourcing for substrate and also testing?

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?

Right. Thank you, Kent.

Thank you.

Currently. 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 Thank you very much. Thank you. At this point, assembly is also catching up in terms of its growth momentum with tests. So for next year, I think the combination will be pretty much similar to what we're seeing this year.

Well, but sorry, maybe let me clarify, if I may. So I just want to get a bit more color in terms of lead breakdown going to 2027. I do assume that full process should account for a much larger portion for 2027. So any color will be very helpful.

Probably two quarters for now will give you a better color. Thank you.

Sure. So maybe if I may, second question, Dr. Wu, I want to double click on your earlier comment regarding AI driving technology. A lot 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 rep in the coming few years?

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.

Yeah, due to AI.

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, four quarters, probably the longest lead time. So let me comment on the co-ops, for example, or e-mails. and other alternative technology, the AI data center is driving computational intensity. Therefore, the rectal size becomes bigger and bigger that we know already. Everybody demands more bandwidth from logic, ASIC, as well as memory. Therefore, the immediate up round will be the panel or more complicated co-ops. to accommodate the bigger chiplet or rectal size. 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 rectal side becomes bigger and the optics to come in a different hierarchy, then the power delivery becomes the next immediate questions. This will be deployed in the next two to three years On a 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 do digital analog mixed signal? These are the infrastructure a pure-play OSI 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 or 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 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 fields. 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 of 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 missed the point of what engineering does. Engineering is the built, 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.

No problem. Sounds good. Thank you very much for sharing, Dr. Kim.

Thank you, Sunny.

Next online question is from Goku Hariharan.

Okay, good afternoon. Thanks, Dr. Wu, Joseph, Ken. 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 two, three years, compared to the last three, four years have been largely been about co-ops and various forms of co-ops. So as they are embarking on that kind of transition, Dr. Wu, can you help us understand what is ASC's role? Is it getting elevated further in that partnership? And obviously some of the full process co-authors also result of them leaving some of these older areas to you as well. So just could you outline what you talked about on the technology side In relationship to how this partnership with the LEED Foundry is going to work out in the next maybe two, three years.

Goku, you're asking about as our Foundry partner progresses further down their technology roadmaps, what our plans are. to intermix and or interlink with them in this process. Is that correct?

Yeah. And do you get more value add out of it as they kind of migrate out to more complicated packaging?

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 just simply not available to the others. Or some architectural 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. 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 three years, as well as the ramp up in the next few years.

Got it. That's very clear. Thank you, Dr. Wu. 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're 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?

Goku, you're looking for incremental explanation related to what is driving our LEAP 2027 outlook and also what has helped us

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. By the same token, we also give you a comment that whatever that target has been achieved by year end, with the next 12 months, Thank you very much. is not a concern. It's our own capability to execute the two 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 from 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 wants 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 a very good attraction. 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 a tremendous amount of pressure on ASCE, which is why I think during the shareholders meeting, I complained. The AASC is building 13 new facilities simultaneously this year. And we just bought another seven brownfields. So we're building, we're buying, and we're spending ca-pac. 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 for all of our customers.

Got it. Yeah, that's very clear. Yeah, thanks. Thanks very much, Dr. Wu.

Thank you. Charlie, do you want to shot at another round of questions there? Yeah. Go ahead. Microphone.

I do have two questions, but can I make a clarification on the previous Q&A? Please, go ahead. So, about the LEAP revenue next year, right? So, Joseph, you talked about the mix will be very similar to this year. Next year is the LEAP revenue mix, right? But according to our analysis, it seems like your full kind of a 2.5D, the end customer is an 86 CPU, that part is growing 3x, right? And I assume your testing piece 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 like growing 50% and TSMC Co-op's expansion is like 70%.

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 next year in terms of between assembly and test.

Anyway, 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 share price will react negatively tomorrow?

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're 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 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.

Okay, thanks, Joseph. Yeah, we very like to hear you have a more funding need. So last one is pricing and margin. So we keep hearing from your customers that you hike price aggressively in second half. Can we confirm this is a case whether it's more price hike in a traditional service or the advanced packaging? I think it's a... And secondly, how does that translate into your long-term gross margin outlook? I think you were having this 26% to 29% margin range for several years. Do you think you can break through the 30% anytime soon? Thank you.

Yeah, I think it's, like I said in the outset, we're very likely to exceed the margin ceiling in the fourth quarter. And at that point of time, I think we will start to review whether we should adjust the structural margin range. Of course, when I say adjust, I mean upward adjustment margin. I think we are still in a very, very friendly pricing environment. 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 seek for the most suitable pricing strategy, considering the situation as well as our margin return requirement.

Are you okay? Okay. So the next question, we will go back online.

Our next online question is from Has Liu of BOA.

Hi, can you hear me? Thank you so much for your time today. Yeah. So just a few questions from me. I think first one is that when you commented on the gross margins, it's likely to exceed the ceiling of your structural gross margin ranking work order. Would you be able to share with us how much of that would actually be contributing from your price tag on the mature part of the business and how much of that would be potentially limited by your growing mix in the lead contribution? Thank you.

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.

Yes, that's correct. 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 of the mature packaging and local businesses, you are adjusting your pricing strategy to make that better?

Haas is looking for the prime contribution for structural margins.

I think margin improvement is a result of many combinations of different factors, including the margin in creative business growth, including our improvement in efficiency, including the continuous expansion of our automated factories. Operating leverage 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 continues 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 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. Thank you.

Yeah, that's great. Thank you so much. And then just a quick follow-up 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? For next year, I know you probably will not be able to give qualitative guidance at this stage for KPEX, but would you be able to discuss 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? Thank you.

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.

Well, I think obviously we are seeing a stronger demand or demand forecast coming from not just customers, but also our boundary 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 tests, I stress again. Also, there are new projects or new products, new process steps that we are entering into. We would not just put in the necessary equipment, the compact cab bags. We also have to have the new facilities to house those capacity. 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, you know, Our CapEx is really based on what's necessary coming out of our customers' demand, and we want to put the right resources onto those high-potential revenue bases for us to continue to invest.

Okay, and your expansion going forward will probably be just pretty similar to your foundation here, right? You are going to probably focus more on the Thank you very much.

You know, construction and our difficulties in terms of building buildings or getting enough buildings.

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 Tien just mentioned, in terms of these 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 eight brownfield projects. By brownfield, we mean that we are buying existing factories and trying to renovate them to suit our needs. I think the current projects will be sufficient for us to carry ourselves into 28, 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 qualities according to spec, And this is something that we are working on. And hopefully, I think Tim mentioned that, you know, execution is everything we manage there. What we need to do is really to execute whatever we're set out to do.

Got it. Thank you so much, Joseph.

Do we have another question online there?

Yes, we have. Online question from Goku Hariharan of JP Morgan.

Yeah, hi. Thanks for taking my follow up questions. 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 gap between supply and demand that you're currently facing, especially for LEAP?

Goku, you're looking for some hint in terms of 2027? CapEx, yes. Not CapEx.

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.

Okay, understood. Could you also talk a little bit about anything that you're seeing on the COPOS 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?

Goku, you're looking for an update on our panel processes?

Yeah, panel process, yes.

The different panel process for ASC'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 COPAs, I know there are many alternative materials that people are evaluating. Our R&D people are working with substrate supplier companies. Thank you. Got it.

ASC's 310x310 solution differ? Is it for a completely different kind of market or customer compared to the foundries, co-poss kind of solution? Or is it like quite complementary compared to what they are trying to offer?

They're quite complementary. It's actually the same customer set. Thank you very much. Thanks.

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 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 cap is for leading edge for this year.

Goku, we got you covered there? Yeah, he's on. Okay. Another online question?

Yes, we have Sonalian of UBS.

Thank you very much for taking my follow-ups. So my first follow-up will be on CPO. And so maybe 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 an optical module company as well earlier. And so what type of synergies do you think you could drive since you have ICATM and also EMS capabilities?

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?

Yeah, thank you.

On the CPO, I would like to wait for two 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 could we execute that at the system architecture from near field to outer field? Some optical devices are quite mature. It has been used for many, many years. In 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 how much benefit, how much ramp up, I think in two quarters time. By the way, we have been working on this for about 20 years. So two more quarters, I think we can wait.

Sure, looking forward to that.

Thank you.

Yeah, looking forward to that update. And my second question will be very quick. So for your full process co-op, given you have better visibility now for 2027, so we want to understand your progress in terms of diversifying for your client, also product base. 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?

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?

Yeah, basically your progress in terms of product-based diversification for full process.

I think for the full process, we should be able to give you a better visibility in a quarter or two. 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, We need a little bit more time to digest. How much information can we share? I think in two quarters time, we should be able to give you the following. Our leading edge, our lead 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. 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.

Thank you very much.

Our next online question is from Michael Resnikas.

Michael? Hi, how are you? Thank you for the call here. I just want to clarify, when you gave Q3 guidance, did you say that EMS will grow 40% quarter-on-quarter revenues?

Michael, you're looking for a little bit of explanation behind the EMS growth.

Yeah, so it's a pretty huge, huge quarter-on-quarter growth. So yeah, I just want to clarify what's going on there.

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 we take that part of the... I think the third quarter EMS should see a typical seasonality kind of movement.

Makes sense. And how about Q4 in terms of quarter on quarter? Is it still growing over Q3 or will revenues shrink in Q4 versus Q3?

At this point, we're seeing a pretty similar level of revenue in the fourth quarter for EMS.

Oh, okay. That's very helpful. And so overall for the year, did you say in your overall comments that you're looking for 25% plus full year growth, revenue growth?

Michael, you're looking for full-year guidance or full-year outlook for EMS and ATM?

Yeah, overall revenue growth. I thought there was a comment about sort of 25% plus type of revenue growth. Is that right?

EMS at this point, I think during the full year is a sub-20% kind of growth for the year. Sub-20%?

Correct. Okay, so that's sub 20 and the ATM business will be 35% plus type of growth. Also correct. Okay, got it. And what is the impact on EMS margins with the big memory component and larger revenues? Is it flat year over year or is there an increase or decrease?

I can talk about third quarter. I think if we take out the component price X, I think the operating margin will be very similar to a typical seasonality of 3.7, 3.8% level. Oh, okay.

And so the memory is just sort of a pass-through type of cost for you guys? That's correct. Got it. Okay. Thank you for that clarification and Congratulations on a very strong performance. Thank you.

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?

Well, I'm sure we're going to have another good quarter in third quarter and we'll bring you some more new good news next quarter. I'll see you next quarter.