ASE Technology Holding Co (ASE, 日月光投控), the world’s biggest chip packaging and testing service provider, yesterday said it is raising its equipment capital expenditure budget by 10 percent this year to expand leading-edge and advanced packing and testing capacity amid strong artificial intelligence (AI) and high-performance computing chip demand.
This is on top of the 40 to 50 percent annual increase in its capital spending budget to more than the US$1.7 billion to announced in February.
About half of the equipment capital expenditure would be spent on leading-edge and advanced packaging and testing technology, the company said.
Photo: CNA
ASE is considered by analysts as one of the major beneficiaries of Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) prolonged advanced packaging capacity scarcity, given robust demand for Nvidia Corp’s AI chips.
TSMC said last week that it is leveraging the capacity of its outsourced semiconductor assembly and test partners to help solve the capacity bottleneck, adding that it plans to double its advanced chip-on-wafer-on-substrate capacity this year, but that the expansion would not be sufficient to catch up with demand.
“We still see very, very good growth momentum in AI and leading-edge packaging and testing,” ASE chief financial officer Joseph Tung (董宏思) said during an online investor’s conference yesterday. “We are ahead of our schedule in doubling our leading-edge and advanced packaging revenue this year. We’ll expect strong growth next year as well.”
ASE said it aims to increase advanced packaging and testing revenue from a low-single digit percentage to a mid-single-digit percentage of its assembly and test manufacturing (ATM) revenue.
In addition to orders passed from the foundry customer, ASE is engaging with multiple customers, including chip designers and system houses, or hardware vendors, to offer its advanced packaging services, Tung said.
Aside from advanced packaging technology, ASE is also focused on boosting its investment in advanced testing technology capacity, including burn-in testing technology, Tung added.
Tung made the remarks amid speculation that ASE could make an inroad into the burn-in testing technology, which is used in Nvidia AI chips provided by King Yuan Electronics Co (京元電子).
With rising revenue contribution from advanced packaging and testing services, ASE said it is confident that the gross margin for its ATM business would expand to between 25 to 35 percent this year.
The gross margin of ASE’s ATM business improved to 21 percent last quarter from 20.1 percent in the prior year, thanks to favorable foreign exchange rates, the company said, adding that it expects a slight improvement in gross margin during the current quarter.
Revenue for the ATM business is expected to grow 5 percent sequentially this quarter from NT$73.91 billion (US$2.27 billion), ASE said.
However, electronics manufacturing service revenue would stay at a similar level to last quarter’s NT$59.37 billion, ASE added.
On a consolidated basis, the company should see a mild revenue growth this quarter from the NT$132.8 billion in the first quarter, backed by restocking demand.
“Most sectors are seeing a bottomming out in the second quarter. Auto and industrial are the segments that are still seeing lingering softness,” Tung said.
Equipment utilization is to increase to more than 60 percent this quarter and reach 70 percent in the third quarter from less than 60 percent last quarter, ASE said.
Net profits dropped about 2 percent year-on-year to NT$5.68 billion during the quarter ending March 31, compared with NT$5.82 billion, ASE said, representing a quarterly decline of 40 percent from NT$9.39 billion. Earnings per share dipped to NT$1.32 last quarter from NT$1.36 a year ago and NT$2.18 a quarter earlier.
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