AI Packaging Orders So Strong That Production Can't Keep Up! Wu Tianyu Declares 'Expansion Is Our Responsibility'! ASE Launches 13 New Factories Simultaneously

Demand for AI advanced packaging continues to surpass initial expectations, and ASE Holding (3711) now faces a challenge not of order volume, but whether factory space and equipment can be deployed in time. Chief Operating Officer Wu Tianyu stated at today's (30th) earnings call that customer demand for the third and fourth quarters remains generally strong. ASE is simultaneously advancing 13 new factory construction projects this year, along with 8 existing plant acquisition and renovation plans. 'We don't enjoy continuously increasing capital expenditures, but right now this is our responsibility, and the very reason ASE exists,' Wu said.

Wu emphasized that ASE is currently in a 'capacity-constrained' position. The company clearly understands which capacities customers require and sees the needs for factories under construction and equipment deployment. The real uncertainty lies not in orders, but in whether the company can successfully complete factory construction, equipment installation, yield improvement, and mass production. He stressed: 'Demand is not the issue; the issue is our own execution capability.'

LEAP revenue to exceed $3.5 billion this year, targeting doubling by 2027. ASE expects its packaging and testing business revenue to grow 35% year-on-year in the first half of 2026, with its industry-leading advanced packaging and overall testing businesses growing even faster than the average. The company anticipates this momentum will continue into the second half, with full-year packaging and testing revenue expected to grow 35% year-on-year.

Driven by strong AI advanced packaging demand, ASE's LEAP service revenue this year will exceed the original $3.5 billion target. Hong-Si Dong further revealed that LEAP revenue this year could increase by several hundred million dollars beyond initial estimates, with a goal to double 2026 revenue by 2027.

However, ASE has not yet disclosed detailed revenue composition for LEAP's various businesses next year. Dong stated that both packaging and testing businesses will expand at full speed, with similar growth momentum. The revenue breakdown for full-process, other outsourced processes, packaging, and testing will be explained in one to two quarters.

Wu emphasized that ASE's confidence in exceeding LEAP targets this year and doubling next year stems from clear visibility into customer demand, factory construction, and equipment deployment. Once yield and execution progress meet expectations, ASE is confident in achieving its goals.

CoWoS full-process to contribute around $300 million this year, with significant growth expected next year. In addition to existing advanced packaging services, ASE is actively expanding its full-process CoWoS business. Dong stated that the full-process service revenue target for this year is approximately $300 million, with progress on track and related capacity rapidly expanding, expecting significant growth next year.

Full-process service profitability has not yet been fully reflected, but as volume, yield, and production efficiency improve, it is expected to become another driver for gross margin improvement.

ASE also emphasized that advanced packaging is not the only area requiring capacity expansion. General packaging and testing demand is equally strong, prompting the company to revise its 2026 general packaging and testing business revenue growth forecast from the initial 13% to 20%.

Wu pointed out that demand for industrial, power, connectivity, and storage devices is very strong, especially for products related to AI data centers, electric vehicles, and high-reliability applications, where customers place greater emphasis on automation levels and production quality. ASE, with its fully automated production lines, is securing more capacity expansion demand in these markets.

13 new factories and 8 existing plant renovation projects advancing simultaneously. To meet advanced and general packaging and testing demands, ASE is currently advancing 13 greenfield new factory projects and 8 brownfield existing plant projects simultaneously. Brownfield refers to acquiring existing factories and renovating them to meet advanced packaging, testing, and automated production requirements.

Dong stated that the ongoing factory projects are expected to support ASE's needs through 2028, with some capacity extending into 2029. However, advancing over 20 construction and renovation projects simultaneously places immense pressure on engineering management, construction partners, and delivery timelines. 'Execution is everything,' Wu said, noting that demand is already evident, and the company must ensure timely availability of factories, equipment, and talent to convert customer orders into actual revenue.

Analysts estimate full-year capital expenditure could reach $10.5 billion. ASE's equipment capital expenditure in the first half reached $2.7 billion, with $1.4 billion spent on facilities, infrastructure, and automation. In Q2 alone, equipment expenditure was $1.695 billion, with $658 million invested in facilities.

Based on disclosed factory scale, equipment needs, and investment structure, analysts estimate ASE's full-year 2026 capital expenditure could reach $10.5 billion. Using the company's Q3 exchange rate assumption of 1 USD = 31.9 NTD, this amounts to approximately NT$335 billion.

Analysts estimate about $4 billion will be invested in new factories and facilities, and $6.5 billion in equipment. Of equipment investment, about 56% will go to packaging, 40% to testing, and the remainder to EMS and materials, with around 70% of equipment investment allocated to industry-leading advanced processes.

High investment pressures free cash flow—ASE: financing capacity sufficient to support. The high investment in factories and equipment has drawn market attention to ASE's free cash flow and financial structure. Dong acknowledged that large investments will continue this year and next, and negative free cash flow may persist for some time. As of the end of Q2, ASE held cash, cash equivalents, and liquid financial assets totaling NT$107.373 billion, with interest-bearing debt rising to NT$306.23 billion, a net debt-to-equity ratio of 47%, and unused credit lines reaching NT$396.2 billion.

Dong stated the company maintains a healthy balance sheet and has diverse, cost-effective financing channels sufficient to support future capacity investments. The AI industry is still in the early stages of a long-term trend, and ASE will not reduce investments necessary to maintain technological and capacity leadership due to short-term negative free cash flow.