Charlie Chan

Charlie Chan inquired about the company's 3D IC technology development, particularly its potential role in 2-nanometer chip packaging and the possible revenue contribution. He also asked about the impact of potential tariffs, seeking to understand if there was evidence of order pull-ins and how that might affect the outlook for the second half of the year.

Answer

Joseph Tung, CFO, explained that for advanced technologies like 3D IC, the company is investing heavily in R&D and forming alliances to be prepared for future demand, but he could not provide a specific revenue timeline. Regarding tariffs, Tung acknowledged that some order pull-in is reasonable but difficult to quantify due to capacity constraints. He noted the high level of uncertainty and refrained from providing a specific forecast for the second half of the year.

Charlie Chan of Morgan Stanley inquired about ASE's role and business development in co-packaged optics (CPO). He also asked if ASE is considering establishing advanced packaging operations in the U.S. given geopolitical trends and foundry partner expansions, and sought clarification on the significant increase in leading-edge revenue guidance.

Answer

COO Dr. Tien Wu described CPO as an emerging technology where ASE plays a critical role, though revenue is not yet material. Regarding U.S. expansion, Dr. Wu explained that ASE must first master the complex processes and yield in Taiwan before expanding leading-edge operations overseas. CFO Joseph Tung clarified the leading-edge revenue progression: from $250M in 2023 to over $600M in 2024, with an additional $1B expected in 2025, bringing the total to over $1.6B. This additional revenue is comprised of approximately 75% packaging and 25% testing.

Charlie Chan inquired about ASE's business development in co-packaged optics (CPO), including services and timing. He also sought further clarification on the $1 billion leading-edge revenue figure and asked whether ASE is considering establishing advanced packaging operations in the U.S. amid geopolitical shifts.

Answer

COO Tien Wu described CPO as a critical new technology ASE is developing with partners, though major revenue is not expected yet. CFO Joseph Tung clarified the leading-edge revenue will be over $1.6 billion in 2025 ($600M from 2024 + $1B additional). Dr. Wu explained that ASE will master leading-edge processes in Taiwan before considering overseas expansion to ensure quality and execution.

Charlie Chan of Morgan Stanley sought clarification on several topics: the competitive dynamic with foundries under the "Foundry 2.0" concept, rumors about advanced packaging expansion into Chip-on-Wafer (CoW) and a new fab, and the specifics of margin and revenue growth expectations for the leading-edge business.

Answer

CFO Joseph Tung characterized "Foundry 2.0" as a collaborative opportunity, highlighting the growing importance of back-end services. He clarified that new advanced packaging investments are expected to yield margins above the corporate ATM average and that leading-edge revenue is projected to double again next year. COO Tien Wu added that ASE is actively engaged with partners on both OS and CoW technologies to provide the most efficient solutions to meet strong customer demand.

Charlie Chan asked TSMC to reconcile its strong leading-edge demand and continuous migration to advanced nodes with a major customer's statement about 'more so is that,' implying a focus on system-level innovation beyond just chip technology. He followed up on previous concerns about China's AI GPU demand, asking if the recent U.S.-China back-and-forth and potential restrictions on NVIDIA GPUs would impact TSMC's long-term AI CAGR growth or its ability to seize market opportunities in China.

Answer

CEO Che-Chia Wei clarified that the customer's 'more so is that' comment emphasizes overall system performance, not just chip technology. He stated that TSMC works closely with customers on both front-end and back-end technologies, including packaging, to meet these comprehensive system requirements. He also expressed confidence in TSMC's GPU and ASIC customers' performance, stating that even if the China market has limited availability, the AI growth will remain dramatic and positive, and TSMC's customers will continue to grow, supported by TSMC. He confirmed that the 40% CAGR or higher is achievable despite limited China opportunities.

Charlie Chan questioned TSMC's involvement in government tariff negotiations and whether its $165 billion U.S. investment could secure a tariff exemption. He also asked if the strong Q2 guidance was due to customer pull-ins and why the full-year forecast implies a flat second half, following up on the widening margin dilution from overseas fabs.

Answer

CEO C. C. Wei clarified that as a private company, TSMC is not involved in government tariff negotiations. CFO Wendell Huang attributed the strong Q2 guidance to robust 3nm and 5nm HPC demand, not tariff-related pull-ins. Huang explained that the widening overseas margin dilution forecast for future years is driven by inflation and potential tariff-related cost increases.

Charlie Chan questioned TSMC's future bargaining power with customers and vendors, its implications for long-term gross margin, and potential antitrust risks. He also asked about IDM outsourcing opportunities, specifically from Intel, and whether TSMC would consider acquiring an IDM's fabs.

Answer

CEO Dr. C. C. Wei emphasized that TSMC views customers and suppliers as partners and that "selling our value" is an ongoing process. He countered antitrust concerns by explaining that under the Foundry 2.0 model, which includes packaging and testing, TSMC's addressable market share is around 30%, not a dominant position. He firmly rejected the idea of acquiring an IDM's fab and confirmed TSMC continues to receive sizable business from its IDM customers.

Charlie Chan of Morgan Stanley asked about TSMC's progress in its 'selling value' pricing strategy, particularly for leading-edge nodes, and inquired how the company plans to mitigate geopolitical risks, such as those highlighted by recent political comments, and whether US tariffs apply to its chips.

Answer

CEO C.C. Wei described the pricing strategy as strategic and ongoing, noting that it varies by product sector and that customers are doing well. Regarding geopolitical risk, Wei confirmed no change to overseas expansion plans in Arizona, Japan, and Europe, and ruled out joint ventures. CFO Wendell Huang added that there are no tariffs on their chips shipped to the US, and if any were imposed, the customer would typically be responsible.

Charlie Chan from Morgan Stanley asked about the impact of potential U.S. tariffs on customer behavior, UMC's strategy for advanced packaging, and the current state of the semiconductor cycle.

Answer

President Jason Wang acknowledged that tariff concerns drove some inventory buildup in Q2 and Q3, altering typical seasonality. He detailed UMC's development of 2.5D interposers and 3D wafer-to-wafer stacking for AI and RFIC applications. Wang noted that while visibility is low, inventory levels are mostly healthy, and the company's focus for pricing remains on technology differentiation.

Charlie Chan of Morgan Stanley asked for more color on the drivers behind the Q2 gross margin guidance of 30%. He also questioned if customers are requesting an acceleration of the U.S. partnership with Intel and whether UMC would consider migrating to more advanced nodes. Finally, he asked about the implied second-half seasonality based on the full-year outlook.

Answer

CFO Chi-Tung Liu attributed the margin performance to proactive cost reduction efforts offsetting headwinds, but cautioned that the better-than-expected first half only provides a buffer for second-half uncertainty. He confirmed customers wish to accelerate the 12nm U.S. project, but the current timeline is already aggressive and on track. While open to future opportunities, the current contract is limited to 12nm. For the full year, Liu reiterated the goal to outperform the addressable market's low-single-digit growth.

Charlie Chan of Morgan Stanley sought clarification on the FX impact on Q2 gross margin, questioned how UMC achieved strong revenue guidance with firm pricing amid a slow market recovery, and asked about the risk to its interposer business from next-gen GPUs. He also inquired about the progress of the Intel partnership and the reason for UMC's strong outlook when a key customer's inventory was rising.

Answer

CFO Chi-Tung Liu quantified that a 3% TWD depreciation contributed about 1.2-1.3 percentage points to Q2 gross margin. President Jason Wang explained that revenue strength comes from disciplined portfolio management and seeing some segments exit inventory correction. He addressed interposer risk by highlighting a continuous product pipeline and development of wafer-to-wafer hybrid bonding. Wang confirmed the Intel partnership is on track for 2027 and unaffected by leadership changes, and that overall inventory levels (excluding auto) are improving and returning to seasonal patterns.

Charlie Chan of Morgan Stanley asked if the 2024 CapEx includes spending for the U.S. partner fab and if the 12nm production timeline could be accelerated. He also inquired about the impact of rising electricity costs on gross margin, the potential to pass on costs, the second-half margin outlook, and how to reconcile UMC's positive view on smartphone inventory with reports of order cuts.

Answer

President Jason Wang clarified that significant CapEx for the U.S. partner is planned for 2025, not 2024, and while they hope to accelerate the 12nm schedule, the project is currently on track. CFO Chi-Tung Liu noted that the utility cost impact is minimal and will be managed through efficiencies. Mr. Wang reiterated that pricing is value-based, not cost-plus, and stated that while Q1 could be the bottom for the year, the macro outlook remains the biggest uncertainty, explaining the cautious customer behavior despite healthier inventory levels.

Charlie Chan questioned the company's 3D IC technology development timeline and potential revenue contribution, especially with the migration to 2-nanometer chips. He also asked about the impact of potential tariffs, whether the company is seeing order pull-ins, and if this could lead to a flat second half.

Answer

Joseph Tung, CFO, stated that for advanced technologies like 3D IC, the company is investing heavily in R&D to be prepared for future demand but has no clear timeline for revenue. Regarding tariffs, he acknowledged that some customer pull-in is reasonable but difficult to quantify. Mr. Tung emphasized that visibility for the second half is low, and the company will remain nimble while staying on its current strategic course.