Sunny Lin

Sunny Lin asked for a detailed breakdown of the LEAP business's projected NTD 3.2 billion revenue for the current year, specifically inquiring about the contributions from OSAT, full process packaging, and testing services. She also sought a longer-term outlook on ATM gross margin expansion, considering the strong Q4 performance driven by utilization and product mix, and the potential for LEAP's higher margins to further elevate overall gross margins over the next 2-3 years.

Answer

Joseph Tung, CFO, confirmed the LEAP revenue target and detailed that it would predominantly be from OS and wafer sort, with full process tripling to 10% of LEAP revenue and final tests contributing 10% of the test business. Dr. Tien Wu, COO, declined to provide long-term margin guidance, stating the company prefers to assess it one year at a time.

Sunny Lin asked for a breakdown of the LEAP business's guided TWD 3.2 billion revenue for the year, specifically by OS, full process, and test, and also inquired about the longer-term outlook for gross margins, particularly for LEAP services.

Answer

Joseph Tung and Tien Wu detailed that LEAP revenue is expected to double, with OS and wafer sort predominating. Full process revenue is projected to triple, reaching about 10% of overall LEAP services by year-end, and final test will contribute roughly 10% of the test business later in the year. For longer-term gross margins, Dr. Wu preferred to provide guidance one year at a time.

Sunny Lin asked about ASE's strategy for scaling its leading-edge packaging business into 2026-2027, specifically its progress in ramping full-process solutions like CoWoS or FOCoS versus relying on foundry outsourcing. She also inquired about the competitive dynamics in AI testing and the expected timeline for gaining meaningful market share in final test.

Answer

COO Tien Wu emphasized that building a flexible and efficient infrastructure is critical for the multi-wave AI paradigm shift, highlighting investments in large panel formats and new power management solutions. He stated that foundry outsourcing will continue based on customer needs. CFO Joseph Tung confirmed that ASE is in full production on full-process solutions for some ASIC customers and expects meaningful business in 2026. Regarding AI testing, management is confident in its plan and progress to gain market share.

Sunny Lin questioned the guided sequential revenue drop for the EMS business in Q2, seeking more detail on the interplay between seasonality and tariff-related pull-ins. She also asked for an update on the full-year CapEx forecast and whether the previous guidance for higher second-half gross margins still holds given the ramp in advanced packaging.

Answer

Joseph Tung, CFO, clarified that Q2 is traditionally the slowest quarter for the EMS business, and the seasonal pattern of a sequential decline persists despite some order pull-ins making the dip shallower. He confirmed that the full-year CapEx plan is unchanged. On profitability, he noted that performance is ahead of schedule, with gross margins expected to return to their structural range starting in Q2, earlier than previously anticipated, and reach the midpoint of that range in the second half.

Sunny Lin of UBS asked about the potential to expand collaboration with ASE's key foundry partner on advanced packaging and whether the investments in this area are concentrated on specific devices or are fungible for future use.

Answer

COO Dr. Tien Wu responded that while their foundry partner is open to suggestions, ASE's current focus is on flawlessly executing the existing roadmap before expanding the portfolio. He reiterated an earlier point that the significant investments in leading-edge capacity are considered flexible and fungible, positioning ASE to capture future demand from a wide range of applications, particularly in the growing AI edge device market.

Sunny Lin's questions, read by management, concerned ASE's collaboration with its foundry partner on advanced packaging, asking if ASE could expand its role, particularly on the on-substrate component. She also asked if the large investments in leading-edge packaging were concentrated or fungible for future use.

Answer

COO Tien Wu responded that their foundry partner is open to suggestions, contingent on ASE's ability to deliver capacity with acceptable yield, but did not comment on expanding the current portfolio. He reiterated his earlier point that the capacity investments are considered flexible and fungible for future edge AI and other applications.

Sunny Lin of UBS asked for details on advanced packaging testing opportunities, including customer engagement and competitive strategy against established suppliers, particularly for AI accelerator and HPC projects with customized tools.

Answer

CFO Joseph Tung responded that demand for leading-edge packaging and testing is booming, with enough business for multiple players. He noted ASE is currently capacity-constrained but is increasing CapEx to meet demand from various customers and foundry partners. Tung emphasized that ASE will leverage its turnkey services and expects to see good progress, including in burn-in capabilities, starting next year.

Sunny Lin asked for directional insights into TSMC's gross margin trends for 2026, including major puts and takes, and specifically inquired about the gross margin impact from the 2nm (N2) ramp in 2026. She also asked if the typical 2-3% dilution for new nodes over six to eight quarters would apply to N2. She then asked about TSMC's capacity planning and expansion strategies, noting that Cloud AI is ramping faster and is potentially harder to forecast than previous megatrends like smartphones and PCs, inquiring what TSMC is doing differently to ensure quick capacity ramp-up while maintaining good risk control.

Answer

CFO Wendell Huang stated it's too early to provide 2026 guidance but confirmed N2 would cause gross margin dilution in 2026, similar to new nodes. He noted that N3 dilution is decreasing and expected to reach the corporate average in 2026. Overseas fabs will continue to dilute margins by 2-3% in early stages. He also mentioned that N2's structural profitability is better than N3's and that comparing time to reach corporate average is less meaningful now due to rising corporate gross margins. CEO Che-Chia Wei acknowledged the difficulty in forecasting AI demand at its early stage, explaining that TSMC is now engaging directly with 'customers' customers' to understand their AI application views, which is a significant departure from previous planning methods.

Sunny Lin asked why the CapEx guidance remains unchanged despite a stronger revenue forecast and whether spending will accelerate in 2026-2027. She also requested an update on 2025 Cloud AI growth and CoWoS capacity expansion plans for 2025 and 2026.

Answer

SVP & CFO Mr. Wendell Huang explained that CapEx is planned for future years' growth and the company remains mindful of macro uncertainties, though he noted a significant drop in CapEx dollars is unlikely. Chairman & CEO Dr. C.C. Wei reiterated that AI demand is very strong and TSMC is aggressively expanding CoWoS capacity to 'narrow the gap' in both 2025 and 2026.

Sunny Lin asked for details on the accelerated timeline for the Arizona fabs, questioning if production for the second and third fabs could be pulled forward. She also inquired about pricing power for U.S. capacity and the assumptions behind the forecast for widening gross margin dilution from overseas operations.

Answer

CEO C. C. Wei confirmed they are working to pull in the second fab's production by 'at least a couple of quarters' but noted the third fab's timeline is constrained by labor and permits. CFO Wendell Huang stated that pricing discussions with customers are ongoing to reflect the value of geographic flexibility. He attributed the widening margin dilution to cost inflation and potential tariff impacts.

Sunny Lin asked for a detailed gross margin outlook for 2025, seeking to understand the key factors beyond the previously disclosed 2-3% dilution from overseas fabs. She also followed up on the expected depreciation growth and whether the overseas dilution implies near-breakeven initial profitability for those fabs.

Answer

CFO Mr. Wendell Huang outlined several puts and takes for 2025 gross margin. Positives include reduced N3 dilution and higher utilization. Negatives include the 2-3% overseas fab dilution, N5-to-N3 conversion costs, N2 ramp preparation, and a significant impact from higher electricity prices in Taiwan (at least 1% of margin). He explained that overseas fabs will have lower initial profitability due to smaller scale and ramp-up costs, which will improve over time.

Sunny Lin from UBS asked for the outlook on smartphone and PC markets, specifically regarding unit growth and silicon content increases from AI, and whether TSMC has enough capacity for a potential upgrade cycle. She also questioned how TSMC is managing GenAI demand volatility differently from the COVID-era to avoid overbuilding capacity.

Answer

CEO C.C. Wei stated that AI is driving a 5-10% die size increase in edge devices, and while unit growth is not yet significant, he expects AI features to stimulate a replacement cycle in about two years. He confirmed leading-edge capacity is 'very, very tight.' Wei emphasized that TSMC is applying a more disciplined, top-down and bottom-up approach to capacity planning this time, believing the current AI demand is more 'real' and sustainable than the shortage-driven demand of 2021-2022.

Sunny Lin from UBS Group asked about the drivers for 28nm revenue growth, pricing strategy for the new Singapore fab, and the stability of the Intel partnership.

Answer

President Jason Wang attributed the 22/28nm revenue growth to the communication segment and expressed confidence in continued share gains. He stated that pricing for the Singapore fab is based on technology value, not just location. Wang also dismissed speculation about Intel, reaffirming that the partnership is progressing well and both parties are highly committed.

Sunny Lin from UBS inquired about the near-term and long-term impacts of tariffs on customer orders, pricing, and margins. She also asked for details on 28-nanometer utilization rates, the sales mix of 22-nanometer technology, and the latest progress on the 12-nanometer partnership with Intel.

Answer

CFO Chi-Tung Liu stated that while there has been little net impact from tariff-related order pull-ins for Q2, visibility for the second half of the year is very limited. He emphasized that UMC will work transparently with customers on any cost increases. Liu highlighted that the 22/28nm node is a strong sector, with 22nm accounting for over a mid-teen percentage of total sales. Senior Director of Finance Michael (Jinhong) Lin added that the 12nm joint development with Intel is on track, with the PDK expected to be ready for customers in 2026 and production in 2027.

Sunny Lin of UBS inquired about the long-term utilization rate outlook for 2025, the structural drivers for gross margin including pricing dynamics and 2025 depreciation, and the ramp-up schedule for the Singapore 12-inch fab expansion.

Answer

President Jason Wang stated that the company is focused on 2024, expecting a seasonal second half but customer prudence leading to a seasonal Q4. He anticipates a return to normalcy in 2025 as auto inventories correct. CFO Chi-Tung Liu projected that 2025 depreciation growth would be similar to 2024's ~20% increase. Wang added that pricing strategy remains consistent and confirmed the Singapore P3 fab is on schedule for production in January 2026, ramping in the second half of 2026.

Sunny Lin asked for clarification on the guided Q2 sequential revenue drop in the EMS business, given earlier comments about a shallower seasonal dip. She also inquired about the full-year gross margin outlook and whether the 2025 CapEx guidance would be revised upwards after strong Q1 spending.

Answer

Joseph Tung, CFO, explained that Q2 is traditionally the slowest quarter for the EMS business, and the guided sequential decline is consistent with typical seasonality, even if the first-half dip is shallower than in prior years. He confirmed the full-year CapEx guidance remains unchanged and stated that profitability is ahead of plan, with gross margins expected to return to the structural range for the full year, starting in Q2.