ASE: Long-term service agreement has been signed, and the supply and demand of packaging and testing capacity will reach a balance by 2023

ASE, the leader in packaging and testing, announced its August financial report today, achieving revenue of NT$50.45 billion (the same below), a month-on-month increase of 8.54% and a year-on-year increase of 20.28%. Benefiting from the continued shortage of packaging and testing capacity and the recovery of EMS business, ASE's revenue in August hit a record high for the same period and a record high, and it is predicted that it will continue to challenge new highs in September.

ASE pointed out that the demand for packaging such as wire bonding, FC, and WLCSP continues to be strong, and the test cycle is extended, and the packaging and testing capacity continues to be in short supply. It is expected that the revenue in the second half of the year will grow quarter by quarter. In addition, the price remains high, and the overall profitability of the packaging and testing business continues to improve. It is expected that the gross profit margin of the ATM business in the second half of the year will be better than that in the first half of the year. ASE also predicts that the stronger packaging and testing demand momentum than before will continue until next year.

At the same time, due to the impact of chip shortages on packaging and testing equipment, the delivery time is as long as 6 to 12 months, slowing down the expansion of packaging and testing capacity. It is expected that the upward cycle of the packaging and testing industry will continue to extend.

The capital market is also optimistic about the pricing of the packaging and testing industry in the next few years. After the merger of ASE and Siliconware Precision Industries, and the fact that mainland packaging and testing factories no longer compete for market share with lower prices but focus on improving profits, the gross profit margin of Changdian Technology has increased from 12.3% in the first quarter of 2018 to 18.5% in the second quarter of this year, highlighting that the overall market pricing environment is more favorable.

ASE CEO Wu Tianyu pointed out that the current long-term service agreement has been extended to 2023. Although duplicate orders and inventory control issues may exist, they should be local and temporary phenomena with limited impact on overall business momentum. Expansion of production needs to consider the overall and balanced supply sustainability. It is expected that supply and demand will have a chance to reach a balance as early as 2023.

The industry predicts that with continued strong market demand, ASE's packaging and testing revenue in the third quarter is expected to increase by 11-14% month-on-month, and its gross profit margin will simultaneously increase to over 26%. Driven by peak season demand, the EMS business revenue is expected to increase by 36-40% month-on-month.

Under strong market demand, ASE continues to expand its layout and increase its production capacity. To ensure that the construction progress of the Kaohsiung K27 plant meets the target schedule, the board of directors decided to jointly build the plant with its related party Hongjing in separate buildings. The first phase is expected to be completed in the third quarter of next year, and it is expected to set up FC packaging and IC testing production lines.

The expansion plan has also led to an increasing demand for talent at ASE's Kaohsiung plant, and it is expected that more than 2,000 talents will be recruited by the end of the year. In response, ASE held a large-scale recruitment event on the 4th, focusing on equipment engineers, reserve cadres, and production assistants, to continue to create local employment opportunities.