ASX Q3 2025: LEAP Drives $1.6B AI Revenue Surge, Margin Expansion on Track
ASC Technology Holdings delivered double-digit sequential and annual growth, powered by robust demand for LEAP and test services, as AI and mainstream recovery fuel utilization and margin expansion. Management’s confidence in exceeding 20% annual ATM revenue growth underscores structural tailwinds, despite foreign exchange drag. Strategic CapEx acceleration and a visible AI supercycle position ASX for further gains into 2026, with focus on leading-edge test and packaging capacity.
Summary
- AI-Driven Mix Shift: LEAP and test services outpaced expectations, accelerating structural transition toward higher-margin business.
- CapEx Ramps to Meet Demand: Ongoing investments target wafer probing and leading-edge packaging, reinforcing competitive positioning.
- Margin Recovery Momentum: Utilization gains and product mix offset FX headwinds, with structural margins achievable as capacity scales.
Performance Analysis
ASX’s third quarter was marked by broad-based strength across both ATM (assembly, test, and material) and EMS (electronics manufacturing services) businesses, with consolidated revenue up 12% sequentially and 5% year over year in NT dollars. On a US dollar basis, growth was even stronger, reflecting robust global demand for advanced packaging and testing, especially in AI and high-performance computing (HPC) applications. The ATM segment delivered a record $100.3 billion in revenue, up 17% YoY, with test services growing 30% annually—twice the rate of packaging—demonstrating a decisive shift toward higher-value, technology-driven services.
Gross margins improved sequentially, driven by higher factory loading and favorable product mix, though foreign exchange (FX) volatility carved out 2.4 percentage points from annual margin gains. Operating leverage was evident, with operating profit up $3 billion sequentially and $1.7 billion YoY, reflecting disciplined cost control even as R&D investment increased. EMS saw a seasonal ramp, but its annual revenue declined as device schedules shifted, with operating margins benefiting from one-time inventory adjustments and lower compensation costs. Management emphasized that, excluding FX, structural gross margins for ATM would have reached 26.8%, highlighting the underlying profitability of the business model as utilization rises.
- LEAP and Test Outperformance: Test business grew 11% sequentially and 30% annually, outpacing packaging and supporting margin expansion.
- FX Headwinds Dilute Margins: NT dollar appreciation reduced holding company and ATM margins by 2.4 and 3.6 percentage points YoY, respectively.
- CapEx Intensity Increases: Over $1.5 billion deployed in Q3 for machinery and facilities, with 55% directed toward leading-edge investments.
Looking ahead, management expects continued margin improvement and revenue growth, with CapEx set to rise further in 2026 to meet customer demand, especially for AI-related wafer probing and full-process advanced packaging.
Executive Commentary
"We are very, very confident that we will reach our $1.6 billion mark for this year. And going forward into 2026, we see or continue to see very strong momentum. And we are very, very confident that we will gain another over a billion dollar kind of revenue increase for 2026 in this space. CapEx wise, we will continue to make heavy investments in our leading edge."
Joseph Tong, Chief Financial Officer
"The key is whether the end consumers are enticed to integrate new generations of products into their lives. And to that end, AI does appear to be upping the basic standards of quality in various contexts, not just limited to the school office and social media. And there does appear to be the not so subtle ominous angle of you need AI to be competitive. This is bringing an intelligence and capabilities arms race to everyone's front door."
Ken Sheng, Head of Investor Relations
Strategic Positioning
1. AI and HPC Supercycle as Structural Tailwind
LEAP, ASC’s advanced packaging and test platform, is central to the company’s growth strategy, capturing demand from AI and HPC customers who require high-bandwidth, thermally robust solutions. Management’s $1.6 billion AI-related revenue target for 2025 is on track, with test services offsetting minor packaging shortfalls due to geopolitical factors. The company expects at least another $1 billion incremental LEAP revenue in 2026, with test momentum outpacing packaging as new product cycles ramp.
2. Utilization and Operating Leverage
Factory utilization in the high 70% range is unlocking operating leverage, with sequential and annual operating margin improvements. Management highlighted that every percentage point of NT dollar appreciation reduces margins by 0.3 to 0.45 points, yet underlying profitability is robust when adjusted for FX. The margin model is predicated on sustained high utilization, especially as mainstream and leading-edge lines run near full capacity.
3. CapEx Acceleration and Resource Allocation Discipline
ASC is aggressively scaling CapEx, with machinery and facility investments exceeding $1.5 billion in Q3 and further increases planned for 2026. Over half of CapEx is directed toward leading-edge wafer probing and advanced packaging, reflecting customer pre-booking behavior and supply chain security concerns. Management maintains a disciplined approach, only pursuing market share where returns justify the investment, especially in the context of potential US expansion.
4. Customer Engagement and Value-Added Solutions
Close collaboration with foundry partners and customers’ customers is shaping ASC’s technology roadmap, enabling the company to anticipate demand and secure supply chain resilience. The company is also advancing internal solutions, such as Focus for 2.5D packaging, with multiple customer engagements and meaningful revenue expected from full-process solutions in late 2026.
5. Margin Recovery Pathway
Management reiterated that structural gross margins in the high 20s are achievable as utilization and product mix improve, with FX volatility being the primary external risk. Margin accretion from leading-edge business is expected to accelerate as capacity ramps and the mix shifts further toward LEAP and test services.
Key Considerations
ASC’s Q3 results reflect a business inflecting toward higher-value technology, with both cyclical and structural drivers converging. Investors should monitor the following:
Key Considerations:
- AI and HPC Demand as Growth Engine: Supercycle adoption is driving sustained LEAP and test revenue, with visibility into 2026 and beyond.
- CapEx and Capacity Alignment: Rapid CapEx deployment is critical to capturing incremental demand, but return discipline remains central to investment decisions.
- FX and Cost Structure Volatility: Currency swings remain a material swing factor for margins, despite underlying operational improvements.
- Customer and Supply Chain Dynamics: Pre-booking and supply security are changing order patterns, requiring agile resource allocation and close customer engagement.
- Margin Expansion Trajectory: Margin recovery is dependent on sustained high utilization and mix shift, with leading-edge business providing structural uplift.
Risks
FX volatility remains a significant risk, capable of erasing margin gains even as operational metrics improve. Execution risk around CapEx, new technology ramps, and supply chain constraints (such as substrate shortages) could disrupt revenue conversion. Competitive intensity, especially in the US, and the ability to pass through cost increases to customers are ongoing challenges. Management’s discipline in only pursuing profitable share is a strength, but also a potential limiter if customers demand local supply or pricing concessions.
Forward Outlook
For Q4, ASC guided to:
- Consolidated revenue growth of 1% to 2% QoQ in NT dollars
- Gross and operating margins up 70 to 100 basis points sequentially
- ATM revenue growth of 3% to 5% QoQ, with 100 to 150 basis points margin expansion
- EMS revenue flat or slightly down, with stable operating margin
For full-year 2025, management expects:
- ATM revenue to exceed target, growing over 20% YoY in USD
- LEAP revenue to reach $1.6 billion, with at least $1 billion incremental growth targeted for 2026
- CapEx to increase further, focused on wafer probing and capacity ramp
Management emphasized a constructive demand environment, robust customer pre-booking, and a visible AI-driven supercycle, while flagging FX and supply chain as key variables.
Takeaways
ASC Technology is executing on a strategic pivot to AI and advanced test services, with margin and revenue growth underpinned by disciplined CapEx and customer alignment.
- LEAP and Test Lead Growth: AI and HPC adoption are structurally shifting the business mix, driving higher margins and sustainable revenue growth.
- Margin Recovery Dependent on Utilization and FX: Underlying profitability is strong, but headline margins will remain sensitive to currency movements.
- CapEx Discipline and Customer Engagement Critical: The ability to match investment with profitable demand, especially in the US, will define future outperformance.
Conclusion
ASC Technology Holdings’ Q3 results confirm a business in structural transition, with AI and test services powering growth and margin expansion. Disciplined CapEx and close customer collaboration position the company to capitalize on the ongoing AI supercycle, though FX and supply chain risks require ongoing vigilance. The outlook remains positive, with visibility into continued gains through 2026.
Industry Read-Through
ASC’s results and commentary reinforce the durability of the AI and HPC supercycle for the semiconductor supply chain, with advanced packaging and test capacity emerging as critical bottlenecks. The shift toward customer pre-booking and supply chain security is likely to drive further CapEx acceleration across the sector. Margin expansion opportunities exist for those with scale and technology leadership, but FX and input cost volatility will remain key swing factors. Competitors and supply chain partners should expect continued industry consolidation around leading-edge capabilities, with disciplined capital allocation separating winners from laggards.