ASE Technology 3Q26 Earnings: Fourth-Quarter Guide Puts FY26 Profit About 10% Above Consensus

ASE Technology is a Kaohsiung-based company that packages and tests chips for chip designers and chipmakers (its ATM business: assembly, testing and materials) and, through its USI subsidiary, assembles electronic products (EMS). Packaging was 50% of 3Q26 revenue, testing 11% and EMS 38%. In ATM, the five largest customers were 46% of revenue and integrated device manufacturers, chip companies with their own fabs, 46%.

ASE Technology reported 3Q26 revenue of NT$244,161m, up 28% QoQ and 45% YoY. Gross profit rose 34% to NT$53,967m and operating income rose 57% to NT$33,142m. Net income attributable to shareholders was NT$26,996m, up 28% QoQ and 148% YoY, and basic EPS was NT$6.13 against NT$4.80 in 2Q26.

Against our preview, gross margin of 22.1% came in just above our 21.0-22.0% range and operating income of NT$33.1bn just above our NT$30.0-33.0bn. Net income of NT$27.0bn and EPS of NT$6.13 landed inside our NT$24.8-28.5bn and NT$5.6-6.5 ranges, because non-operating items turned to a NT$432m loss from a NT$4,566m gain in 2Q26.

The non-operating swing came from three lines: a NT$636m foreign exchange loss against a NT$738m gain in 2Q26, a NT$1,812m gain on financial assets against NT$2,899m, and NT$190m from equity-method investments against NT$2,298m. Net interest expense rose to NT$2,611m from NT$1,853m as borrowing grew. The effective tax rate was 14.8%, against 16.2% in 2Q26.

ATM revenue rose 20% QoQ to NT$151,485m while ATM cost of revenue rose 15%, so ATM gross profit rose 35% to NT$46,412m. Gross margin reached 30.6%, from 27.3% in 2Q26 and 22.6% a year ago. ATM operating expenses rose 10%, and ATM operating margin rose to 20.0% from 15.7%.

The gross margin on the NT$25.3bn of added ATM revenue was 47%. Management guided 4Q26 ATM gross margin up a further 100-200 basis points, to 31.6-32.6%, on ATM revenue growth of 11-13% QoQ. That is the same revenue range management gave for 3Q26 in July; the quarter came in at 20%.

Bumping, flip chip, wafer-level packaging and system-in-package, the more advanced packaging types, rose to 51% of ATM revenue from 48% a year ago, while wire bonding fell to 24% from 26%. Computing rose to 34% of ATM revenue from 25%, and communication fell to 38% from 45%. The wire bonder count held at 24,801, while testers rose by 483 in the quarter to 8,831.

Testing revenue rose 11% QoQ and 43% YoY to NT$26,302m. Testing took US$1,067m of the quarter's US$2,104m of equipment capex, more than packaging at US$991m, so testing capacity should keep growing faster than the wire bonding base.

EMS revenue, from the USI subsidiary, rose 42% QoQ to NT$93,469m and 35% YoY. Gross margin slipped to 8.3% from 8.9%, while operating margin rose to 3.3% from 2.4% as EMS operating income nearly doubled to NT$3,111m. Raw materials were 82% of EMS revenue, so most EMS revenue passes through component costs.

Computing rose to 21% of EMS revenue from 9% a year ago, and consumer was 41%. The five largest EMS customers were 70% of EMS revenue, against 58% in 2Q26. Management guided 4Q26 EMS revenue flattish QoQ with an operating margin of around 2%, below the third quarter's 3.3%.

Management guided 4Q26 consolidated revenue up 6-8% QoQ in NT dollars, gross margin of 23-24% and operating margin of 14.5-15.5%, at an exchange rate of NT$31.9 to the US dollar. That gives revenue of NT$258.8-263.7bn and operating income of NT$37.5-40.9bn, against NT$33.1bn in 3Q26. ATM revenue is guided to NT$168.1-171.2bn.

With EMS guided flat, ATM carries nearly all of the guided growth. The guide averages NT$86.3-87.9bn of revenue a month, against NT$88.1bn in September, so the fourth quarter needs no further step up in monthly revenue from the September level.

The fourth-quarter guide puts FY26 ahead of current consensus. Nine-month revenue of NT$608,887m and net income of NT$62,193m mean that consensus FY26E figures of NT$840,693m and NT$83,054m imply 4Q26 revenue of NT$231,806m, down 5.1% QoQ, and 4Q26 net income of NT$20,861m, down 22.7%.

Guided revenue of NT$258.8-263.7bn is 12-14% above that implied quarter. At the third quarter's 11.1% net margin, it gives 4Q26 net income of NT$28.6-29.2bn and FY26 net income of NT$90.8-91.4bn, 9.4-10.0% above consensus. A guided operating margin 0.9-1.9pp above the third quarter's would add to that, if non-operating items stay small. FY26 revenue on the guide is NT$867.7-872.6bn, 3.2-3.8% above consensus.

We now expect FY26 net income of NT$90.8-91.4bn and operating income of NT$109.3-112.6bn, and we expect the fourth quarter to land in the upper half of the revenue guide, because September alone ran at NT$88.1bn, above the guide's NT$86.3-87.9bn monthly average. October revenue, due around 10 November, is the first check: a month below NT$86bn would put the low end of the guide at risk.

Interest-bearing debt reached NT$406,461m at 30 September, up NT$100,231m from June, and net debt to equity rose to 0.66 from 0.47. Long-term loans rose NT$67.0bn to NT$276,633m and bonds payable rose to NT$42,201m from NT$14,985m, after the US$1bn zero-coupon convertible bond priced in August.

Operating cash flow was NT$50,462m and payments for plant and equipment NT$125,852m, so free cash flow before financing was negative NT$75.4bn. Property, plant and equipment rose NT$104.2bn to NT$621,962m. Quarterly EBITDA of NT$57,963m covered net interest expense of NT$2,611m 22 times, and unused credit lines were NT$457,283m.

Working capital grew more slowly than revenue. Inventory rose 16% to NT$99,721m and trade receivables 22% to NT$174,495m, against revenue up 28%.

At NT$683, the 29 October close, ASE Technology trades at 35.5x FMP consensus FY26E earnings and 24.0x consensus FY27E EPS of NT$28.42. On FY26 net income of NT$90.8-91.4bn from the guide and 4,403m weighted shares, EPS would be NT$20.6-20.7, which puts the shares at 33x our FY26E.

The peer forward median is 21.0x, with King Yuan Electronics, a test specialist, the highest at 31.5x and Amkor the lowest at 16.7x. The premium to peers reflects ATM margins: 30.6% gross and 20.0% operating in the quarter, guided higher again for 4Q26.

We do not rate ASE Technology and carry no target price. The third quarter bears on value through FY27: consensus FY27E revenue of NT$1,057.9bn is up 26% on FY26 consensus, and a fourth quarter at the guide would leave FY26 revenue 3-4% higher as the starting point.

Leverage. Net debt to equity rose to 0.66 from 0.47 in one quarter, and free cash flow was negative NT$75.4bn. If ATM revenue growth slows while capex stays near US$2bn a quarter, borrowing keeps rising.

ATM margin. The 30.6% gross margin and the 100-200 basis point rise guided for 4Q26 depend on high utilization of new capacity. Depreciation on NT$104.2bn of plant added in one quarter starts to weigh if loadings slip.

EMS concentration. The five largest EMS customers were 70% of EMS revenue, up from 58% in 2Q26, and EMS operating margin is guided down to about 2% in 4Q26.

Monthly revenue. The guide averages NT$86.3-87.9bn a month. October and November revenue releases are the first checks against it.