Citic Securities has released a research report indicating that global OSAT leaders including ASE Technology Holding, Amkor Technology, Powertech Technology, ChipMOS Technologies, and King Yuan Electronics have posted strong Q2 results. Their quarterly revenues grew between 26% and 36% year-on-year, with gross margins broadly improving by 4 to 11 percentage points. As capacity utilization rates rose while expenses remained relatively fixed, operating leverage unlocked significant profit growth.
Capacity utilization at Taiwanese OSATs has approached full capacity, with the bottleneck shifting to equipment installation rather than order intake. ASE Technology Holding and ChipMOS Technologies have revised up their full-year capital expenditure guidance, with 70% of spending directed toward advanced packaging. Price increases in Q2 were primarily cost-pass-through, but conditions for proactive price hikes are now building. Timelines for mass production of advanced packaging technologies such as panel-level packaging and optical interconnects have been pulled forward. Citic Securities believes the OSAT industry is transitioning from a capacity utilization recovery phase to a phase of simultaneous volume and price growth, driven by increased value-add. Price increases by TSMC and ASE Technology Holding provide a benchmark for Chinese OSATs to follow, while order overflow from fully loaded Taiwanese fabs presents a clear opportunity for Chinese players to capture demand, raise prices, and improve profit margins.
Q2 Performance: Revenue Growth of 26%–36% with Strong Profit Delivery
ASE Technology Holding's packaging and testing division reported record quarterly revenue of NT$126.1 billion (+36% YoY). Gross margin improved to 27.3% (+5.4 ppts), and operating profit for the division reached NT$19.8 billion (+124%). Net profit attributable to the parent was NT$21.1 billion (+180%). Amkor Technology posted revenue of $1.898 billion (+26% YoY), with gross margin at 16.8% (+4.8 ppts) and net profit of $174 million, up from $54 million a year earlier. Powertech Technology reported revenue of NT$23.116 billion (+28.0% YoY), gross margin of 21.8% (+5.9 ppts), and net profit surged 130.8% YoY. ChipMOS Technologies saw revenue of NT$7.383 billion (+28.7% YoY), gross margin of 18.0% (+11.4 ppts), and net profit of NT$892 million, reversing a loss of NT$533 million in the prior year period. King Yuan Electronics recorded revenue of NT$11.14 billion (+33.2% YoY), with gross margin of 39.5% (+4.0 ppts)—the highest among the five—and net profit of NT$2.492 billion (+14.5% YoY). The revenue growth spread between the best and worst performers was only 10 percentage points, indicating industry-wide volume and price growth rather than market share shifts. Operating leverage drove significant profit growth, though King Yuan Electronics' profit growth lagged revenue due to upfront operating expenses and depreciation from capacity expansion, a characteristic of the investment phase.
Capital Expenditure and Capacity: Broad Upgrades, Bottleneck in Installation, Not Orders
ASE Technology Holding raised its full-year CapEx guidance to approximately US$10.5 billion (US$4 billion for buildings, US$6.5 billion for equipment). Of the equipment budget, 56% is allocated to packaging, 40% to testing, and 70% to advanced packaging. ChipMOS Technologies has received board approval to raise its full-year CapEx to potentially exceed 25% of revenue (normal target is ~20%), with a further increase possible in 2027. Spending is focused on bottleneck expansions for memory packaging and testing, alongside a new factory purchase in Tainan Science Park to prepare for memory client capacity needs from 2027. Powertech Technology maintained its NT$50 billion CapEx plan, while Amkor Technology kept its US$2.5–3.0 billion plan, with 65%–70% allocated to buildings (including Phase 1 in Arizona). On utilization, ASE Technology Holding reported a consolidated rate of 80%–85%, nearly full except for lines under installation, with wafer probing and final testing near capacity. Amkor Technology's global average was near 80%, with some advanced packaging platforms already fully loaded. ChipMOS Technologies provided the most granular data: overall utilization was 72% (71% in Q1, 65% a year ago), with packaging at 78%, testing at 74%, driver IC at 69%, and bumping at 65%.
Depreciation and Cash Flow: Front-Loaded Investment as a Normal Expansion Phase
ASE Technology Holding's quarterly equipment and building spending totaled US$2.36 billion, exceeding EBITDA, leading to temporarily negative free cash flow and a net debt-to-equity ratio of 47%. King Yuan Electronics saw depreciation rise 55.0% YoY, outpacing revenue growth of 33.2%. ChipMOS Technologies reported first-half free cash inflow of NT$736 million, down from NT$1.667 billion a year earlier, mainly due to a NT$1.757 billion increase in CapEx. Advanced packaging lines require complete tool sets and have long tuning cycles, making depreciation growth temporarily faster than revenue a normal feature of expansion. As new lines ramp to mass production, operating leverage will gradually be released. The gap between depreciation growth and revenue growth can serve as a tracker for capacity digestion progress.
Price Increases: Cost Pass-Through in Q2, Proactive Hikes Expected to Improve Margins
ChipMOS Technologies provided the most detailed disclosure: in Q2, it selectively raised memory packaging and testing prices to reflect material costs, and implemented price increases for driver IC packaging and testing. In the second half of the year, substrate, leadframe, and gold costs (especially gold) will continue to be passed through. Price increases for high-end probe cards for driver ICs have been substantial and agreed with customers. ASE Technology Holding noted a very friendly pricing environment where material inflation can be fully passed on to clients. Powertech Technology stated that rising material costs will be moderately reflected in customer prices, with a positive impact expected on Q3 revenue and gross margins. The gross margin expansion this quarter was primarily driven by utilization and product mix, with price increases serving to protect margins from material cost erosion. At the foundry level, TSMC plans to raise prices by 5%–10% from 2027, and conditions for OSAT pricing to shift from cost pass-through to proactive increases are building. On magnitude, Powertech Technology is implementing low-single-digit to double-digit increases depending on product lines, with its subsidiary Chipbond raising prices since April, with larger increments for gold wire products due to rising gold prices. ASE Technology Holding has seen advanced packaging quotes rise by over 20% this year.
Advanced Packaging: HDFO and High-End FCBGA in 2026, Panel-Level in 2027, Optical Interconnects and Bridges by 2028
For 2026: Amkor Technology's HDFO has 10 active projects with 5 customers, with the largest data center CPU project ramping in Q2, supporting its Q3 computing segment guidance of nearly 30% sequential growth. Powertech Technology will introduce mass production of large-die, high-end FCBGA with 1x reticle size in Q3, and has completed development and trial production of TSV-interconnected DDR5, expecting mass production in Q4. The company calls this a foundation for future HBM manufacturing. Powertech Technology will also begin small-volume production of optical engines (CPO and OSFP types) using micro-bump technology by year-end, while ASE Technology Holding will start small shipments of co-packaged optics around the same time.
For 2027, panel-level packaging (PLP) takes center stage, replacing round wafers with large square panels to dilute per-unit costs. A standard 300mm wafer can only produce 8–9 AI chips of a given size, while a square panel can yield 45. ASE Technology Holding's fully automated line is set for mass production in Q1 2027. Powertech Technology's FOPLP developed for AMD is planned for mass production before mid-2027, which would make it the world's first OSAT to mass-produce FOPLP AI applications. Meanwhile, Intel's EMIB-T will support customer ramps in 2027, having already achieved target yield and reliability this quarter, with billions of dollars in backlog and growing.
For 2028 and beyond, optical interconnects and bridges will materialize. According to GlobalFoundries, CPO will begin its ramp in 2028 (with NPO in 2027), and its packaging nature naturally falls within OSAT capabilities. Amkor Technology's fan-out bridge will also debut in 2028. Powertech Technology has the most complete roadmap: its 3D optical engine packaging has passed customer engineering verification, with small-volume production starting this year. Integration into switches for CPO switch shipments is expected in the second half of 2027, with full AI chip integration around 2028.
From TSMC's OCP APAC Summit presentation: 5.5x reticle CoWoS is in mass production with multiple AI clients achieving yields over 98%, and 14x reticle is expected in 2029. CoWoS capacity has doubled annually for the past three years. Two key thresholds stand out: first, beyond 3x reticle size, all components must meet automotive-grade standards, creating a core barrier for large-scale packaging; second, ABF substrate shortages will be second only to memory in the coming years, meaning advanced packaging output limits may not be determined solely by OSAT capacity.
Impact on Chinese Companies: Tight Global Memory and Advanced Packaging Capacity, Plus Order Migration, Points to Volume and Price Growth
On pricing: ChipMOS Technologies has selectively raised memory packaging and testing prices, while Powertech Technology notes that most of its memory customer revenue growth comes from price. TSMC and ASE Technology Holding's successive price increases provide a benchmark for Chinese OSATs to follow. Huizhou Cellix has already implemented a uniform 10% price increase across all processes starting Q2, serving as the first sample of Chinese price follow-through. On business migration and advanced packaging: First, domestic AI chip demand for 2.5D/3D packaging and chiplet solutions is being largely absorbed by Chinese players. SJ Semiconductor saw its chiplet multi-chip integration packaging revenue share rise from 5.32% in 2022 to 56.24% in 1H25, holding about 85% of the domestic 2.5D packaging market, while other OSATs are accelerating their advanced packaging capacity buildouts. Second, memory capacity from overseas fabs is being concentrated on HBM and high-end DRAM, leading to continuous overflow of legacy memory packaging and testing orders. Powertech Technology confirms it is still seeing growing demand, and Chinese players are benefiting from this spillover in legacy memory. Third, testing capacity is tight, with TSMC confirming this quarter that testing is also in shortage. AI chip testing time and per-unit value significantly exceed those of consumer chips, positioning Chinese third-party testing capacity to absorb overflow demand. Taiwanese OSATs are generally near full capacity, prioritizing top clients, with ASE Technology Holding clearly stating that the bottleneck is installation and factory construction, not orders. TSMC has signed a 10-year agreement with Amkor Technology to expand its advanced packaging and testing procurement to OSATs, focusing on Arizona. Chinese companies are already seeing results: Huizhou Cellix saw Q2 utilization recover alongside price increases, achieving record quarterly revenue and turning net profit positive. JCET Group, Huatian Technology, and Tongfu Microelectronics all reported triple-digit net profit growth in their 1H25 preliminary results.
Outlook: Margin Improvement Is Not Just Cyclical; OSAT Value-Add Is Set for a Structural Uplift
Q3 revenue and gross margin guidance both point higher. ASE Technology Holding guides for Q3 packaging and testing revenue to grow 11%–13% sequentially, with gross margin of 28%–29%, and Q4 gross margin could break through the structural ceiling of 30%. Full-year packaging and testing revenue guidance is for growth of over 35%. Amkor Technology guides for Q3 revenue of $1.95–2.05 billion and gross margin of 18.5%–19.5%, up about 220 bps from the Q2 actual midpoint of 16.8%, driven primarily by the computing segment (nearly 30% sequential growth). On value-add, three technology threads—panel-level packaging, optical interconnects, and TSV—are pulling processes traditionally belonging to foundries and module makers into the OSAT domain. The value of advanced packaging as a proportion of total chip cost is rising structurally, not cyclically. On the supply-demand landscape, TSMC stated at its earnings call that demand outrunning supply could extend to 2029–2030. The structure of ASE Technology Holding's equipment spending, with 70% directed to advanced packaging, points to a sustained product mix improvement rather than mere utilization fluctuation, making the upward shift in profit centers more certain than any cyclical timing.
Investment Strategy: Seize the Window for Chinese OSAT Market Share Gains and Margin Recovery
The global OSAT industry is experiencing simultaneous volume and price growth, with advanced packaging timelines pulled forward. Taiwanese and international players are already delivering profit leverage, while Chinese players are still at the starting point of margin recovery. The report favors the opportunity for Chinese OSATs to capture demand and follow through on price increases. Using utilization, price, CapEx, and depreciation as four positioning indicators, the current cycle is in the middle stage of volume and price growth. Utilization is near full, price increases are just shifting from cost pass-through to proactive hikes, CapEx has been rising for two consecutive years and accelerated again in 2026, and depreciation pressure has just begun to emerge without broadly suppressing margins. Looking ahead, marginal changes to watch include the pace of price follow-through by Chinese players, the evolution of the gap between depreciation and revenue growth, and the supply-demand balance after new capacity from PLP and EMIB-T begins to hit the market in the second half of 2027. The report recommends focusing on OSAT players, testing equipment, and third-party testing companies. Key risks include: slower-than-expected AI CapEx, memory price fluctuations impacting downstream demand, higher-than-expected depreciation pressure from expansion, delays in substrate and equipment delivery, weaker-than-expected price increases, and escalating geopolitical and trade friction.
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