Morgan Stanley: ASE raises advanced packaging guidance: CPO enters mass production, packaging and testing gross margin rises above 30%

Where did third-quarter results stand out?

ASE reported third-quarter 2026 revenue of 244.161 billion New Taiwan dollars, up 40.6% quarter on quarter and 62% year on year, above Morgan Stanley’s estimate of 235.978 billion New Taiwan dollars and the market consensus of 233.152 billion New Taiwan dollars.
Overall gross margin for the period was 22.1%, up 2.04 percentage points quarter on quarter and above the bank’s estimate of 21.6% and the market consensus of 21.4%. Earnings per share were 6.13 New Taiwan dollars, also above the market consensus of 5.09 New Taiwan dollars.
The company guided for fourth-quarter revenue growth of 6%–8% quarter on quarter and an overall gross margin of 23%–24%, both slightly above Morgan Stanley’s previous forecasts of 5% growth and a gross margin of 22%–23%, respectively.

The company raised its 2026 revenue guidance for LEAP, its leading-edge advanced packaging business, from 3.7 billion US dollars to 4 billion US dollars, and its 2027 guidance from over 7.5 billion US dollars to over 8 billion US dollars. Morgan Stanley forecasts 2027 revenue of 9 billion US dollars for the business.
Management said co-packaged optics (CPO) has entered mass production and that revenue will reach at least 500 million US dollars in 2027; Morgan Stanley forecasts more than 600 million US dollars.
A separate metric worth distinguishing is the full-turnkey CoWoS-like business: the company expects its 2027 revenue to be at least 1 billion US dollars, below Morgan Stanley’s forecast of 1.8 billion US dollars.

The gross margin of the assembly, testing and materials (ATM) business reached 30.6% in the third quarter, exceeding its previous structural range. The company believes 30% will become the new floor and expects the business’s gross margin to continue rising quarter by quarter in 2027.
Morgan Stanley believes margin expansion is progressing as expected and rates ASE Overweight, with a target price of 858 New Taiwan dollars. The closing price on 29 October 2026 listed in the report was 683 New Taiwan dollars.
Downside risks listed by the bank include weaker-than-expected global economic and semiconductor growth, as well as further margin erosion from price competition.