TSMC Expands CoWoS Outsourcing, ASE Orders Set to Surge

NVIDIA and AMD have been consistently ramping up their orders, resulting in TSMC maintaining full capacity for its CoWoS advanced packaging production through next year, while expanding outsourcing contracts. ASE Technology Holding Co. has emerged as a key partner in this effort. Recently, ASE has made significant investments in facilities and equipment, totaling nearly NT$20 billion in October alone, with cumulative investments exceeding NT$47 billion in the second half of the year, signaling a surge in upcoming advanced packaging orders and a promising outlook.

TSMC's CoWoS production capacity is currently unable to meet the high demand. In response, the company is not only expanding internally but has also acquired Innolux's Fab 4 in Southern Taiwan Science Park to build a new advanced packaging facility. TSMC indicated during its recent earnings call that advanced packaging capacity is expected to double over the next two years, driven by robust AI-related demand.

In the wake of this AI boom, TSMC's strengths lie not only in its advanced process technology but also in its sophisticated packaging solutions. However, due to the rapid increase in demand, TSMC has started planning to outsource part of its advanced packaging to external assembly and testing facilities.

ASE is expected to secure part of the CoWoS process orders, which have long been exclusive to TSMC. This includes the CoW process, shared by ASE and its subsidiary, SPIL. Additionally, outsourcing of TSMC's oS advanced packaging is anticipated to increase, with ASE remaining a key partner.

ASE has traditionally refrained from commenting on specific customer relationships or order statuses. However, during a recent earnings call, ASE expressed optimism about its advanced packaging business, projecting related revenues to exceed $500 million (approximately NT$16 billion) this year, hitting a doubling target ahead of schedule. The company also noted a growing client base and expects continued growth in this sector for 2024.

ASE emphasized its collaborations with a wide range of partners, including system companies, IC design firms, and wafer foundries, to address demand from various sectors and actively participate in advanced technology development. The company is focused on efficiently meeting this increasing demand.

ASE’s confidence in the contributions of advanced packaging to its operations is evident through its substantial investments. According to company disclosures, in October alone, ASE and SPIL invested nearly NT$20 billion in facilities and equipment, including NT$13.137 billion in equipment procurement and NT$6.319 billion in infrastructure. Since the start of the second half of the year, total investments have surpassed NT$47 billion, with NT$34.435 billion allocated for equipment purchases and NT$12.607 billion for facility engineering. On average, ASE has invested over NT$10 billion per month in expanding its production capabilities during this period.

Industry experts interpret ASE’s aggressive expansion as a sign of continuous incoming orders. With new production capacity gradually coming online, ASE is well-positioned to benefit from the booming AI market in the coming year.

Insiders also suggest that ASE's capital expenditure for next year is expected to increase by more than 20% compared to this year. Based on previous announcements by the ASE Group, capital expenditure for 2024 is projected to reach approximately $3 billion, potentially approaching $4 billion next year. These funds will primarily be used for purchasing advanced equipment for CoW processes and expanding cleanroom facilities at SPIL’s Erlin and Central Taiwan Science Park plants to meet strong order demand.