ASE Technology Holding Co., Ltd. - 3Q 2016 Financial Summary
Business Context and Reporting Period
This Form 6-K filing reports the unaudited consolidated financial results for Advanced Semiconductor Engineering, Inc. (ASE) for the third quarter ended September 30, 2016. ASE is a leading global provider of semiconductor packaging, testing, and electronic manufacturing services (EMS). The company operates primarily in Taiwan, China, and other Asian markets, serving integrated device manufacturers (IDMs) and fabless semiconductor companies.
Key Financial Metrics
| Metric | 3Q 2016 | 2Q 2016 | 3Q 2015 |
|---|---|---|---|
| Total Net Revenues | NT$72,784 million | NT$62,601 million | NT$72,870 million |
| Net Income (Parent Shareholders) | NT$5,506 million | NT$4,328 million | NT$6,368 million |
| Basic EPS | NT$0.72 (US$0.113/ADS) | NT$0.57 | NT$0.83 |
| Diluted EPS | NT$0.64 (US$0.101/ADS) | NT$0.47 | NT$0.69 |
| Gross Margin | 19.4% | 19.6% | 17.8% |
| Operating Margin | 10.2% | 9.5% | 8.8% |
| Capital Expenditures | US$184 million | US$171 million | US$107 million |
| Current Ratio | 1.21 | 1.13 | N/A |
| Net Debt to Equity | 0.50 | 0.44 | N/A |
Material Changes vs. Prior Periods
- Revenue: Total revenue was flat year-over-year (-0.1%) but increased 16% sequentially. The sequential growth was driven primarily by the EMS segment, which saw a 26% increase in cost of revenue and significant revenue growth.
- Profitability: Net income attributable to shareholders decreased 13.5% year-over-year but increased 27% sequentially. Operating margin improved to 10.2% from 9.5% in the prior quarter.
- Non-Operating Items: The quarter included a significant net foreign exchange gain of NT$1,593 million due to the depreciation of the U.S. dollar against the NT dollar. Conversely, there was a loss on valuation of financial assets and liabilities of NT$1,998 million.
- Segment Performance:
- IC ATM (Assembly, Testing, Material): Gross margin improved to 25.5% (up 0.7 pp sequentially). Packaging operations contributed 46% of total revenue.
- EMS: Gross margin declined slightly to 10.0% (down 0.3 pp sequentially), though operating margin improved to 3.9%.
- Substrates: Gross margin dropped significantly to 14.8% (down 4.0 pp sequentially).
Guidance, Outlook, and Risks
4Q 2016 Outlook: Management projects the following for the fourth quarter:
- IC ATM: Capacity expected to be flat quarter-over-quarter; blended utilization rate expected to decrease 0-5%; gross margin expected to be similar to the prior quarter.
- EMS: Capacity expected to be flat; blended utilization rate expected to increase 10-15%; gross margin expected to be consistent with the first half of 2016.
Risks and Contingencies: The filing highlights risks related to industry cyclicality, competitive pressures, regulatory changes (environmental), and geopolitical tensions between the Republic of China and the People's Republic of China. Additionally, there is uncertainty regarding the completion of the acquisition of 100% of Siliconware Precision Industries Co., Ltd. (SPIL) shares.
Investor Verification Checklist
- Verify the impact of the NT$1,998 million loss on valuation of financial assets on future quarters.
- Monitor the utilization rate trends in the IC ATM segment, specifically the projected 0-5% sequential decline in 4Q16.
- Assess the sustainability of the EMS segment's revenue growth given the high raw material cost ratio (77% of revenue).
- Review the status of the SPIL acquisition and potential integration costs or delays.
- Confirm the exchange rate assumptions used for the 4Q16 guidance, given the significant FX gain in 3Q16.