Business Context and Reporting Period
Company: Advanced Semiconductor Engineering, Inc. (ASE)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fourth Quarter (4Q) and Full Year ended December 31, 2011
Business Overview: ASE is the world's largest independent provider of IC packaging and testing services. Operations are segmented into IC Assembly, Testing, and Material (IC ATM) and Electronic Manufacturing Services (EMS).
Key Financial Metrics
Consolidated Results (4Q 2011 vs. 4Q 2010)
| Metric | 4Q 2011 (NT$ Millions) | 4Q 2010 (NT$ Millions) | YoY Change |
|---|---|---|---|
| Net Revenue | 46,390 | 53,283 | -13% |
| Net Income | 2,639 | 4,870 | -46% |
| Diluted EPS | NT$0.40 (US$0.066/ADS) | NT$0.72 (US$0.118/ADS) | -44% |
| Gross Margin | 18.3% | 21.5% (implied from text) | -3.2 pts |
| Operating Margin | 7.5% | 13.9% (implied from text) | -6.4 pts |
Full Year 2011 Results
- Net Revenue: NT$185,347 million (Down 2% YoY)
- Net Income: NT$13,726 million (Down 25% YoY)
- Diluted EPS: NT$2.03 (US$0.346/ADS)
- Gross Margin: 18.9% (Down from 21.5% in 2010)
- Operating Margin: 9.1% (Down from 12.8% in 2010)
Liquidity and Capital Resources (as of Dec 31, 2011)
- Cash & Current Financial Assets: NT$25,268 million
- Total Bank Debt: NT$76,593 million (Down from NT$85,904 million in 3Q11)
- Unused Credit Lines: NT$85,908 million
- Current Ratio: 1.35
- Net Debt to Equity: 0.50
- Capital Expenditures (Full Year 2011): US$780 million
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenue fell 13% YoY in 4Q11, driven primarily by a 16% YoY decline in EMS operations and a 2% decline in IC ATM operations.
- Margin Compression: Gross margins contracted across segments. IC ATM gross margin dropped to 21.3% (from 22.5% in 3Q11), and EMS gross margin rose slightly to 12.3% but remained low. Consolidated operating margin fell to 7.5% from 9.2% in the prior quarter.
- Cost Structure: Operating expenses as a percentage of revenue increased to 11% in 4Q11 from 10% in 3Q11. Depreciation and amortization expenses rose 6% YoY.
- Non-Operating Items: The quarter included a net foreign exchange gain of NT$348 million, partially offset by NT$396 million in other non-operating expenses primarily related to impairment losses.
- Customer Concentration: The top five customers accounted for 37% of total net revenue in 4Q11, up from 30% in 4Q10.
Outlook, Risks, and Management Commentary
- Segment Performance:
- IC Packaging: Revenue down 2% YoY. Advanced substrate and leadframe-based packaging accounted for 81% of revenue. Flip chip and wafer bumping services grew to 24% of packaging revenue.
- Testing: Revenue down 7% YoY. Gross margin was 33.7%.
- EMS: Revenue down 16% YoY. Communications products were the largest contributor at 37%.
- Capital Allocation: The company continued to invest in capacity, adding 316 wirebonders and 74 testers in 4Q11. Full-year CapEx was US$780 million.
- Risks and Contingencies:
- Cyclicality and market conditions in the semiconductor industry.
- Highly competitive industry environment.
- Fluctuations in foreign currency exchange rates.
- Geopolitical risks, specifically the relationship between the Republic of China and the People's Republic of China.
- Forward-looking statements are subject to risks regarding demand for outsourced services and integration of M&A activities.
Investor Verification Checklist
- Verify the impact of the 16% YoY decline in EMS revenue on future cash flows, given its lower margin profile compared to IC ATM.
- Confirm the sustainability of the 18.3% consolidated gross margin given the 2.2 percentage point decline in IC packaging margins.
- Review the details of the NT$396 million impairment loss included in non-operating expenses to assess asset quality.
- Monitor the trend in customer concentration, which rose to 37% for the top five customers in 4Q11.
- Assess the company's ability to maintain liquidity with a current ratio of 1.35 amidst a 2% revenue decline for the full year.