Business Context and Reporting Period
Advanced Semiconductor Engineering, Inc. (ASE) reported its unaudited financial results for the second quarter of 2002, ended June 30, 2002. ASE is a leading independent provider of semiconductor packaging and testing services. The filing was submitted on August 6, 2002.
Key Financial Metrics
- Revenue: NT$10,828 million (up 8% sequentially, up 28% year-over-year).
- Net Income: NT$74 million (compared to a loss of NT$230 million in Q1 2002).
- Earnings Per Share (Diluted): NT$0.02 (US$0.003 per ADS).
- Gross Margin: 15% (up 3 percentage points sequentially).
- EBITDA: NT$3,430 million.
- Cash and Equivalents: NT$7,638 million (down from NT$10,080 million in Q1 2002).
- Total Debt: NT$39,840 million (NT$16,300 million short-term; NT$23,786 million long-term).
- Capital Expenditures: US$103 million (US$64 million for assembly, US$26 million for testing).
Material Changes vs. Prior Period
- Revenue Growth: Driven by an 8% sequential increase in assembly revenues (NT$8,437 million) and a 7% increase in testing revenues (NT$2,390 million). Assembly volume rose 6% sequentially to 57.7 billion pins.
- Profitability Improvement: The company returned to profitability with a net income of NT$74 million, reversing the Q1 loss. Gross margin improved to 15% from 12% in the prior quarter.
- Expense Drivers: Significant non-operating items impacted the bottom line, including a foreign exchange loss of NT$262 million due to NT dollar appreciation against the US dollar and depreciation of the NT dollar against the Japanese Yen. Net interest expense was NT$344 million.
- Product Mix: BGA revenue contribution decreased to 47% (from 54% in Q1) due to PC sector weakness, while QFP/LQFP/TQFP packages increased to 35% of assembly revenue.
Guidance, Outlook, and Risks
- Outlook: Management expects consolidated revenues to grow by mid-single digit percentages sequentially. Gross margin is expected to improve by low-single digit percentages, with operating margin projected at a low-single digit percentage.
- Management Commentary: Chairman Jason Chang noted that weakness in the PC sector was mitigated by growth in wireless communication and consumer sectors. President Dr. Leonard Liu emphasized the trend toward outsourcing IC backend manufacturing to independent providers with leading-edge technology.
- Risks and Contingencies:
- Low visibility for the second half of the year due to uncertain economic conditions.
- Foreign currency exchange rate fluctuations impacting financial results.
- Highly competitive nature of the semiconductor industry and the need for continuous technology introduction.
- Dependence on a limited number of blue-chip customers.
Investor Verification Checklist
- Verify the impact of foreign exchange rates on future earnings, given the NT$262 million loss in Q2.
- Monitor the utilization rates of assembly (65-70%) and testing (60%) operations to gauge capacity absorption.
- Assess the sustainability of the sequential revenue growth given the stated "low visibility" for the remainder of the year.
- Review the debt repayment schedule, specifically the Euro Convertible Bond due in November 2002, which contributed to the cash position decline.
- Confirm the shift in product mix from BGA to QFP packages and its effect on long-term margin expansion.