ASX

Business Context and Reporting Period

Company: Advanced Semiconductor Engineering, Inc. (ASE)
Reporting Period: Third Quarter ended September 30, 2000 (Q3 2000)
Filing Date: October 30, 2000
Business Overview: ASE is a leading global independent provider of semiconductor packaging and testing services. The company serves over 200 blue-chip customers and operates across Taiwan, Korea, Hong Kong, Singapore, Malaysia, and the United States. In Q3 2000, ASE completed the listing of its American Depositary Receipts (ADR) on the New York Stock Exchange (NYSE).

Key Financial Metrics

Liquidity and Balance Sheet (as of Sept 30, 2000):

• Cash and Cash Equivalents: NT$14,371 million (up from NT$6,240 million in June 2000).
• Total Assets: NT$105,211 million.
• Short-term Debt: NT$15,057 million.
• Long-term Debt: NT$22,849 million.
• Shareholders' Equity: NT$41,856 million.

Capital Expenditures (Q3 2000): US$282 million total (US$136M assembly, US$140M testing, US$6M materials).

Material Changes vs. Prior Period

Year-over-Year (Q3 2000 vs. Q3 1999):

• Revenue Growth: Driven by increased sales activity and volume output across all regions. Assembly revenue grew 46% and testing revenue grew 58%.
• Profitability: Net income surged 198% (or 492% excluding a one-time capital gain in Q3 1999). Operating expenses as a percentage of sales declined to 9.7% from 12.2%.
• Non-Operating Items: Non-operating expenses improved 53% YoY, primarily due to the absence of a NT$619 million foreign exchange loss recorded in Q3 1999.
• Interest Expense: Declined 22% to NT$357 million due to interest revenues from ASE Test's offering proceeds.

Sequential (Q3 2000 vs. Q2 2000):

• Revenue: Increased 12% sequentially.
• Margins: Gross margin fell 1.5% to 29.3% due to higher depreciation and labor charges following annual salary adjustments.
• Net Income: Rose 11% sequentially.

Guidance, Outlook, and Risks

Management Commentary:

• Management attributes success to core strategies including internal growth, strategic acquisitions, geographic expansion, and technology advancements.
• The company emphasizes its position in the full IC manufacturing value chain and close collaboration with upstream foundries as key differentiators.
• Future growth is expected to be driven by the acceleration of IC outsourcing and the improved quality of operations.
• The NYSE ADR listing is viewed as a critical platform for investor communication and access to capital markets.

Risks and Contingencies:

• Minority Interest: Minority interest expense rose 17% sequentially to NT$423 million due to reduced ownership in ASE Test Limited following its secondary public offering in July 2000.
• Investment Income: Declined due to lower earnings contributions from non-consolidated affiliates (USI and Hung Ching Construction).
• Cost Pressures: Sequential gross margin compression was noted due to labor adjustments and depreciation.

Guidance: The filing text does not provide specific numerical guidance for future quarters or the full year 2000.

Key Facts for Investor Verification

• Record Performance: Verify the sustainability of the 48% revenue growth and 198% net income growth in the context of the broader semiconductor market cycle.
• ADR Listing Impact: Assess the strategic benefits and costs associated with the recent NYSE listing and the capital raised.
• Minority Interest Fluctuation: Monitor the impact of the reduced stake in ASE Test Limited on consolidated net income and minority interest allocations.
• Capital Intensity: Review the high capital expenditure rate (US$282M in Q3 alone) and its effect on future depreciation and cash flow.
• Revenue Mix: Confirm the shift in end-application revenue mix, specifically the growth in communication and automotive/consumer segments versus computer segments.