ASE Technology Holding Co., Ltd. - Q3 2020 Earnings Summary
Business Context and Reporting Period
This Form 6-K filing, dated October 30, 2020, reports the unaudited consolidated financial results for ASE Technology Holding Co., Ltd. for the third quarter ended September 30, 2020. ASE is a leading provider of outsourced semiconductor assembly and test (ATM) and electronic manufacturing services (EMS).
Key Financial Metrics
| Metric (NT$ Million) | Q3 2020 | Q2 2020 | Q3 2019 |
|---|---|---|---|
| Total Net Revenues | 123,195 | 107,549 | 117,557 |
| Gross Profit | 19,720 | 18,809 | 19,108 |
| Gross Margin | 16.0% | 17.5% | 16.3% |
| Operating Income | 9,141 | 8,427 | 8,385 |
| Net Income (Parent) | 6,712 | 6,937 | 5,734 |
| Diluted EPS (NT$) | 1.54 | 1.60 | 1.33 |
| Cash & Equivalents | 55,814 | 58,223 | N/A |
| Total Interest Bearing Debt | 224,550 | 217,477 | N/A |
| Current Ratio | 1.33 | 1.17 | N/A |
Segment Performance:
- ATM (Assembly & Test): Revenue of NT$69,497 million (56.4% of total), up 3% QoQ and 5% YoY.
- EMS (Electronic Manufacturing): Revenue of NT$53,126 million (43.1% of total), up 34% QoQ and 5% YoY.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 15% QoQ and 5% YoY, driven primarily by a 34% QoQ surge in EMS revenue.
- Profitability: While reported Net Income declined 3% QoQ, Operating Income rose 8% QoQ. Gross margin compressed to 16.0% from 17.5% in Q2, largely due to Purchase Price Allocation (PPA) expenses.
- PPA Impact: PPA expenses (depreciation/amortization from the ASE/SPIL transaction) totaled NT$1.14 billion in Q3 2020. Excluding these expenses, adjusted Net Income was NT$7.85 billion, up 8% YoY.
- Liquidity: The current ratio improved to 1.33 from 1.17 in Q2. Total interest-bearing debt increased slightly to NT$224.55 billion.
Guidance, Outlook, and Risks
Q4 2020 Outlook:
- ATM: Revenue and gross margin expected to be similar to the first half of 2020 levels.
- EMS: Sequential growth rate expected to match the average of Q2 and Q3 2020; operating margin expected to be slightly better than the Q2/Q3 average.
Management Commentary:
- Capacity: Assembly and wirebond capacities remain tight through at least Q2 2021.
- EAR Impact: Export Administration Regulations (EAR) affected ATM revenue dropped to 13% in Q3 (from 20% in Q1/Q2) and is projected to be 0% in Q4. Over 75% of lost capacity has been back-filled.
- Strategy: Management plans to moderate CAPEX in 2021, deleverage the balance sheet, and increase cash dividends.
Risks: Forward-looking statements are subject to risks including semiconductor cyclicality, regulatory changes, geopolitical tensions (ROC vs. PRC), US trade policy shifts, and COVID-19 disruptions.
Investor Verification Checklist
- Verify the sustainability of the 34% QoQ EMS revenue growth and its impact on full-year margins.
- Confirm the timeline for fully back-filling the remaining 25% of capacity lost due to EAR restrictions.
- Monitor the trajectory of PPA expenses and their impact on reported vs. adjusted profitability.
- Assess the company's ability to execute the stated plan to deleverage the balance sheet given the increase in total debt to NT$224.55 billion.
- Review the Q4 guidance assumptions regarding exchange rates and the "similar to H1" ATM performance benchmark.