Business Context and Reporting Period
Company: Advanced Semiconductor Engineering, Inc. (ASE)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter 2010 (Ended March 31, 2010)
Business Overview: ASE is the world's largest independent provider of IC packaging and testing services. The filing includes unaudited consolidated financial results reflecting the successful tender offer for 78.13% of Universal Scientific Industrial Co., Ltd. ("USI"), an EMS provider, with USI results consolidated starting in February 2010.
Key Financial Metrics (Actual Basis)
| Metric | 1Q 2010 | 4Q 2009 | 1Q 2009 |
|---|---|---|---|
| Net Revenue | NT$37,555 million | NT$26,293 million | NT$13,397 million |
| Net Income | NT$3,395 million | NT$3,450 million | NT$(1,567) million (Loss) |
| Diluted EPS | NT$0.63 (US$0.098/ADS) | NT$0.66 | NT$(0.30) |
| Operating Income | NT$4,279 million | NT$3,962 million | NT$(1,411) million |
| Operating Margin | 11% | 15% | N/A |
| Cash & Current Financial Assets | NT$40,417 million | NT$27,577 million | N/A |
| Total Bank Debt | NT$78,317 million | NT$63,040 million | N/A |
| Current Ratio | 1.61 | 1.78 | N/A |
| Net Debt to Equity | 0.43 | 0.47 | N/A |
Material Changes vs. Prior Periods
- Revenue Growth: Net revenue increased 180% year-over-year (YoY) and 43% sequentially, driven by strong demand in IC packaging and the inclusion of USI EMS operations.
- Profitability: The company returned to profitability with a net income of NT$3,395 million, compared to a net loss of NT$1,567 million in 1Q09. However, net income decreased slightly (1.6%) from 4Q09.
- Margin Compression: Operating margin decreased to 11% in 1Q10 from 15% in 4Q09. This was primarily due to higher raw material costs (46% of revenue vs. 31% in 4Q09) and increased labor costs.
- Debt Levels: Total bank debt increased to NT$78,317 million from NT$63,040 million in the prior quarter, attributed to higher loan balances.
- Segment Performance:
- IC Packaging: Revenue up 116% YoY; Gross margin 19% (down 200 bps sequentially).
- Testing: Revenue up 68% YoY; Gross margin 35% (flat sequentially).
- EMS (USI): Revenue up 36% YoY; Gross margin 11% (flat sequentially).
Guidance, Outlook, and Risks
Management Commentary: Management highlighted the successful integration of USI and the recovery in the semiconductor industry. Capital expenditures for 1Q10 totaled US$187 million, with significant investment in IC packaging (US$137 million) and testing (US$43 million) capacity.
Forward-Looking Statements & Risks: The filing includes standard safe harbor language regarding future results. Key risks identified include:
- Cyclicality and market conditions in the semiconductor industry.
- Highly competitive industry environment.
- Ability to successfully integrate pending and future mergers/acquisitions.
- Fluctuations in foreign currency exchange rates.
- Geopolitical tensions between the Republic of China and the People's Republic of China.
Corporate Action: The 2010 annual general shareholders' meeting is scheduled for June 14, 2010. The ADR record date is April 16, 2010.
Investor Verification Checklist
- USI Consolidation Impact: Verify the pro forma financials to understand the full-year impact of the USI acquisition, as actual results only include USI from February 2010.
- Raw Material Costs: Monitor the trend of raw material costs, which rose significantly to 46% of revenue in 1Q10, impacting gross margins.
- Debt Servicing: Review the increase in total bank debt (NT$78.3 billion) and interest expense (NT$292 million) to assess liquidity pressure.
- Customer Concentration: Note that for USI operations, the top 5 customers accounted for 63% of revenue, with four customers individually exceeding 10%.
- Accounting Basis: Confirm that financial data is prepared under ROC GAAP and is unaudited, which may differ from US GAAP standards.