ASE Technology Holding Co., Ltd. - Q1 2017 Financial Summary
Business Context and Reporting Period
This Form 6-K filing reports the unaudited consolidated financial results for Advanced Semiconductor Engineering, Inc. (ASE) for the first quarter of 2017, ended March 31, 2017. ASE is a leading global provider of semiconductor packaging, testing, and electronic manufacturing services (EMS). The financial data is prepared in accordance with Taiwan-IFRS.
Key Financial Metrics
- Revenue: Total net revenues were NT$66,551 million, representing a 7% increase year-over-year (YoY) but a 14% decrease sequentially from Q4 2016.
- Profitability: Net income attributable to shareholders of the parent was NT$2,569 million. Basic earnings per share (EPS) were NT$0.33 (US$0.054 per ADS), and diluted EPS were NT$0.30 (US$0.047 per ADS).
- Margins: Gross margin decreased 1.9 percentage points to 18.0%. Operating margin declined to 7.9% from 10.5% in the prior quarter.
- Cash Flow and Liquidity: Cash and cash equivalents totaled NT$42,474 million. The current ratio was 1.38, and the net debt-to-equity ratio improved to 0.30.
- Capital Expenditures: Total CapEx for the quarter was US$155 million, primarily allocated to packaging operations (US$120 million).
Material Changes vs. Prior Period
- Revenue Decline: Sequential revenue dropped significantly, driven by declines in Packaging (down 12% sequentially) and EMS (down 15% sequentially) operations.
- Margin Compression: Gross margins contracted across major segments. Packaging gross margin fell 3.4 percentage points to 20.7%, and Testing gross margin dropped 5.0 percentage points to 33.4%. Only EMS saw a slight margin increase to 10.6%.
- Non-Operating Items: Net income was impacted by a NT$3,964 million loss on the valuation of financial assets and liabilities. This was partially offset by a significant NT$2,891 million foreign exchange gain due to the depreciation of the U.S. dollar against the NT dollar.
- Cost Structure: Cost of revenue decreased to NT$54,573 million, with raw material costs representing 47% of total net revenues.
Outlook, Risks, and Contingencies
- Q2 2017 Guidance: Management projects IC ATM business and gross margin to be similar to Q1 2017. EMS business is expected to be similar to the average of Q2 and Q3 2016 levels, with gross margins similar to the previous quarter.
- ASE-SPIL Transaction: The share exchange with Siliconware Precision Industries Co., Ltd. (SPIL) is pending regulatory approval. The Taiwan Fair Trade Commission issued a no-objection letter. However, the Chinese Ministry of Commerce (MOFCOM) extended its review to Phase III in April 2017, and the U.S. FTC investigation is ongoing.
- Risks: Key risks include semiconductor industry cyclicality, competitive pressures, regulatory hurdles regarding the SPIL transaction, and foreign currency exchange rate fluctuations.
Investor Verification Checklist
- Verify the impact of the NT$3,964 million valuation loss on financial assets on the true operating performance.
- Monitor the status of the MOFCOM Phase III review and FTC investigation regarding the SPIL merger.
- Assess the sustainability of the sequential revenue decline in Packaging and EMS segments.
- Review the foreign exchange exposure given the significant gain in Q1 2017 driven by USD/NTD depreciation.
- Confirm the capital allocation strategy, specifically the US$120 million investment in packaging equipment.