Business Context and Reporting Period
Company: Advanced Semiconductor Engineering, Inc. (ASE Technology Holding Co., Ltd.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2011 (compared to the same period in 2010)
Business Overview: ASE provides comprehensive IC packaging, testing services, and electronic manufacturing services (EMS). The company operates globally with significant subsidiaries in Taiwan, China, and other regions. As of March 31, 2011, the company employed approximately 49,200 people.
Key Financial Metrics
| Metric (in thousands) | Q1 2010 (NT$) | Q1 2011 (NT$) | Q1 2011 (US$) |
|---|---|---|---|
| Net Revenues | 37,554,530 | 46,005,423 | 1,564,811 |
| Gross Profit | 7,623,023 | 8,657,672 | 294,479 |
| Income from Operations | 4,346,460 | 4,387,118 | 149,222 |
| Net Income | 3,617,891 | 4,133,310 | 140,589 |
| Net Income (Parent Shareholders) | 3,395,381 | 3,973,810 | 135,164 |
| Cash & Equivalents (End of Period) | 36,505,020 | 26,958,770 | 916,965 |
| Total Assets | 209,784,549 | 213,449,709 | 7,260,194 |
| Total Liabilities | 122,344,652 | 116,047,008 | 3,947,177 |
| Short-term Borrowings | 20,796,857 | 22,191,294 | 754,806 |
| Long-term Bank Loans | 56,065,647 | 43,848,133 | 1,491,433 |
Note: US$ amounts are translated at the rate of NT$29.40 to US$1.00 as of March 31, 2011.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased by approximately 22.5% year-over-year, driven by growth in Packaging (12.4% increase) and EMS (48.9% increase) segments.
- Profitability: While operating income remained relatively flat (up 0.9%), Net Income increased by 14.2% due to significant non-operating gains.
- Non-Operating Income: Total non-operating income surged from NT$310 million to NT$1.18 billion. This was primarily driven by dividend revenue of NT$578 million and equity in earnings of equity method investments of NT$132 million.
- Debt Structure: Long-term bank loans decreased by NT$12.2 billion, while the current portion of long-term loans increased significantly from NT$1.4 billion to NT$5.3 billion.
- Cash Flow: Net cash provided by operating activities increased to NT$7.45 billion from NT$5.37 billion. However, cash and cash equivalents decreased by NT$9.5 billion, largely due to investing activities (acquisition of property, plant, and equipment) and financing repayments.
Guidance, Outlook, and Risks
- Accounting Changes: The company adopted new standards for "Operating Segments" (SFAS No. 41) and "Financial Instruments" (SFAS No. 34) effective January 1, 2011. Prior period data was recast to conform.
- Dividend Policy: The company follows a residual dividend policy, aiming for a cash dividend distribution rate of not less than 30% of the total dividend amount. For 2010 earnings, directors proposed cash dividends of NT$0.65 per share and stock dividends of NT$1.15 per share.
- Legal Contingencies: Tessera Inc. filed a patent infringement lawsuit (California Litigation) in 2006. Proceedings are currently stayed pending a final resolution of an investigation by the United States International Trade Commission (ITC). The impact cannot be estimated at this time.
- Financial Risk: The company utilizes derivative instruments (swaps, forwards) to hedge foreign exchange and interest rate risks. Management believes market risk for these derivatives is immaterial. Liquidity risk is not considered significant given sufficient operating funds and credit lines.
Investor Verification Checklist
- Non-Operating Volatility: Verify the sustainability of the Q1 2011 net income, which was heavily bolstered by NT$578 million in dividend revenue and equity earnings, rather than core operating margins.
- Debt Maturity: Review the increase in the "current portion of long-term bank loans" to NT$5.3 billion and assess refinancing plans for these obligations.
- USI Acquisition Integration: Confirm the full consolidation impact of Universal Scientific Industrial Co., Ltd. (USI), which was acquired in 2010 and now represents a significant portion of the EMS segment.
- Legal Exposure: Monitor the status of the Tessera Inc. patent litigation and the ITC investigation for potential future liabilities.
- Currency Translation: Note that US$ figures are for convenience only and do not represent actual conversion capabilities at the stated rate.