Advanced Semiconductor Engineering Inc (ASE, 日月光半導體), the world’s biggest chip packager, plans to increase capital spending by more than 50 percent to US$700 million this year to upgrade to more cost-efficient copper wire-bonding machines so it can handle growing orders from the US and China.
That will help ASE hit its goal of expanding its cooper wire-bonding service so that it makes up a third of its total packaging revenues by the end of the year from 6 percent in the first quarter. The Kaohsiung-based company originally budgeted between US$450 million and US$550 million for new equipment this year.
The company started offering the new service earlier this year, replacing existing wire-bonding machines that use gold as a key material in an attempt to avoid rocketing gold prices eroding its margins.
With the new lower-cost copper wire-bonding service, ASE posted 19.2 percent in gross margin for the first quarter, better than local rival Siliconware Precision Industries Co’s (SPIL, 矽品) 16 percent.
Credit Suisse analyst Randy Abrams estimated ASE’s copper-wire bonding service would save 10 percent for customers and boost gross margins by 100 basis points for each 10 percent shift from gold to copper.
Because of a strong rebound from last year’s economic slump, ASE’s factories are almost fully utilized and it plans to boost capacity this year in Taiwan and China, company chief operating officer Tien Wu (吳田玉) told local TV station Unique Satellite TV (非凡電視台) on the sidelines of ASE’s annual shareholders’ meeting.
Customer demand would be even stronger in the third quarter, Wu said.
Order visibility next quarter was clearer than in the current quarter, helped by a rebound in China and the US, he said.
ASE shareholders yesterday approved a cash dividend of NT$0.36 (US$1.12) per share and a 10 percent stock dividend based on last year’s net income of NT$6.74 billion, or NT$1.29 a share, the company said in a filing to the Taiwan Stock Exchange.
ASE also obtained shareholders’ approval for a fund-raising project that will raise capital by issuing unspecified new common shares, global depositary receipts or corporate bonds.
ASE shares jumped 3.65 percent to NT$26.95 yesterday, implying a 43 percent upside to Credit Suisse’s target price of NT$38.5, which is based on 14 times earnings this year. Credit Suisse gave an out-performing rating on ASE.
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