Advanced Semiconductor Engineering Inc (ASE, 日月光半導體), the world’s biggest chip packager, yesterday reported its lowest quarterly earnings in seven quarters as customers cut orders amid fears of a recession.
To weather the latest downcycle, ASE plans to slash spending on new equipment by more than 20 percent from US$350 million to US$375 million this year, joining similar moves by major semiconductor companies.
“We believe the industry will not recover from the latest downturn in a short period of time. We are striving to control cost stringently to stay competitive,” chief financial executive Joseph Tung (董宏思) told investors.
ASE saw its third-quarter net income nearly halved to NT$2.21 billion (US$67 million) from NT$4.23 billion a year ago. It also marked its weakest quarterly earnings since the first quarter of last year.
As demand for communications, computers and consumer electronics shrank, revenues may fall by between 15 percent and 20 percent sequentially in the fourth quarter. Communications made up the biggest portion, or 44 percent, of revenues in the third quarter.
ASE’s projected revenue decline is much steeper than forecasts made by most analysts, including HSBC Securities’ Steven Pelayo, who forecast a 7 percent quarterly drop.
Local rival Siliconware Precision Industries Co Ltd (矽品) expects revenues to drop by between 10 percent and 13 percent sequentially during the final quarter of this year.
“We have seen orders coming in slowly since September and the situation has worsened in the fourth quarter,” Tung said. “Demand across the board, especially from the communications segment, is shrinking.”
Handset chipmakers Qualcomm Inc and Mediatek Inc (聯發科), ASE’s top 10 customers, may cut orders to reflect slowing demand, Primasia Securities Co analyst Kenneth Yang (楊克勤) said.
“We are also concerned that IDM customers may prefer making chips themselves to better use their factories, which would reduce outsourcing during this downcycle,” Yang said.
If the downturn cuts its sales by another 15 percent next quarter, ASE could fall into the red, he said.
Reflecting sagging demand, equipment utilization may slide to 70 percent this quarter from 80 percent last quarter, ASE said.
Gross margin may drop to 20 percent this quarter from 25.7 percent last quarter, ASE said.
The figure would represent about a three-year low since the first quarter of 2005.
The company will strive to maintain a healthy financial position and grasp merger and acquisition opportunities, which usually increase during a downturn, Tung said.
As of Sept. 30, ASE’s cash and cash equivalent was NT$26.3 billion after allocating NT$10 billion for dividend payout and other spending.
Shares of ASE and Siliconware Precision rose 6.9 percent and 5.8 percent to NT$14 and NT$33.9 respectively yesterday, outperforming the benchmark TAIEX’s 3.99 percent rise.
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