ASE Technology Holding Co’s (ASE, 日月光投控) chip assembly and testing capacities are tight, particularly in its wire-bonding service, where constraints are expected to continue through the second quarter next year, company officials said on Friday.
This situation is expected to create a friendly environment for the company’s average selling price (ASP) next year, executives of the world’s biggest chip tester and packager told investors in a teleconference.
“We will start seeing margin improvement in the fourth quarter this year, but we do expect the ASP environment to be friendlier next year compared with this year,” ASE chief operating officer Tien Wu (吳田玉) said.
Wu’s remarks underscore a market trend where the volume of outsourced packaging and chip testing, as well as the complexity of chips, are on the rise, causing capacity constraints in wire-bonding and in all other assembly and testing services.
The outsourced semiconductor assembly and test industry as a whole is underinvested, Wu said, adding that ASE would accelerate its capital expenditure (capex) this quarter to increase capacity to meet customer demand for semiconductors used in communications, automotive, computing and consumer electronics products.
However, after heavy investment in the past three years, capex would start to decrease next year, ASE chief financial officer Joseph Tung (董宏恩) said.
“At this point, I believe next year’s capex amount should fall to between 2018 and last year’s levels. We are more leaning toward the 2018 level,” Tung said.
“With the improved profitability and reducing capex, our cash flow position next year will see good improvement,” Tung said. “Therefore, it will allow us to increase our cash dividend payout to no less than NT$3 per share while still reaching our deleveraging target of 60 percent to 65 percent net debt-to-equity ratio by the end of next year.”
The COVID-19 pandemic has created new demand for information technology (IT) products as work-from-home and remote learning have become alternatives to offices and schools, to minimize health risks, as well as facilitate social connectivity and offer digital efficiencies, Wu said.
“In this scenario, we are seeing two fundamental changes in consumer behavior. First, more people are buying IT products. Second, people are willing to pay higher prices for IT products with better performance,” Wu said.
“We are also clearly seeing the product mix and product complexity increase,” he added.
US-imposed export restrictions on Huawei Technologies Co (華為) also affected ASE’s chip assembly, testing and materials (ATM) business this year, he said.
However, about 75 percent of lost revenue and capacity have been backfilled, with the remaining 25 percent to be refilled by the end of the first quarter next year, Wu said.
On Friday, ASE reported that third-quarter net income reached NT$6.71 billion (US$232 million), compared with NT$6.94 billion in the previous quarter and NT$5.73 billion a year earlier.
Earnings per share were NT$1.57, down from the previous quarter’s NT$1.63, but higher than the previous year’s NT$1.35, it said.
Consolidated revenue grew 15 percent quarterly and 5 percent annually to NT$123.2 billion last quarter, the highest on record, while gross margin declined to 16 percent due to inventory write-down from the US export restrictions, the appreciation of the New Taiwan dollar and a higher proportion of contribution from electronics manufacturing services (EMS), ASE said.
The ATM business contributed 56.4 percent to the company’s third-quarter revenue, while EMS accounted for 43.1 percent, compared with 62.6 percent and 36.9 percent respectively in the second quarter, company data showed.
In the first three quarters, total net income was NT$17.55 billion, up 67.7 percent from a year earlier, or combined earnings per share of NT$4.12, which exceeded the full-year figure for last year, the company said.
Cumulative revenue rose 10.4 percent annually to NT$328.1 billion, it added.
Given ASE’s order visibility and foreign-exchange rate forecast, the company’s fourth-quarter revenue for its ATM business would likely resemble the first-half level, while revenue growth for the EMS business would be similar to the average of the second and third-quarter level, Tung said.
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