Tue, Oct 31, 2000 page18

• ASE reports record quarterly sales

  EARNINGS The second-largest chip assembler and tester is benefiting from its leading position and the integration of its services, but growth may be slowing

  • By Thomas Ker / CONTRIBUTING REPORTER
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  Advanced Semiconductor Engin-eering Inc (日月光) reported record quarterly sales and earnings yesterday, but weakness in the PC and wireless sectors and a lower-than-expected profit margin led analysts to lower the company's expected earnings per share for this year.

  The world's second-largest semiconductor assembly and testing service provider announced yesterday that third-quarter net income nearly tripled year on year to NT$1.62 billion, or NT$0.59 per share. Revenue grew 48.2 percent year on year to NT$13.904 billion.

  "Revenue growth of 45 percent to 50 percent -- that's pretty good by most measures, particularly in an environment where wireless is clearly weak," said Michael Cheng, analyst at Salomon Smith Barney.

  Jason Chang, chairman of ASE, said that expansion of operations, technology achievements and closer working relationships with upstream foundries were the reasons behind the record results.

  "With our leading position in the full value chain of IC manufacturing, we have been able to further differentiate ourselves from our competitors and to facilitate the acceleration of IC outsourcing," Chang said.

  ASE, whose customers include VIA Technologies (威盛電子), Motorola Inc and Altera Corp, is expecting high growth over the coming years in packaging and testing outsourcing by integrated device manufacturers such as Motorola.

  Packaging is part of the "back-end" of the semiconductor production process in which chips are sawed from silicon wafers, attached to metal leads, ball grid arrays or solder bumps, and packaged in plastic.

  "ASE's competitive advantages are as strong, or stronger than ever," Cheng said.

  As well as the competitive edge created by the clustering of semiconductor companies in Taiwan, ASE is benefiting from its integration of front-end engineering and assembly and testing services to create a "one-stop shop."

  Furthermore, in this industry, "the bigger, the better," Cheng said. "They are the fastest growing of the big guys."

  ASE Test, the semiconductor test service arm of ASE Group, already has half the world market share for chip testing services. ASE Inc, the packaging arm of the group, has seen its market share rise from 27 percent last year to 31 percent in the first half of this year, in sight of market leader Amkor Technologies. During the same period, Amkor's share has fallen 4 percent to 37 percent.

  As well as providing greater access to capital and technology, large market size also guarantees a diversity of orders from foundries and integrated device manufacturers. "So if one market sector goes down, it can be balanced by the others," said Joseph Tung, chief financial officer at ASE.

  In the third quarter, ASE's proportion of revenue from PC-related end applications fell to 27 percent, from 44 percent a year before. Revenue from consumer and automotive applications rose to 33 percent, from 17 percent a year earlier.

  "It's a very diversified, very balanced revenue," Tung said.

  Revenue from wireless applications remained fairly steady at 38 percent of third quarter sales.

  Nevertheless, a falling gross profit margin concerned analysts about future growth prospects. ASE's third-quarter profit margin fell 1.5 percent from the second quarter to 29.3 percent. The market had been anticipating a higher margin after wafer foundries such as United Microelectronics Corp (聯電) and Taiwan Semiconductor Manufacturing Co (台積電) reported improved third quarter profit margins.

  Analysts accepted ASE's explanation that margins in the first and second quarter had been abnormally high, and that capacity expansion was higher in the third quarter. However, the unexpected fall also indicated momentum in the industry had slowed down.

  "Perhaps the utilization rate has fallen a little," said Ken Chang, an analyst at China Securities Co. "The situation is not too serious, but a little disappointing."

  Compared with the third quarter, Chang is now anticipating 8 percent sales growth in the fourth quarter, and a lowered earnings per share for the year of NT$2.32.

  Before the release of the results, analysts had predicted an earnings per share of NT$2.59, according to Barra Global Estimates.
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