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ASEH — Call Transcript 2020
May 27, 2020
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Download source fileASE Technology Holding?First Quarter 2020?Earnings Release
ASE Technology Holding Co., Ltd.
April 29, 2020
Notes:
Safe Harbor Notice
This presentation contains "forward-looking statements" within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended. Although these forward-looking statements, which may include statements regarding our future results of operations, financial condition or business prospects, are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on these forward-looking statements, which apply only as of the date of this presentation. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions, as they relate to us, are intended to identify these forward-looking statements in this presentation. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and our actual results of operations, financial condition or business prospects may differ materially from those expressed or implied by the forward-looking statements for reasons including, among others, risks associated with cyclicality and market conditions in the semiconductor or electronic industry; changes in our regulatory environment, including our ability to comply with new or stricter environmental regulations and to resolve environmental liabilities; demand for the outsourced semiconductor packaging, testing and electronic manufacturing services we offer and for such outsourced services generally; the highly competitive semiconductor or manufacturing industry we are involved in; our ability to introduce new technologies in order to remain competitive; international business activities; our business strategy; our future expansion plans and capital expenditures; the strained relationship between the Republic of China and the People’s Republic of China; general economic and political conditions; the recent shift in United States trade policies; possible disruptions in commercial activities caused by natural or human-induced disasters; fluctuations in foreign currency exchange rates; and other factors. For a discussion of these risks and other factors, please see the documents we file from time to time with the Securities and Exchange Commission, including the 2019 Annual Report on Form 20-F filed on March 31, 2020.
Notes:
[Ken] Hello I am Ken Hsiang, the Head of Investor Relations for ASE. Welcome to ASE Group’s fourth quarter earnings release. All participants consent to having their voice and questions broadcast via participation of this event.
Please refer to page 1 of our presentation which contains our safe harbor notice. I would like to remind everyone on this call that the presentation that follows may contain forward-looking statements. These forward-looking statements are subject to high degree of risks and our actual results may differ materially from these forward-looking statements.
For the purposes of this presentation, dollar figures are generally stated in New Taiwan Dollars unless otherwise indicated.
For this earnings release, our COO, Tien Wu, will first have some remarks. I will be going over the financial results and then Joseph Tung, our CFO and Tien Wu will have a Q&A session. Following the event, our VP in charge of public relations, Eddie Chang, will be addressing the media in Chinese.
Our Chief Operating Officer, Tien Wu.
As for the whole year 2015, the environment was not particularly upbeat. We saw broad macro issues in Asia and Europe. In the first half of the year, we saw a bifercation of Android and non-Android suppliers. Non-Android appeared to be performing better than expected while the reverse was true for Android handsets. And, as such, we saw many of our major customers ride through an unhealthy environment.
If you look at ASE, we saw growth at the consolidated level but this was primarily from the growth of our SIP business within our EMS business unit. Meanwhile, our IC ATM business unit experienced a rare year-over-year decline. As a result, we saw some margin compression from both product mix and lower IC ATM loading. Even though, largely macro and end product driven, we are disappointed with such a performance.
2016 we will focus on:
First, we will look to completing the SPIL transaction (in as friendly a way as possible)
Rebalancing the SIP portfolio through focusing not only on financial performance, but also product growth potential. We believe our SIP technology is unmatched within the industry. Our capability advantage allows us to be more selective in engaging products. Over this year, we will be looking
Be cautiously upbeat as it relates to business loading
Consolidated Statements of Comprehensive Income?Quarterly Comparison?(unaudited)
1: PPA expenses are the P&L impacts from the accounting treatment of purchase price allocation in relation to the ASE/SPIL transaction, which resulted in increased asset values from purchase price premiums in PP&E, intangibles and long-term lease prepayments. The PPA expenses excluded are related to depreciation, amortization and other expenses $1.33bn in 1Q20, $1.47bn in 4Q19 and $1.46bn in 1Q19.
Notes:
Page 2: Quarter over quarter consolidated P&L
The quarter’s performance was more volatile relative to our expectations. Effectively, we saw manufacturing deceleration and then acceleration due to market share dynamics within our communications product mix. This resulted in below expectation performance from our SIP products offset by stronger than expected performance within our IC-ATM business unit. All-in-all, the end result for the 4th quarter was that our EMS business unit tracked below our expectations while our IC-ATM business unit tracked on the higher end of our expectations. With that all said, we are not reading too much into this trend as we are uncertain as to whether such products will eventually sell through. However, we are cautiously optimistic.
On a fully consolidated basis, for the 4th quarter, the company delivered fully diluted EPS of $0.60 and basic EPS of $0.62.
Our direct materials and EMS businesses were up 5% and 9%, respectively. Our packaging and testing businesses were down 2% and 1%, respectively.
Consolidated gross margins edged down 0.2 percentage points to 17.6%.
Gross profit improved 2% from $13.0B to $13.3B.
Operating expenses decreased by $0.2B. Operating expenses as a percentage of sales decreased by 0.6% to 8.5%. It is worth noting that we expect our operating expense percentage to increase temporarily during the 1st quarter due to professional fees related to our ongoing tender offer.
Operating profit was $6.8B up 7% or $0.4B from $6.4B.
Operating margins improved 0.2 percentage points to 9.0%.
During 4th quarter, we had a net non-operating loss of $0.5B versus a net non operating gain of $1.4B in the 3rd quarter. The change from Q3 into Q4 was primarily attributable to financial instruments including the ECB which accounted for $5.3B offset by $2.9B related to foreign exchange. Our estimation of SPIL’s contribution for the current quarter was limited to $113M.
Q4 Q3 Δ
Invest related 0.4 0.0 0.4
Forex 0.4 -2.5 2.9
Val Fin Inst -0.2 3.1 -3.3
ECB -0.5 1.4 -2.0
Net Interest -0.5 -0.5 0.0
Other -0.1 -0.1 -0.1
Pretax profit for Q4 was $6.3B down $1.5B.
Income tax for Q4 was $1.3B up $0.2B.
Net income for Q4 was $4.7B down $1.7B.
Net margin was 6.2% down from 8.7% in Q3.
ATM Statements of Comprehensive Income?Quarterly Comparison?(unaudited)
1: PPA expenses are the P&L impacts from the accounting treatment of purchase price allocation in relation to the ASE/SPIL transaction, which resulted in increased asset values from purchase price premiums in PP&E, intangibles and long-term lease prepayments. The PPA expenses excluded are related to depreciation, amortization and other expenses $1.33bn in 1Q20, $1.47bn in 4Q19 and $1.46bn in 1Q19.
Notes:
Page 5, IC-ATM P&L
Please note the intercompany revenues including the SIP technology business – performed by our IC packaging business unit on behalf of our EMS business unit– are eliminated during consolidations.
Our IC ATM net revenues declined $1.5B or by 4% during the 4th quarter to $38.4B. Revenues for our IC packaging, testing and direct materials business decreased 4%, 1% and 2% respectively.
NTD depreciation had a 1.62% favorable impact on revenue and 0.92% favorable impact to gross margins. [average ex rate $ 31.691 - $32.548]
Gross profit was up $0.7B to $10.0B
Gross margin declined 0.7 percentage points. The gross margin decline was principally the result of softer loading. The composition of the margin decline principally was the result of lower revenues in the face of semi-fixed costs. In particular, relatively higher factory supply consumption, as a result of product mix, accounted for 0.5% of margin decline:
Raw material- NT$8.3B down NT$0.3B, 21.6% of total net revenues, down 0.1 percentage points
Labor cost- NT$7.3B down NT$0.1B, 19.0% of total net revenues, up 0.3 percentage points
D&A + rental- NT$6.3B down NT$0.2B, 16.5% of total net revenues, up 0.2 percentage points
Factory supplies- NT$3.5B flat, 9.2% of total net revenues, up 0.5 percentage points
Utility- NT$1.4B down NT$0.2B, 3.5% of total net revenues, down 0.4 percentage points
Operating expenses were down $0.4B to $4.7B.
Operating expense % was down 0.5 percentage points to 12.1% from 12.6%. Again, we would expect our OPEX% to increase during the 1st quarter with regards to professional fees related to the ongoing tender offer.
OP margin was down to 13.9% from 14.2%.
OP profit down $0.3B to $5.3B
Pages 6 & 7 are for your reference.
ATM Operations?(unaudited)
Chart
| Category | COGS | Gross Profit | Revenue | Gross Margin |
|---|---|---|---|---|
| Q1/19 | 45933.0 | 8438.0 | 54371.0 | 0.155 |
| Q2/19 | 48494.0 | 11100.0 | 59594.0 | 0.186 |
| Q3/19 | 53193.0 | 14708.0 | 67901.0 | 0.217 |
| Q4/19 | 53590.0 | 15697.0 | 69287.0 | 0.227 |
| Q1/20 | 52875.0 | 13334.0 | 66209.0 | 0.201 |
Notes:
Page 8, Packaging operations
On a more detailed view of our packaging operations:
In Q4, our packaging revenue declined 4.2% sequentially to $31.1B.
Our packaging gross margin decreased 1.2 percentage points to 23.6% sequentially. The margin decline was principally caused by lower loading and relatively fixed labor and factory supply costs offset by lower off peak utility costs.
Raw Materials were $8.7B down $0.4B and down 0.1% of sales
Labor was $5.7B down $0.1B and up 0.4% of sales
D&A and rental expenses were $4.3B down $0.1B and up 0.1% of sales
Factory supplies were $2.8B and flat, but up 0.4% of sales
Utility was $1.0B down $0.1B and down 0.3% of sales
The remainder of margin decline was primarily attributable to tooling costs.
During the quarter, capital expenditures were US$64M, composed of:
Wafer bump & flip chip at US$29M
Common & IC ATM SIP at US$35M
Capacity Overview
During the quarter, we added 1 and retired 50 wirebonders. We exited the quarter with a total of 15,568 wirebonders in operation.
8 inch bumping capacity remained unchanged at 95K wafers per month and
12 inch bumping capacity remained unchanged at 82,500 wafers per month
ATM Revenue by Application?(unaudited)
[unsupported chart]
Notes:
Page 12 - IC ATM market segment
During the 4th quarter, our market segment share percentages did not appear to change significantly. However, it is worth noting that our computer segment did see a small but significant 1% increase in segment share for 2 consecutive quarters.
ATM Revenue by Type?(unaudited)
Chart
| Category | Bump/FC/WLP/SiP | Wirebonding | Discrete and Other | Testing | Material |
|---|---|---|---|---|---|
| Q1/19 | 0.34 | 0.4 | 0.08 | 0.16 | 0.02 |
| Q2/19 | 0.34 | 0.39 | 0.08 | 0.17 | 0.02 |
| Q3/19 | 0.35 | 0.37 | 0.09 | 0.17 | 0.02 |
| Q4/19 | 0.38 | 0.36 | 0.07 | 0.17 | 0.02 |
| Q1/20 | 0.38 | 0.36 | 0.07 | 0.17 | 0.02 |
Notes:
Page 12 - IC ATM market segment
During the 4th quarter, our market segment share percentages did not appear to change significantly. However, it is worth noting that our computer segment did see a small but significant 1% increase in segment share for 2 consecutive quarters.
EMS Operations?Quarterly Comparison?(unaudited)
Notes:
Page 5, IC-ATM P&L
Please note the intercompany revenues including the SIP technology business – performed by our IC packaging business unit on behalf of our EMS business unit– are eliminated during consolidations.
Our IC ATM net revenues declined $1.5B or by 4% during the 4th quarter to $38.4B. Revenues for our IC packaging, testing and direct materials business decreased 4%, 1% and 2% respectively.
NTD depreciation had a 1.62% favorable impact on revenue and 0.92% favorable impact to gross margins. [average ex rate $ 31.691 - $32.548]
Gross profit was up $0.7B to $10.0B
Gross margin declined 0.7 percentage points. The gross margin decline was principally the result of softer loading. The composition of the margin decline principally was the result of lower revenues in the face of semi-fixed costs. In particular, relatively higher factory supply consumption, as a result of product mix, accounted for 0.5% of margin decline:
Raw material- NT$8.3B down NT$0.3B, 21.6% of total net revenues, down 0.1 percentage points
Labor cost- NT$7.3B down NT$0.1B, 19.0% of total net revenues, up 0.3 percentage points
D&A + rental- NT$6.3B down NT$0.2B, 16.5% of total net revenues, up 0.2 percentage points
Factory supplies- NT$3.5B flat, 9.2% of total net revenues, up 0.5 percentage points
Utility- NT$1.4B down NT$0.2B, 3.5% of total net revenues, down 0.4 percentage points
Operating expenses were down $0.4B to $4.7B.
Operating expense % was down 0.5 percentage points to 12.1% from 12.6%. Again, we would expect our OPEX% to increase during the 1st quarter with regards to professional fees related to the ongoing tender offer.
OP margin was down to 13.9% from 14.2%.
OP profit down $0.3B to $5.3B
Pages 6 & 7 are for your reference.
EMS Operations?Revenue By Application?(unaudited)
Chart
| Category | Communication | Computer & Storage | Consumer | Industrial | Automotive | Others |
|---|---|---|---|---|---|---|
| Q1/19 | 0.29 | 0.13 | 0.38 | 0.14 | 0.05 | 0.01 |
| Q2/19 | 0.4 | 0.14 | 0.24 | 0.15 | 0.06 | 0.01 |
| Q3/19 | 0.36 | 0.09 | 0.41 | 0.09 | 0.04 | 0.01 |
| Q4/19 | 0.43 | 0.11 | 0.32 | 0.1 | 0.04 | None |
| Q1/20 | 0.36 | 0.14 | 0.33 | 0.11 | 0.06 | None |
Notes:
Page 5, IC-ATM P&L
Please note the intercompany revenues including the SIP technology business – performed by our IC packaging business unit on behalf of our EMS business unit– are eliminated during consolidations.
Our IC ATM net revenues declined $1.5B or by 4% during the 4th quarter to $38.4B. Revenues for our IC packaging, testing and direct materials business decreased 4%, 1% and 2% respectively.
NTD depreciation had a 1.62% favorable impact on revenue and 0.92% favorable impact to gross margins. [average ex rate $ 31.691 - $32.548]
Gross profit was up $0.7B to $10.0B
Gross margin declined 0.7 percentage points. The gross margin decline was principally the result of softer loading. The composition of the margin decline principally was the result of lower revenues in the face of semi-fixed costs. In particular, relatively higher factory supply consumption, as a result of product mix, accounted for 0.5% of margin decline:
Raw material- NT$8.3B down NT$0.3B, 21.6% of total net revenues, down 0.1 percentage points
Labor cost- NT$7.3B down NT$0.1B, 19.0% of total net revenues, up 0.3 percentage points
D&A + rental- NT$6.3B down NT$0.2B, 16.5% of total net revenues, up 0.2 percentage points
Factory supplies- NT$3.5B flat, 9.2% of total net revenues, up 0.5 percentage points
Utility- NT$1.4B down NT$0.2B, 3.5% of total net revenues, down 0.4 percentage points
Operating expenses were down $0.4B to $4.7B.
Operating expense % was down 0.5 percentage points to 12.1% from 12.6%. Again, we would expect our OPEX% to increase during the 1st quarter with regards to professional fees related to the ongoing tender offer.
OP margin was down to 13.9% from 14.2%.
OP profit down $0.3B to $5.3B
Pages 6 & 7 are for your reference.
Key Balance Sheet Items & Indices?(unaudited)
Notes:
Page 15, ASE Group key balance sheet items
At the end of the quarter,
We had cash and cash equivalents and current financial assets of $59.1B increasing from $45.6B the previous quarter.
We also had our interest bearing debt decrease to $120.4B from $124.5B in the prior quarter.
As a reminder, our investment in SPIL is recorded in investments - equity method.
We still have $159.3B in unused credit lines.
EBITDA declined to $14.2B from $15.9B principally as a result of lower non-operating income in Q4.
Equipment Capital Expenditure vs. EBITDA?(unaudited)
Chart
| Category | Capex | EBITDA |
|---|---|---|
| Q1/19 | 239.0 | 537.0 |
| Q2/19 | 444.0 | 582.0 |
| Q3/19 | 436.0 | 681.0 |
| Q4/19 | 457.0 | 738.0 |
| Q1/20 | 410.0 | 635.0 |
Notes:
Page 16, Capex:
Capital expenditures for the 4th quarter totaled $90M USD, of which $64M USD was used for packaging, $18M USD for testing, $5M USD for EMS and $3M USD for interconnect materials..
EBITDA for the 4th quarter amounted to $437M USD.
The disparity between the CAPEX and EBITDA bars on this chart generally indicate higher free cash flows generated by the operations of the company.
Second Quarter 2020 Outlook*
Based on our current business outlook and exchange rate assumptions, management projects overall performance for the Second quarter of 2020 to be as follows:
In NTD terms, ATM 2nd quarter 2020 business should be similar to 3rd quarter 2019 levels;
ATM 2nd quarter 2020 gross margin should be close to 3rd quarter 2019 levels;
In NTD terms, EMS 2nd quarter 2020 business should be above 1st quarter 2019 levels;
EMS 2nd quarter 2020 operating margin should be slightly above 1st quarter 2019 levels.
*: Due to the impact of the COVID-19 outbreak, our outlook continues to be subject to a higher degree of risk. The information provided is done so as a reference of our current view as of the date of this presentation. Our business, financial condition and results of operations are of greater adverse risk; and, as a result, there may be a higher likelihood of material variances between our expected and actual results.
Notes:
First Quarter 2015 Outlook
Thank You
www.aseglobal.com
Appendix 1?Consolidated Statements of Comprehensive Income?(unaudited)
Notes:
Page 2: Quarter over quarter consolidated P&L
The quarter’s performance was more volatile relative to our expectations. Effectively, we saw manufacturing deceleration and then acceleration due to market share dynamics within our communications product mix. This resulted in below expectation performance from our SIP products offset by stronger than expected performance within our IC-ATM business unit. All-in-all, the end result for the 4th quarter was that our EMS business unit tracked below our expectations while our IC-ATM business unit tracked on the higher end of our expectations. With that all said, we are not reading too much into this trend as we are uncertain as to whether such products will eventually sell through. However, we are cautiously optimistic.
On a fully consolidated basis, for the 4th quarter, the company delivered fully diluted EPS of $0.60 and basic EPS of $0.62.
Our direct materials and EMS businesses were up 5% and 9%, respectively. Our packaging and testing businesses were down 2% and 1%, respectively.
Consolidated gross margins edged down 0.2 percentage points to 17.6%.
Gross profit improved 2% from $13.0B to $13.3B.
Operating expenses decreased by $0.2B. Operating expenses as a percentage of sales decreased by 0.6% to 8.5%. It is worth noting that we expect our operating expense percentage to increase temporarily during the 1st quarter due to professional fees related to our ongoing tender offer.
Operating profit was $6.8B up 7% or $0.4B from $6.4B.
Operating margins improved 0.2 percentage points to 9.0%.
During 4th quarter, we had a net non-operating loss of $0.5B versus a net non operating gain of $1.4B in the 3rd quarter. The change from Q3 into Q4 was primarily attributable to financial instruments including the ECB which accounted for $5.3B offset by $2.9B related to foreign exchange. Our estimation of SPIL’s contribution for the current quarter was limited to $113M.
Q4 Q3 Δ
Invest related 0.4 0.0 0.4
Forex 0.4 -2.5 2.9
Val Fin Inst -0.2 3.1 -3.3
ECB -0.5 1.4 -2.0
Net Interest -0.5 -0.5 0.0
Other -0.1 -0.1 -0.1
Pretax profit for Q4 was $6.3B down $1.5B.
Income tax for Q4 was $1.3B up $0.2B.
Net income for Q4 was $4.7B down $1.7B.
Net margin was 6.2% down from 8.7% in Q3.