Advanced Semiconductor Engineering, Inc. Reports Unaudited Consolidated Financial Results for the Second Quarter of 2014

TAIPEI, July 30, 2014 /PRNewswire/ -- Advanced Semiconductor Engineering, Inc. (TAIEX: 2311, NYSE: ASX) ("We", "ASE", or the "Company"), the world's largest independent provider of packaging and testing services, today reported unaudited net revenues[1] of NT$58,615 million for the second quarter of 2014 (2Q14), up by 15% year-over-year and up by 7% sequentially.  Net income attributable to shareholders of the parent for the quarter totaled NT$5,094 million, up from a net income attributable to shareholders of the parent of NT$3,820 million in 2Q13 and up from a net income attributable to shareholders of the parent of NT$3,438 million in 1Q14.  Diluted earnings per share for the quarter were NT$0.64 (or US$0.107 per ADS), compared to diluted earnings per share of NT$0.50 for 2Q13 and NT$0.44 for 1Q14.

RESULTS OF OPERATIONS

2Q14 Results Highlights - Consolidated

• Net revenue contribution from packaging operations, testing operations, EMS operations, substrates sold to third parties and others each represented approximately 52%, 11%, 35%, 2% and 0%, respectively, of total net revenues for the quarter.
• Cost of revenue was NT$46,015 million, up by 14% year-over-year and up from NT$44,351 million in the previous quarter.
  • Raw material cost totaled NT$25,142 million during the quarter, representing 43% of total net revenues, compared with NT$24,966 million and 46% of total net revenues in the previous quarter.
  • Labor cost totaled NT$8,179 million during the quarter, representing 14% of total net revenues, compared with NT$7,440 million and 14% of total net revenues in the previous quarter.
  • Depreciation, amortization and rental expenses totaled NT$6,142 million during the quarter, up by 1% year-over-year and up by 1% sequentially.
• Gross margin increased 2.6 percentage points to 21.5% in 2Q14 from 18.9% in 1Q14.
• Total operating expenses during 2Q14 were NT$6,000 million, including NT$2,681 million in R&D and NT$3,319 million in SG&A, compared with total operating expenses of NT$5,279 million in 1Q14.  Total operating expenses as a percentage of net revenues was 10% in 2Q14, which remained the same as 2Q13 and 1Q14.
• Operating income for the quarter totaled NT$6,600 million, up from NT$5,070 million in the previous quarter.  Operating margin was 11.3% in 2Q14 compared to 9.3% in 1Q14.
• In terms of non-operating items:
  • Net interest expense was NT$500 million, down from NT$531 million in 1Q14.
  • Net foreign exchange gain of NT$711 million was primarily attributable to the depreciation of the U.S. dollar against NT dollar and Renminbi ("RMB").
  • Loss on equity-method investments of NT$31 million was primarily attributable to the loss from investment on Advanced Microelectronic Products, Inc.
  • Loss on valuation of financial assets and liabilities was NT$948 million.
  • Other net non-operating income of NT$218 million were primarily related to miscellaneous income.  Total non-operating expenses for the quarter were NT$550 million, compared to total non-operating expenses of NT$365 million for 2Q13 and total non-operating expenses of NT$786 million for 1Q14.
• Income before tax was NT$6,050 million for 2Q14, compared to NT$4,284 million in the previous quarter.  We recorded income tax expense of NT$818 million during the quarter, compared to NT$727 million in 1Q14.
• In 2Q14, net income attributable to shareholders of the parent was NT$5,094 million, compared to net income attributable to shareholders of the parent of NT$3,820 million for 2Q13 and net income attributable to shareholders of the parent of NT$3,438 million for 1Q14.
• Our total number of shares outstanding at the end of the quarter was 7,824,220,046, including treasury stock owned by our subsidiaries.  Our 2Q14 diluted earnings per share of NT$0.64 (or US$0.107 per ADS) were based on 7,835,167,631 weighted average number of shares outstanding in 2Q14.

2Q14 Results Highlights - IC ATM[2]

• Net revenue contribution from IC ATM operations was NT$39,266 million for the second quarter of 2014, up by 8% year-over-year and up by 14% sequentially. Net revenue contribution from packaging operations, testing operations, and substrates sold to third parties was NT$31,792 million, NT$6,600 million, and NT$874 million, respectively, and each represented approximately 81%, 17%, and 2%, respectively, of total net revenues for the quarter.
• Cost of revenues was NT$28,678 million, up by 4% year-over-year and up by 10% sequentially.
  • Raw material cost totaled NT$9,454 million during the quarter, representing 24% of total net revenues, compared with NT$8,352 million and 24% of total net revenues in the previous quarter.
  • Labor cost totaled NT$7,317 million during the quarter, representing 19% of total net revenues, compared with NT$6,638 million and 19% of total net revenues in the previous quarter.
  • Depreciation, amortization and rental expenses totaled NT$5,871 million during the quarter, up by 2% year-over-year and up by 1% sequentially.
• Gross margin increased 3.0 percentage points to 27.0% in 2Q14 from 24.0% in 1Q14.
• Total operating expenses during 2Q14 were NT$4,615 million, including NT$2,169 million in R&D and NT$2,446 million in SG&A, compared with total operating expenses of NT$4,033 million in 1Q14. Total operating expenses as a percentage of net revenues was 12% in 2Q14, up from 11% in 2Q13 and remained the same as 1Q14.
• Operating income for the quarter totaled NT$5,973 million, up from NT$4,210 million in the previous quarter. Operating margin was 15.2% in 2Q14 compared to 12.3% in 1Q14.

2Q14 Results Highlights - EMS

• Net revenue contribution from EMS operations was NT$20,509 million, up by 45% year-over-year and down by 4% sequentially.
• Cost of revenues was NT$18,468 million, up by 47% year-over-year and down by 4% sequentially.
  • Raw material cost totaled NT$15,704 million during the quarter, representing 77% of total net revenues, compared with NT$16,623 million and 78% of total net revenues in the previous quarter.
  • Labor cost totaled NT$862 million during the quarter, representing 4% of total net revenues, compared with NT$803 million and 4% of total net revenues in the previous quarter.
  • Depreciation, amortization and rental expenses totaled NT$261 million during the quarter, up by 1% year-over-year and down by 3% sequentially.
• Gross margin increased to 10.0% in 2Q14 from 9.6% in 1Q14.
• Total operating expenses during 2Q14 were NT$1,349 million, including NT$535 million in R&D and NT$814 million in SG&A, compared with total operating expenses of NT$1,224 million in 1Q14. Total operating expenses as a percentage of net revenues was 7% in 2Q14, down from 8% in 2Q13 and up from 6% in 1Q14.
• Operating income for the quarter totaled NT$692 million, down from NT$833 million in the previous quarter. Operating margin decreased to 3.4% in 2Q14 from 3.9% in 1Q14.

LIQUIDITY AND CAPITAL RESOURCES

• As of June 30, 2014, our cash and current financial assets totaled NT$45,383 million, compared to NT$48,866 million as of March 31, 2014.
• Capital expenditures in 2Q14 totaled US$360 million, of which US$257 million were used for packaging, US$54 million for testing, US$43 million for EMS and US$6 million for interconnect materials.
• As of June 30, 2014, we had total debt of NT$87,046 million, compared to NT$89,625 million as of March 31, 2014. Total debt consisted of NT$33,281 million of short-term borrowings, NT$6,044 million of the current portion of bonds payable, long-term borrowings and capital lease obligations and NT$47,721 million of bonds payable, long-term borrowings and capital lease obligations. Total unused credit lines amounted to NT$132,128 million.
• Current ratio as of June 30, 2014 was 1.23, compared to 1.44 as of March 31, 2014. Net debt to equity ratio was 0.33 as of June 30, 2014.
• Total number of employees was 64,285 as of June 30, 2014, compared to 58,021 as of June 30, 2013 and 60,513 as of March 31, 2014.

BUSINESS REVIEW

Packaging Operations[3]

• Net revenues generated from our packaging operations were NT$31,792 million during the quarter, up by NT$2,761 million, or by 10% year-over-year, and up by NT$4,005 million, or by 14% sequentially.
• Net revenues from advanced packaging accounted for 26% of our total packaging net revenues during the quarter, down by 1 percentage point from the previous quarter. Net revenues from IC wirebonding accounted for 64% of our total packaging net revenues during the quarter, remained the same as the previous quarter. Net revenues from discrete and others accounted for 10% of our total packaging net revenues during the quarter, up by 1 percentage point from the previous quarter.
• Gross margin for our packaging operations during the quarter was 24.2%, up by 3.9 percentage points year-over-year and up by 2.6 percentage points from the previous quarter.
• Capital expenditures for our packaging operations amounted to US$257 million during the quarter, of which US$46 million were used for purchases of wafer bumping and flip chip packaging equipment, US$182 million for common equipment purchases, including SiP equipment purchases, and US$29 million for wirebond specific purposes.
• As of June 30, 2014, there were 15,762 wirebonders in operation. 470 wirebonders were added and 83 wirebonders were disposed of during the quarter.

Testing Operations

• Net revenues generated from our testing operations were NT$6,600 million, up by NT$95 million, or by 1% year-over-year, and up by NT$815 million, or by 14% sequentially.
• Final testing accounted for 77% of our total testing net revenues, down by 2 percentage points from the previous quarter. Wafer sort accounted for 21% of our total testing net revenues, up by 2 percentage points from the previous quarter. Engineering testing accounted for 2% of our total testing net revenues, remained the same as the previous quarter.
• Depreciation, amortization and rental expense associated with our testing operations amounted to NT$1,690 million, down from NT$1,715 million in 2Q13 and up from NT$1,642 million in 1Q14.
• In 2Q14, gross margin for our testing operations was 37.2%, down by 1.4 percentage points year-over-year and up by 4.9 percentage points from the previous quarter.
• Capital expenditures for our testing operations amounted to US$54 million during the quarter.
• As of June 30, 2014, there were 3,244 testers in operation. 138 testers were added and 49 testers were disposed of during the quarter.

EMS Operations

• Net revenues generated from our EMS operations were NT$20,509 million, up by NT$6,323 million, or by 45% year-over-year, and down by NT$867 million, or by 4% sequentially.
• Communications products accounted for 44% of our total net revenues from EMS operations, down by 4 percentage points from the previous quarter. Computing products accounted for 24% of our total net revenues from EMS operations, up by 2 percentage points from the previous quarter. Consumer products accounted for 11% of our total net revenues from EMS operations, up by 1 percentage point from the previous quarter. Industrial products accounted for 12% of our total net revenues from EMS operations, remained the same as the previous quarter. Automotive products accounted for 8% of our total net revenues from EMS operations, up by 1 percentage point from the previous quarter.
• In 2Q14, gross margin for our EMS operations was 10.0%, down by 1.4 percentage points year-over-year and up by 0.4 percentage points from the previous quarter.
• Capital expenditures for our EMS operations amounted to US$43 million during the quarter.

Substrate Operations

• PBGA substrate manufactured by ASE amounted to NT$2,518 million during the quarter, up by NT$149 million, or by 6% year-over-year, and up by NT$432 million, or by 21% from the previous quarter. Of the total output of NT$ 2,518 million, NT$873 million was from sales to external customers.
• Gross margin for substrate operations was 20.3% during the quarter, up by 6.1 percentage points year-over-year and up by 3.6 percentage points from the previous quarter.
• In 2Q14, our internal substrate manufacturing operations supplied 34% (by value) of our total substrate requirements.

Customers

IC ATM consolidated Basis

• Our five largest customers together accounted for approximately 32% of our total net revenues in 2Q14, compared to 37% in 2Q13 and 34% in 1Q14. There was no customer which accounted for more than 10% of our total net revenues in 2Q14.
• Our top 10 customers contributed 46% of our total net revenues during the quarter, compared to 50% in 2Q13 and 47% in 1Q14.
• Our customers that are integrated device manufacturers, or IDMs, accounted for 37% of our total net revenues during the quarter, compared to 34% in 2Q13 and 36% in 1Q14.

EMS Basis

• Our five largest customers together accounted for approximately 71% of our total net revenues in 2Q14, compared to 61% in 2Q13 and 73% in 1Q14. There were two customers that accounted for more than 10% of our total net revenues in 2Q14.
• Our top 10 customers contributed 84% of our total net revenues during the quarter, compared to 79% in 2Q13 and 86% in 1Q14.

OUTLOOK

Based on our current business outlook and exchange rate assumptions, management projects overall performance for the third quarter of 2014 to be as follows:

• IC-ATM production capacity should increase by roughly 4% quarter-over-quarter; blended IC-ATM utilization rate should increase by 2-4% from around 80% in Q2;
• The pace for our EMS first-half year-over-year growth should carry into Q3;
• Consolidated gross margin should edge down, while consolidated operating margin should edge up.

About ASE, Inc.

ASE, Inc. is the world's largest independent provider of packaging services and testing services, including front-end engineering testing, wafer probing and final testing services.  With advanced technological capabilities and a global presence spanning Taiwan, China, Korea, Japan, Singapore, Malaysia and the United States, ASE, Inc. has established a reputation for reliable, high quality products and services.  For more information, please visit our website at http://www.aseglobal.com.

Safe Harbor Notice

This press release 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, including statements regarding our future results of operations and business prospects.  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 press release.  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 press release. Our actual results of operations, financial condition or business prospects may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons, including 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 global economic crisis; 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 our 2013 Annual Report on Form 20-F filed on April 17, 2014.

Supplemental Financial Information

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SOURCE Advanced Semiconductor Engineering, Inc.

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