Advanced Semiconductor Engineering, Inc. Reports Consolidated Year 2004 Third-Quarter Financial Results

/PRNewswire/ -- TAIPEI, Taiwan, Oct. 28 /Xinhua-PRNewswire-FirstCall/ -- Advanced Semiconductor Engineering, Inc. (TAIEX: 2311; NYSE: ASX) ("We," "ASE," or the "Company"), the world's largest independent provider of IC packaging and testing services, today reported unaudited consolidated net revenues(1) of NT$22,023 million for the third quarter of 2004 (3Q04), up 52% year-over-year and up 9% sequentially. Net income for the quarter totaled NT$1,960 million, up 236% year-over-year and down 3% sequentially. EPS for the quarter was NT$0.49, or US$0.069, per ADS, up 227% year-over-year and flat sequentially. ASE's Q3 revenue marks the highest quarterly revenue level in the Company's history.

  (1) All financial information presented in this press release is unaudited,
      consolidated and prepared in accordance with generally accepted
      accounting principles in the Republic of China, or ROC GAAP.  Such
      financial information is generated internally by us, and has not been
      subjected to the same review and scrutiny, including internal auditing
      procedures and review by independent auditors, to which we subject our
      audited consolidated financial statements, and may vary materially
      from the audited consolidated financial information for the same
      period.  Any evaluation of the financial information presented in this
      press release should also take into account our published audited
      consolidated financial statements and the notes to those statements.
      In addition, the financial information presented is not  necessarily
      indicative of our results for any future period.

"Despite the disruption on our operations in Taiwan as a result of the typhoon, we still managed to end the 3rd quarter with respectable growth rate and reached new high in revenue. We believe our fundamental business model remains solid and with our effective strategy implementation, we will continue to widen our lead against the competitors," commented Mr. Jason Chang, Chairman of ASE. "Looking forward, we continue to expect sequential growth in our revenue in the 4th quarter and should close the year 2004 with significant annual revenue growth."

"Despite some recent concerns over the visibility of the semiconductor foundry business in the short-term, we believe the fundamentals of the IC assembly and testing subcontracting business remain growing in the longer term and our business model remain solid. We completed the merger of ASE Chung Li and ASE Material with the parent company on August 1st to further streamline

  Results of Operations

  3Q04 Results
  -- Net revenues amounted to NT$22,023 million, up 9% sequentially and 52%
     year-over-year.  The revenue contribution from IC packaging operations,
     testing operations, module assembly, and others were NT$14,318 million,
     NT$4,597 million, NT$2,932 million and NT$176 million, respectively.
  -- Gross profit for 3Q04 was NT$4,436 million, down 1% compared to
     NT$4,469 million in 2Q04.  Gross margin of 20% for the quarter
     decreased from 22% in the previous quarter, while it increased from
     19% in 3Q03.
  -- Total operating expenses during 3Q04 were NT$2,314 million, which
     increased by NT$204 million or 10% from the previous quarter.  On a
     sequential basis, total R&D and SG&A expenses as a percentage of net
     revenues remained  relatively flat.  On a year-over-year basis, R&D
     and SG&A expenses as a percentage of net revenues decreased by 1% and
     2% respectively, due to expanded revenue base and our effort in
     controlling operating expenses.
  -- Operating profit for 3Q04 reached NT$2,122 million, which decreased by
     NT$237 million or 10% from the previous quarter, and grew by NT$1,296
     million or 157% year-over-year.  Operating margin was 10% in 3Q04,
     which declined from 12% in 2Q04 and improved from 6% in 3Q03.
  -- We recorded net non-operating expenses of NT$205 million in 3Q04, which
     decreased by NT$96 million or 32% sequentially, and decreased by NT$284
     million or 58% year-over-year.  The sequential decrease was mainly
     because of the higher net exchange gain of about NT$32 million in 3Q04,
     the decrease in loss on long-term investment of NT$25 million, the
     decrease in loss on disposal of assets of NT$9 million, and the
     increase of other non-operating income by NT$85 million, which were
     offset by the increase of net interest expense of NT$55 million.
       -- The increase in net interest expense is mainly due to loan balance
       -- The net exchange gain increase was mainly attributable to
          the significant decrease of exchange loss in Korean Won -- based
          loans and payables and the exchange gain in Japanese Yen-based
          loans and payables, due to the respective currency exchange rate
       -- Loss on long-term investment was NT$4 million, consisting of NT$51
          million investment gain from minority-owned affiliates and NT$55
          million of goodwill amortization related to such minority-owned
          affiliates.  The investment gain from minority-owned shareholders
          included NT$75 million of investment income from Universal
          Scientific Industrial Co. ("USI"), NT$11 million of investment
          loss from Hung Ching Construction, NT$11 million of investment
          loss from Inprocomm, Inc. ("IPCM"), and NT$2 million of
          investment loss from other invested companies.
       -- Other non-operating income for 3Q04 mainly consisted of tooling
          charge and scrap sales.  There were severance related costs
          recorded in 2Q04 while none recorded in 3Q04.
       -- Income before tax was NT$1,917 million for 3Q04.  We recognized an
          income tax benefit of NT$348 million during the quarter.  Minority
          interest adjustment for the quarter decreased by NT$300 million to
          NT$305 million, primarily due to the decreased earnings
          contributed by ASE Test Limited and the elimination of minority
          interest adjustment associated with ASE  Material and ASE Chung Li
          due to their merger with ASE Inc.
   -- In 3Q04, net income amounted to NT$1,960 million, down by NT$60
      million or 3% sequentially and up by NT$1,377 million or 236% year-
      over-year.  For the  first nine months of 2004, the Company's net
      income totaled NT$5,617 million, compared with NT$595 million in the
      first nine months of 2003.
   -- Our total shares outstanding at the end of the quarter were
      3,932,050,750.  Our earnings per share for the third quarter of 2004
      was NT$0.49, or US$0.069 per ADS, based on 4,105,329,267 weighted
      average number of shares outstanding during the third quarter.  For
      the first nine months of 2004, the Company's earnings per share were
      NT$1.42, compared with NT$0.16 in the first nine months of 2003.

  Liquidity and Capital Resources

  -- Capital expenditures in 3Q04 totaled US$231 million, of which US$118
     million was for IC packaging, US$17 million for module assembly, US$66
      million  for  testing  and  US$30  million  for  interconnect  materials.
          Capital  expenditures  in  the  first  nine  months  of  2004  totaled  US$604
          million,  of  which  US$283  million  was  for  IC  packaging,  US$45  million
          for  module  assembly,  US$191  million  for  testing  and  US$85  million  for
          interconnect  materials.
    --  EBITDA  for  the  quarter  totaled  NT$6,247  million,  up  51%  year-over-year
          and  up  2%  sequentially.    The  year-over-year  increase  was  mainly  a
          result  of  the  increase  in  pre-tax  income.
    --  As  of  September  30,  2004,  we  had  cash  on  hand  plus  short-term
          investment  of  NT$10,148  million,  which  decreased  by  NT$3,037  million
          when  compared  to  the  end  of  2Q04.    The  decrease  in  cash  balance  was
          mainly  due  to  the  final  payment  made  to  Motorola  in  relation  to  ASE's
          acquisition  of  Motorola's  assembly  and  test  operations  in  Chung  Li,
          Taiwan,  and  Paju,  South  Korea  (now  ASE  Chung  Li  and  Korea)  and  capital
    --  As  of  September  30,  2004,  we  had  total  bank  debt  of  NT$53,953  million,
          consisting  of  NT$9,111  million  of  revolving  working  capital  loans,
          NT$7,733  million  of  current  portion  of  long-term  debt,  NT$27,301
          million  of  long-term  debt  and  NT$9,808  million  long-term  bonds  payable.
          Total  unused  banking  facilities  amounted  to  NT$13,645  million.
    --  Total  number  of  employees  reached  31,663  as  of  September  30,  2004.

    Business  Review

    IC  Packaging  Services
    --  Revenues  generated  from  our  IC  packaging  operations  were  NT$14,318
          million  during  the  quarter,  up  NT$1,562  million  or  12%  sequentially  and
          up  NT$3,952  million  or  38%  year-over-year.    On  a  sequential  basis,  the
          significant  increase  in  packaging  revenue  was  primarily  due  to  volume
          increase,  partially  offset  by  slightly  lower  average  selling  price.
    --  Revenues  from  advanced  substrate  and  leadframe-based  packaging
          accounted  for  87%  of  total  IC  packaging  revenues  during  the  quarter,
          slightly  up  from  85%  in  2Q04  and  86%  in  3Q03.
    --  Gross  margin  for  our  IC  packaging  operations  was  19%,  down  3%
          sequentially  and  up  2%  year-over-year.    The  sequential  decrease  in
          gross  margin  was  mainly  due  to  lower  internal  material  supply  and
          higher  labor  cost  as  a  result  of  salary  adjustment.
    --  Capital  expenditure  on  our  IC  packaging  operations  amounted  to  US$118
          million  during  the  quarter,  of  which  US$83  million  was  for  wirebonding
          packaging  capacity,  and  US$35  million  was  for  wafer  bumping  and  flip
          chip  packaging  equipment.
    --  As  of  September  30,  2004,  there  were  6,578  wirebonders  in  operation.    A
          total  of  292  wirebonders  were  added  during  the  third  quarter  of  2004.

    Testing  Services
    --  Revenues  generated  from  our  testing  operations  were  NT$4,597  million,
          up  NT$495  million  or  12%  sequentially  and  up  NT$1,531  million  or  50%
          year-over-year,  mainly  due  to  volume  increase.    ASP  has  been  slightly
          up  from  the  previous  quarter.
    --  Final  testing  contributed  74%  to  total  testing  revenues,  remaining
          flat  from  the  previous  quarter.    Wafer  sort  contributed  23%  to  total
          testing  revenues,  up  by  1%  from  the  previous  quarter.    Engineering
          testing  contributed  3%  to  total  testing  revenues,  down  by  1%.
    --  Gross  margin  for  our  testing  operations  was  28%,  slightly  down  by  1%
          sequentially  and  up  3%  year-over-year.    The  main  reason  for  the  slight
          decrease  in  gross  margin  is  the  higher  machinery  rental  due  to  more
          leased  machines  and  higher  utility  cost  due  to  seasonal  rate  increase.
    --  Capital  spending  on  our  testing  operations  amounted  to  US$66  million
          during  the  quarter.
    --  As  of  September  30,  2004,  we  operated  a  total  of  1,510  testers,  of
          which  87  testers  were  added  during  the  quarter.

    Module  Assembly  Services
    --  Revenues  generated  from  our  module  assembly  operations  were  NT$2,932
          million,  down  NT$444  million  or  13%  sequentially  and  up  NT$1,878
          million  or  178%  year-over-year  mainly  due  to  volume  changes.
    --  Camera  module  assembly  revenue  accounted  for  63%  of  the  total  module
          assembly  revenues,  while  RF  and  baseband  module  assembly  accounted  for
          37%.    In  the  previous  quarter,  camera  module  assembly  was  roughly  67%
          of  module  assembly  revenues,  while  RF  and  baseband  module  assembly  was
          about  33%.
    --  The  decline  in  gross  margin  was  primarily  attributed  to  the  decrease  in
          production  volume  and  the  increase  of  turnkey  business.

    Interconnect  Materials
    --  ASE  completed  the  merger  with  ASE  Material  on  August  1.    The  materials
          output  manufactured  by  ASE  was  about  NT$1,859  million  for  the  quarter,
          down  by  NT$218  million  or  11%  sequentially  and  up  by  NT$395  million  or
          27%  year-over-year.    Gross  margin  for  material  was  19%  during  the
          quarter,  which  decreased  from  24%  from  2Q04  and  increased  from  16%  in
          3Q03.    In  the  third  quarter  of  2004,  ASE  Material  supplied  53%  (by
          value)  of  our  total  PBGA  substrate  requirements.

    --  Our  five  largest  customers  together  accounted  for  approximately  36%  of
          our  net  revenues  in  3Q04,  constant  from  2Q04  and  in  3Q03.    No  customer
          accounted  for  more  than  10%  of  our  total  revenues.
    --  Our  top  10  customers  contributed  53%  of  our  revenues  during  the  quarter,
          compared  to  50%  in  2Q04  and  53%  in  3Q03.
    --  Our  customers  that  are  integrated  device  manufacturers,  or  IDMs,
          accounted  for  53%  of  our  revenues  in  3Q04,  compared  to  51%  in  2Q04  and
          48%  in  3Q03.

    About  ASE,  Inc.

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