Siliconware Precision Industries (SPIL) Q2 2014 Results - Earnings Call Transcript

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Siliconware Precision Industries (NASDAQ:SPIL)

Q2 2014 Earnings Call

July 30, 2014 8:00 am ET

Executives

Janet Chen - Director of IR Department

Bough Lin - Chairman, Executive Vice President, Director of Siliconware Investment Co Ltd and Director of Spil Spil (BVI) Holding Limited

Analysts

Randy Abrams - Crédit Suisse AG, Research Division

Tse-Yong Yao - HSBC, Research Division

Gokul Hariharan - JP Morgan Chase & Co, Research Division

Operator

Welcome, everyone, to Siliconware Precision Industries Company Limited 2014 Second Quarter Earnings Conference Call. [Operator Instructions] Today's host will be Janet Chen, Investor Relations Director of SPIL. Janet, please begin.

Janet Chen

Thank you. Good evening and good morning, ladies and gentlemen. Welcome to Second Quarter 2014 Earnings Release of Siliconware Precision. Today, the speakers are Mr. Bough Lin, Chairman; Ms. Eva Chen, CFO; and Ms. Janet Chen, IRO.

First of all, I will have a briefing of the second quarter numbers, and then we go on to the Q&A.

Today, SPIL announced that its consolidated sales revenue for the second quarter of 2014 were TWD 21,928 million, which represented a 21.4% growth in revenue compared to the first quarter of 2014 and of 24.6% growth in revenue compared to the second quarter of 2013. SPIL reported a net income of TWD 3,371 million for the 2Q of 2014 compared with a net income of TWD 2,091 million and a net income of TWD 1,740 million for the first quarter of 2014 and the second quarter of 2013, respectively.

Diluted earnings per ordinary share for this quarter was TWD 1.08, and the diluted earnings per ADR was USD 0.18. All the figures were prepared in accordance with the TIFRS on a consolidated basis.

Okay. Now, operator, now we can go on to the Q&A. You can raise your question if you have any.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Randy Abrams, Crédit Suisse.

Randy Abrams - Crédit Suisse AG, Research Division

I guess the first question, I wanted to go through a little bit more on the third quarter guidance for a small -- a flat to small decline. And if you could give a little more commentary on what's driving the -- it's weaker than normal, or it's really declined in third quarter. So if you could go through some of the impacts on your business making the slowdown a little bit more than some of the prior years.

Janet Chen

Guidance [indiscernible].

Bough Lin

SPIL revenue reached TWD 21.9 billion in the second quarter, which is better than our previous guidance, TWD 20.8 billion. We've intended a 21.4% quarter-over-quarter growth and 21.4% year-over-year growth. This is many because the demand from 4G smartphone and the base station IC was stronger than we expect. And since there's increasing growth of the SPIL revenue in the second quarter, the pace was already to be pushed high. And flat or slightly up [indiscernible] quarter-over-quarter growth in the third quarter already means a repeat growth if you look at the year-over-year comparison. And the -- as to the market situation, the mobile phone, the non-Apple segment, in non-Apple mobile phone window, we tend to win market share before Apple released the new iPhone. They started to release many new model of smartphone, and they spread out in the market. That made the second quarter become a non-Apple season you see. Besides, the capacity of TSMC was said to be fully loaded in this year. And otherwise, the company started filling inventory in advance. Actually, the non-Apple smartphone was sold very well in the emerging markets before June. But after entering into June, some inventory use was seen in the channel. That is the reason we see a -- and meanwhile, the new Android 64-bit OS, operating system, is expected to be released in September, October. Because non-Apple mobile phone window already used inventory in the second quarter, that becomes orders for July and August.

Randy Abrams - Crédit Suisse AG, Research Division

Okay. No, appreciate that. If you could then talk about on the CapEx side. It was revised up during the first half when sales were quite strong. Is there any plan to revise, having -- now it's at TWD 17.3 million, any -- is there a planned to slow down the CapEx? Or is that tied to new projects you're expecting late this year or into next year?

Bough Lin

We pushed out some equipment to year 2015. And our CapEx in case basis in the third quarter will be TWD 7.35 billion and in the first quarter will be TWD 4.47 billion. So the total this year, the CapEx, will be -- in case basis will be TWD 17.32 billion, quite near to our TWD 18 billion budget. We didn't stop to spend our capacity. Actually -- and our revenue broke through TWD 6 billion per month last June and crossed TWD 7 billion per month this May. In this June, we set a record high revenue at the TWD 7.6 billion per month. After exclusion of the TWD 18 million capital expenditure this year, the capacity can support our revenue to climb up to reach TWD 9 billion per month. The new count [ph] for the second half of 2014 will be revenue to stay firm with the TWD 7 billion per month and try to challenge the TWD 8 billion per month. So we will continue to spend our capacity according to our steps.

Randy Abrams - Crédit Suisse AG, Research Division

Okay. And for the outlook, are you seeing it as a it's a high base, a slowdown third quarter? Is -- does it look like normally you get a slowdown all the way through Q4 or early first quarter. Is the profile any different this year with the third quarter already slowing down a bit? Are you still viewing a continued slower or decline into fourth quarter or early first quarter like the normal pattern? Or with -- will you talk about some delays on -- for the new Android OS concerning...

Bough Lin

Actually, I really don't know that -- I really don't know that Q4 will be up or down. But I think the April window will start to fill inventory in third quarter. Since the competition of the -- for the 4G market share already starts, expect that the price of 4G mobile phone will decline domestically in the second half of this year. The demand for the 4G mobile phone will also grow repeatedly in Q4. And meanwhile, the new enter Android 64-bit operating system will -- I think the Android side will introduce the new device in Q4. So they may push the business up. So that's why we continue to expand our capacity, and we are waiting -- if we have a chance, that we can have a -- gain market share. And so we are well prepared to meet any situation ahead, but...

Randy Abrams - Crédit Suisse AG, Research Division

Okay, great. And last question, if I could ask on the China business for SPIL SuZhou. If you could give an update on the percent contribution and profitability and what you think for growth outlook. And I'm also curious how you're seeing competitive landscape for the SPIL SuZhou just against some of the local China players.

Bough Lin

China operation mainly is working with domestic IC Chinese companies. And if you see our Asia sales, it's growing very repeatedly each year. And it's been -- the last quarter, our Asia sales ratio is, including China and the Taiwan, is from 40% of our -- topped the first quarter sales to 45% of our total sales. So that is -- and most of them is non-Apple-related communication customer. So it's indeed to support our second quarter with a high growth rate.

Randy Abrams - Crédit Suisse AG, Research Division

Okay. And what percentage is SPIL SuZhou now or percent of revenue?

Bough Lin

The revenue of our SuZhou operations -- some of our China customer are also doing assembly and testing in our Taiwan facility. In the second quarter of this year, we do -- the revenue -- net revenue is about 2 billion in China.

Randy Abrams - Crédit Suisse AG, Research Division

Okay, great. Okay. And are you sensing any change in the landscape on -- from the local Chinese competitors like getting more aggressive? And there's, I think, the debate, they'll potentially do the consolidation to look at STATS turn back. But are you starting to see more aggressive moves from some of the local competitors there?

Bough Lin

Most of the local China OSAT is very really low-income, low-frequency. It's -- I think it's still very low-end in the platform to middle-end package. We are more focusing on the high-end package. So actually, we are not their competitor at all. And so as to do they want to merge, they are looking for -- to merge the STATS. In the past 30 years, I think the competition between Taiwan packaging and testing house and the Amkor, STATS were never eased. Part of the consequence were EEE [ph] and the op areas to be founded, that the Taiwan OSAT is much stronger than the Amkor and STATS. It was quite a shock when the STATS merged with ChipPAC and jumped out to third largest IC packaging and testing company in the world. But a few years later, SPIL revenue passed through the revenue of STAT ChipPAC and then the third largest IC packaging and testing company in the world. Actually, it's not easy to consolidate 2 IC packaging and testing company together. The production line, the customers, the employees and then the supply chain, all were different and having their own geometry ITIC [ph] relationships. So it is quite a hard work to make a change and to combine these 2 as a whole. So I don't think that, that is a good idea for anyone in China to acquire ChipPAC

Operator

Your next question is coming from Tse-Yong Yao, HSBC.

Tse-Yong Yao - HSBC, Research Division

I was -- firstly, I want to ask you about your utilization rate and how that reconciles with your Q3 guidance. So if I look at -- first, if I look at the wirebond, you're guiding wirebond, you should be down by quite a bit with a flat capacity. It's sort of by a 16% quarter-on-quarter decline. So I guess the first question is, does this sort of imply that Flip Chip and testing is growing by quite a bit in Q3 by, say, more than 10%?

Bough Lin

I think that our wirebonder output is increasing 14% from second quarter to third quarter even we didn't create the new wirebonder because we are sure that -- all the efficiency promotion. Our OEE already is starting to change from 75% to 85%. So our wirebonder output is increasing 14% from second quarter to third quarter. As to the Flip Chip bonding, we added many new equipment, the capacity already at 22% in the third quarter. The tests are also increasing 12%. So that's why the utilization rate of third quarter took as a result. And the reason we like to maintain about 80% to 90% utilization rate is in that situation, we can accept our customer rush orders or we can -- and those, order, those wafers come out from the foundry as a base -- it's a non-linear base. So we can provide a more good service to our customers.

Tse-Yong Yao - HSBC, Research Division

Okay. So I guess maybe another way to ask is, if we take your -- if we look at wirebonding for chip and testing, could you talk about the relative outlook for Q3? I mean, it's kind of flat. Is one factor look -- one segment looking particularly weaker than, say, another?

Bough Lin

The wirebonder will be running about the same number [ph] in the second quarter. And Flip Chip bonding, I think will be a little slowdown because the communication are, for the same causes, are a little weak, a little weak. Testing will be maintained about the same duration.

Tse-Yong Yao - HSBC, Research Division

Okay. And then if I'm looking at -- if I look at your Flip Chip capacity, so yes, the Flip Chip CSP capacity is increasing by 22%, but your bumping capacity is only increasing by 6% to 11%. I guess I was kind of worrying. What's the discrepancy between the different capacity increases for Flip Chip CSP relative to bumping?

Bough Lin

Some of our Flip Chip assembly accounting is not done by SPIL. Maybe it's done by their foundry or maybe it's done by other assembly houses because of customer policy. So it's not equally, the capacity.

Tse-Yong Yao - HSBC, Research Division

Okay. And then I guess last question for me. I mean, there's been a lot of talk about the kind of 4G slowing down a little bit. And -- but I think there are 2 components here. There's the base station side of things and there's the baseband side of things. Could you talk a little bit about your -- what you're seeing in terms of specifically base station side versus baseband or handset side?

Bough Lin

Of course, the base station -- I think base station has continued to build up. Just I think the -- because maybe for the summer, they stop to do the -- quickly this. But I think there will be continued progress in the China. Maybe have some slowdown a little bit because they have overbuilt some components. But that will continue to slow down to 2015, next year. As to the handset, the 4G handset. Because -- the coverage of the base station is not well established yet. Meanwhile, the handset sale is very expensive at this moment. And also the -- [indiscernible] 4G.

Unknown Executive

Oh, the [indiscernible] would [indiscernible].

Bough Lin

The usage, the charge from the...

Unknown Executive

Window fee.

Bough Lin

The window fee is also very high at this moment. So that hurt the population in the sector first half this year. So I think that after this, the pricing of the 4G mobile phone will decline dramatically in the second this year. And then the demand for the 4G mobile phone will also grow repeatedly. As people always say, it's not they're used to the very high cost to run the cell phone.

Operator

[Operator Instructions] The next question is from Gokul Hariharan from JPMorgan.

Gokul Hariharan - JP Morgan Chase & Co, Research Division

I had a quick question on the wafer-level packaging side. What are you seeing on the pricing landscape for wafer-level packaging? And also, what are the products that you're seeing primarily converting to wafer-level CSP from Flip Chip or wirebond kind of packaging used earlier? And also, if you could just talk about since you see some of the Flip Chip capacity still getting bumped in the foundry like you mentioned earlier, can you talk about how you see that evolve over the next year given that some of the Tier 2 foundries also seem to be building some wafer bond capacity right now?

Unknown Executive

[Indiscernible] making sure that [indiscernible] wafer level. What kind of wafer-level [indiscernible]?

Bough Lin

What kind of wafer-level packaging do you mean?

Gokul Hariharan - JP Morgan Chase & Co, Research Division

So on -- I think you are expanding wafer-level CSP capacity substantially, right? So what kind of products are moving there? And where are they moving from? Is it primarily from a wirebonding kind of packaging back and going into wafer-level CSP?

Bough Lin

Wafer-level packaging. Although currently, we are in mass production. That is mainly for the power device, power device, power management device. So that is mainly used in the wafer-level packaging of Flip Chip CSP and depending on the complexity [ph] of the chip.

Gokul Hariharan - JP Morgan Chase & Co, Research Division

So most of the expansion in wafer-level CSP is also for the power management device, with the 8-inch devices still?

Bough Lin

Normally, it's for 8-inch. But there are some customer who use 12-inch.

Operator

[Operator Instructions] There doesn't seem to be any more question at this point. We are sending it over to Ms. Janet Chen.

Janet Chen

Okay, thank you. If there's no further questions, I think we like to end the call here. And today's webcast will be available for -- in Mandarin and in English. Both are available on the website for replay. And okay, thank you very much and we like to end the call here. Thank you. Bye.

Operator

Thank you for your participation in Siliconware Precision Industries' conference call. You may disconnect now. Goodbye.

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