Sifting Through Siliconware's Numbers

Siliconware Precision Industries (SPIL) is a mid-cap (4.63 billion) company trading on the NASDAQ. It packages semiconductors and offer turnkey solutions, such as testing, as well as direct shipment of semiconductor devices to end users.

It is based in Taiwan, but serves an international market place, with 61% of its sales coming from North America, 35% from Asia and 2% from Europe. The stock closed at $8.75 on 1/30 and sits at an attractive P/E of 12.55, despite a fantastic run over the last three and six months, where it has been up 36 and 58%, respectively.

The company just reported an outstanding fourth quarter but issued lower guidance for the upcoming quarter. Let's take a look at some highlights from the recent quarter's conference call and analyze the company's prospects:

Net income for the 4th quarter was up 23% QoQ and 7% YoY. From an annual viewpoint, sales increased 30%, but net income increased 61%! This wasn't due to cost cutting in operations expenses, but rather large, simultaneous increases and decreases in non-operating income and expenses. Interest income and losses experienced wild swings and if we look at currency valuations, Taiwan's dollar rose 51.7% in the last 3 months and 20.7% over the year.

EPS for its American depository receipts during the quarter were $0.22, a five cent increase from last quarter. For the year 2006, EPS were at $0.75 [USD], compared to $0.50 last year.

Due to seasonal demand, it expects upcoming sales to be down 5-10% from the 4th quarter's level and margins to be around 20-22%, below analyst expectations of 25%. Management expects the second quarter will improve though, and the second half of the year is when it sees the strongest growth. It also expects 1Q's capital expenditures to be around 2 billion [USD], down slightly from the previous quarter.

Management stated that it was operating at 90% capacity and that its new factory will completed around September and will see limited use in the 4th quarter.

On the whole, it expects mild growth this year in the packaging and testing industry, somewhere around 10% (down from 28%) last year. This growth will still outpace expected growth in the semiconductor industry, which is pegged at 4-6%. The stock has seen a little bit of a negative adjustment today, based on company guidance for the upcoming quarter, but has seen some nice support since the announcement.

I wouldn't anticipate the same returns this year, due to slower product demand and increased competition, but I believe SPIL will see reasonable growth in the first half of the year and pick up momentum towards the end, as it moves into the wireless market and begins to market new business for their new factory.

Disclosure: Author is long SPIL

SPIL 1-yr chart