Siliconware Precision Industries (SPIL) Q4 2015 Results - Earnings Call Transcript

| About: Siliconware Precision (SPIL)

Siliconware Precision Industries Company, Ltd. (NASDAQ:SPIL)

Q4 2015 Earnings Conference Call

January 29, 2016 7:00 a.m. ET

Executives

Bough Lin - Chairman

Eva Chen - Vice President, Financial Division

Mike Ma - Vice President, Corporate Research and Development Center

Janet Chen - IRO, Director

Analysts

Randy Abrams - Credit Suisse

Ricky Lee - Goldman Sachs

Steven Pelayo - HSBC

Operator

Welcome everyone to Siliconware Precision Industries Company 2015 Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent background noise. And after the presentation, there would be a question-and-answer session. Please follow the instructions given at that time if you would like to ask a question. Today's host will be [Jack Wong], Investor Relations Director of SPIL Company.

And now let me hand it to [Jack Wong], IR Manager. Mr. Wong, please proceed.

Unidentified Company Representative

Thank you very much. Good morning and good afternoon, ladies and gentlemen. Welcome to the fourth quarter of 2015 earnings conference call of Siliconware Precision Industries Company. I am Jeff Wong, and I am the manager of the Investment Relations and it is my pleasure to host this session.

At the beginning of this conference, I would like to introduce to you our speakers for today’s agenda. The first one is our Chairman, Mr. Bough Lin.

Bough Lin

Hello.

Unidentified Company Representative

And then our Chief Financial Officer, Vice President, Ms. Eva Chen.

Eva Chen

Hello.

Unidentified Company Representative

Also our spokesperson and also the Head of our Corporate Research and Development Center, Vice President, Mr. Mike Ma.

Mike Ma

Hello everyone. It’s Mike.

Unidentified Company Representative

And lastly, our investor relations officer director, Ms. Janet Chen.

Janet Chen

Good evening ladies and gentlemen.

Unidentified Company Representative

Throughout this session, our investor relations officer Ms. Janet Chen will be presenting the results and summary reports of our fourth quarter of 2015 consolidated financial status, and then we will have our spokesperson Mr. Mike Ma to give us an overview on the outlook and comments on the semiconductor industries which will be followed by Q&A session afterwards. And now I would like to hand the floor over to our IRO Ms. Janet Chen for the consolidated financial status of 2015 fourth quarter.

Janet Chen

Thank you. Good evening everyone. We are now presenting SPIL’s fourth quarter 2015 and the full year consolidated operation results and the summary report. For the statement of the forward-looking of this report please see the Safe Harbor notice on Page 2.

Please go to Page 3. The full year of 2015 consolidated operation results and summary reports. The revenue is NT$ 82.84 billion which has decreased by 0.03% compared to NT$ 83.07 billion last year. The net income is NT$ 8.6 billion which has decreased by 25.4% compared to NT$ 11.74 billion last year.

Please go to Page 4. The fourth quarter 2015 consolidated operation results and summary reports. The revenue in the fourth quarter is NT$ 20.76 billion which has increased by 3.7% compared to NT$ 20.03 billion for the previous quarter. The revenue has decreased by 3.1% compared to NT$ 21.43 billion for the corresponding quarter of the previous year.

The net loss is NT$ 0.21 billion which has decreased by 107.9% compared to NT$ 2.68 billion for the previous quarter. The net loss has also decreased by 107% compared to NT$ 3.02 billion for the corresponding quarter of the previous year. The diluted EPS in this quarter is minus NT$ 0.07, and diluted ADS is minus US$ 0.01. The depreciation cost is NT$ 3.22 billion. Capital expenditure in this quarter is 3.07 billion. EBITDA is [3.63] billion and annualized ROE is minus 1.2%.

Please go to Page 5. The comparison of the quarter over quarter between fourth quarter and the third quarter in 2015. The revenue for Q4 has increased by 3.7% compared to the previous quarter. The gross profit for this quarter has increased by 10.2% compared to the previous quarter. The gross margin for this quarter is 26.2% while the gross margin for the previous quarter was 24.7% which has increased by 1.5 percentage points.

The operating profit for this quarter has increased 11.3% compared to the previous quarter. The operating profit margin for this quarter is 15.7% while the operating profit margin for the previous quarter was 14.6% which has increased by 1.1 percentage points.

The non-operating revenue in this quarter is 0.4 billion which has decreased by 0.15 billion compared to 0.55 billion for the previous quarter. The non-operating expenses in this quarter is 3.66 billion which has increased by 3.24 billion compared to 0.43 billion for the previous quarter.

The main items in the non-operating expenses are: the impairment loss of financial assets on Unimicron Technology Corporation is 1.86 billion and the ECB valuation loss on fair value is 1.42 billion. The net loss in this quarter is 0.21 billion which has decreased by 107.9% compared to 2.68 billion for the previous quarter. the EPS is minus NT$ 0.07 compared to last quarter is NT$ 0.86. The ECB valuation loss on fair value is 1.43 billion. The influence on the net loss is approximately 1.06 billion, and our EPS is approximately NT$ 0.34. The impairment loss of financial assets on Unimicron Technology Corporation is 1.86 billion and the influence on the EPS is approximately NT$ 0.06.

Please go to Page 5. The comparison of the Q4 2015 and Q4 2014. The revenue has decreased by 3.1% compared to the corresponding quarter of the previous year. The revenue for this quarter is 20.76 billion while the revenue for the corresponding quarter of the previous year is 21.43 billion.

The gross profit has decreased by 5.8% compared to the previous quarter last year – compared to corresponding quarter of last year. The gross margin is 26.2% which has decreased by 0.7 percentage point compared to 26.9% in the last year. The operating profit has decreased by 15.4% compared to the corresponding quarter of the last year. The net loss this quarter is 0.21 billion which has decreased by 107% compared to 3.02 billion for the corresponding quarter of last year. The diluted EPS is minus NT$ 0.07 compared to NT$ 0.97 in the corresponding quarter of last year.

Please go to Page 6. The full year summary of our 2015. The revenue of 2015 has decreased by 0.03% on the revenue compared to the previous quarter. Gross margin in the 2015 is 26.1% which has increased by 0.8 percentage points compared to 25.3% of the previous year. Operating profit margin is 16% which has decreased by 0.6 percentage points compared to 16.6 for the 2014.

Net income is 8.76 billion which has decreased by 2.98 billion compared to 11.74 billion in the 2014. Diluted EPS in 2015 is NT$ 2.78. In the 2014 the EPS is NT$ 3.74.

Please go to Page 7. On the balance sheet, the cash and the cash equivalents for December 31 2015 is 25.19 billion which has increased by 2.75 billion compared to 22.44 billion in the end of 2014. The long-term investments is 8.05 billion which has increased by 1.56 billion compared to 6.49 billion in the end of last year. The shareholders’ equity by the end of ’15 is 70.6 billion which has increased by 1.36 billion compared to 69.24 billion in the end of 2014.

Please go to Page 8. The revenue analysis for customers in different areas. The revenue decrease from 45% to 43% in North America. Asia maintained at 43%. And Europe has increased from 11% to 13%. On Page 9, fables maintained at 95% and IDM stands for 5%.

On the Page 10, the application breakdown. Communication stands for 63%. Consumer stands for 25%. Computing is 9% and memory is 3%.

Please go to Page 11. For the breakdown of capacity. The bumping and flip chip slightly increased from 44% to 45%. The substrate wirebonder base maintained at 27%. Leadframe wirebonder base slightly decreased from 18% to 17%. Testing maintained at 11%.

Please go to Page 12. In the Q4, on the wirebonder we have disposed 25 sets to 7323 units. The 8 inch wafer bumping increased to 113,000 pieces a month. The 12-inch bumping maintained at 130,000 pieces water per month. The flip chip BGA maintained at 29 million pieces per month. The flip chip CSP maintained at 98 million pieces per month. The wafer level CSP maintained at the 140 million pieces per month. In the tester side, we have increased 9 testers and disposed 5 testers to a total number of 547 units.

Please go to Page 13. The gross margin and operating profit margin for Q4 has increased compared to Q3. Upon observation of the trend of the recent six quarters, the gross margin was between 24% to 27%. The operating margin was between 14% to 18% which is comparatively a variable trend.

Last, regarding the guidance of this quarter. The total amount for the non-operating income and expenses in the consolidated financial statements. For the last four quarters, which exceeds 10% of the income before tax. According to the SEC regulation if a listed company published a forecast number of its operating revenue, gross margin or operating income, the company should publish financial forecasts and approved by the Board of Directors. Last, the company decided not to provide official guidance this quarter.

So this is the summary of this quarter’s results. Thank you.

Mike Ma

Next, the first quarter of 2015 and also entire year perspective as below. The economic growth of the emerging market and Europe in 2015 did not go as expected, which lead to the downsizing of the demand of the end user electronic products as well as the suffering of the recession in the semiconductor industry. However based on the current situation, the major developed countries have already shown some good signs and we are more than likely to continue to grow – heat up the growth.

Furthermore this will trigger the growth of the semiconductor industry. It is estimated that the semiconductor industry will be pulled out of the recession at 2016 and have a better performance to start to happen. Although the strong US dollars and the uncertainty in the sales growth of end products still remain unclear risk to the growth of 2015. Market research institute like Gartner has estimate there will still be low single digit growth in the semiconductor industry.

The inventory adjustment is likely to reach by the end by the end of the first quarter of 2016. The main focus afterward will be the strengths of the demand. The company will be restocking by the end of the quarter if demand are continuing to heat up. Since the global economy is getting better and better, the demand of 3D products will start to grow up again because of these benefits.

The energy of the growth of smartphone will be triggered by the demand of the mid to low end cellphones estimate 18% year over year while the growth of the high end cellphone still comparatively slow estimate 2.1% year over year. The decrease rate of the PC market will slow down a bit to minus 6.7% year over year and the outcome of ultra thin notebook will likely be excellent estimate to 22.5% year over year. It’s estimated that the consuming market will also get better at 2.25% growth year over year.

The Internet of Things, IoT, will become a new trend starting from 2016 which will not rule out the possibility of becoming the next mega trend that will promote a revenue of assembly and testing. It’s estimated that the performance of IoT will become even better than the entire semiconductor industry, and its growth rate will reach a peak in 2018.

Thank you.

Unidentified Company Representative

Well thank you for all our speakers for their remarkable presentation. And now we would like to open the floor to questions from all investors.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question tonight is from Randy Abrams, Credit Suisse.

Randy Abrams

Good evening. I missed the afternoon conference. So wanted to see -- since you can’t give the sales guidance, if you could discuss the trends that you are seeing by end market for the different segments you have, and then if you could also clarify your outlook for utilization and capacity growth by the major segments.

Mike Ma

Still the market is better. The communication in the Q4 is thrust and Q1 will be slightly up. The computing in Q4 is down. In the first quarter it will be slightly down. Controller in the Q4 is up, in the Q1 will be down. Memory in Q4 was slightly down, and it’s down in the Q1. Utilization of the equipment, the large foundry equipment in Q4 was 73%, in the Q1 it reduced from 69% to 63%. The equipment bumping area, in Q4 is 73%, in the Q1 will be 64% to 68%. In our testing segment, Q4 is 64% and Q1 will be 62% to 64%.

Randy Abrams

And is there any capacity growth factored in for the first quarter?

Janet Chen

Yes, I think capacity in the Q1 remains flat from Q4. Most of the capacity remained flat.

Mike Ma

I think it will be slightly down.

Janet Chen

I think Chairman has some comments about full year CapEx.

Mike Ma

The investment was mainly by the expansion of capacity focusing on the capacity expansion of chip bumping, fab and high end tester -- reporting of – it will be invested in the development of [three BIC] representing approximately 20% to 30%. The estimated annual depreciation is approximately NT$ 13.3 billion.

Randy Abrams

And the clarification for CapEx, after the Chunghwa proposal there was potential to raise the CapEx to 20 billion for additional effective and P&L investment. Do you still have that potential case, like if you could finance with debt, even if Chunghwa doesn’t come through? So I am curious if you still have an upside plan on CapEx if that stake does not go through?

Mike Ma

We started with 10 billion – approval. So we do not expect it will be on the way by the end of this year. We didn’t – that we can come down to reach to 20 billion CapEx this year.

Randy Abrams

So can you clarify what your budget now for CapEx is for this year?

Mike Ma

14 billion.

Janet Chen

14 billion, yes.

Randy Abrams

And clarification on the impairment, for the Unimicron, was that a mark to market for the share price, or if you could go through that and if you need to recur or next time you need to evaluate the Unimicron investment?

Janet Chen

Yes, it’s a mark to market value loss. Unimicron is one of the investment still – since the Unimicron’s market price has gone below the whole cost of the company and there seems to have no sign of recovery with short period of time. So we have – according to IAS number 29 the basis for the evaluation show the difference between the market price on December 31 versus the cost. So the cost at the company holding is $38 versus in the end of December it’s $13. So the impairment loss is a gap between the prices.

Randy Abrams

And then can you leave it there like – does it have to mark to market now each quarter, you can wait like say a year or a further time before you need to reconsider that again? Or look, if you need to now every quarter, if the share price goes lower, I guess, you can’t mark up but do you now need to mark to market again if the share price changes or – kind of a one time reset?

Janet Chen

It’s a one time, yes.

Mike Ma

The stock price in the Q4 –

Randy Abrams

And the last question just on a couple of the tool additions, where you went through the capacity for the different process. Do you have any plans for how much like flip chip or wafer level bump capacity, do you have those plans yet for this year, like how much you plan to add?

Janet Chen

So far, no. So far we have no – currently we don’t have the number for the full year. But as I said that the Q1 number remains flat versus Q4.

Operator

[Operator Instructions] And the next one is from the [Holten, BMP].

Unidentified Analyst

Just want to get payout ratio about the 2016 [indiscernible].

Mike Ma

We still maintain 18% to 20% payout ratio.

Unidentified Analyst

So given the fact that last year, EPS was down, so we should expect the cash dividend this year to come back as well.

Janet Chen

Come back to which number –

Unidentified Analyst

No, the EPS for 2015, yes, the EPS was down year over year. So assuming the similar payout ratio, so we should expect the decline in ’16 anticipated to come down?

Janet Chen

On the dollar value come down. Just as Chairman says, the payout ratio should be around like 80% to 90%.

Unidentified Analyst

And second question, when I look at Q4 SG&A number, I think it actually came up on a sequential basis, more like a one off thing or going to be the case like that?

Janet Chen

You mean for the Q4?

Unidentified Analyst

Right, last quarter.

Mike Ma

SG&A in the Q4 is slightly up from the Q3, about 1.3% up, in the percentage. We have a solid year in performance fees increasing about NT$ 0.27 billion and I think the dollar has increased 0.15 billion. New product development is 0.04 billion and depreciation and amortization decreased 0.05 billion and – we increased -- no expense increasing 0.12 billion.

Operator

[Operator Instructions] And the next question is from Ricky Lee, Goldman Sachs.

Ricky Lee

Good evening, Bough and Janet. Regarding your SIP business, I remember on last call you were guiding – US dollars this year and 700 now in revenues for 2017 – if that you maintain this current guidance or do you have any update on it?

Mike Ma

We did not see a – we’ve been taking the 1.1% of the 30-day revenues and trying to end up in 2016 [indiscernible] 22% of the consolidated revenue, mostly in Q4 last year.

Janet Chen

I think the SIP business as we guided in December business tour was the plan for 2016 is still on track.

Ricky Lee

I see and regarding the seasonality and the ramp up timing, how do we flow – ramp up for production this year, it’s going to be like gradually ramping up throughout the quarter or in any specific quarter, we will see a larger contribution?

Mike Ma

Revenue will grow beginning and steady growth every quarter.

Ricky Lee

And given that you are ramping up the more module like SIP product for 2017, for example, the fingerprint safety module, but your CapEx guidance for this year at 14billion is quite a similar and – what we were seeing in last year. So does that mean that what you are trying to ramp up the more EMS like SIP products you are not necessarily increasing too much incremental CapEx or you are trying to find some collaboration with some EMS partners to ramp up the EMS facilities?

Mike Ma

We are mostly focused in the – module SIP –

Ricky Lee

So either for it, the 2017 projects those are most in front of the ISO level package, if that’s a module?

Mike Ma

There is so much trend to penetrate the SIP project.

Ricky Lee

And now – regarding your early comments on the potential share of wallets, assuming a merger with ASE. So I am just wondering the expectation of 30 billion to 40 billion cash overall, do you expect – expectation on a potential alliance with the merger between you and ASE, or that is based on some – around that you are already seeing some customers have – feedback and start to see some share of wallet in near term?

Mike Ma

This is Mike. I think we said in afternoon already that the estimation will be revenue loss after merger is based on – we see the calculation and peak up the 15 over less customers which is – have the same customers, we pick up 15 – customer, 12 of them have the combined share of more than 50% right now, and holding to the international upgrade purchase – also the communication with those customers, they would adjust the share rates down to 30% to 40%, after the merger. So based on that and times the revenue of each customers we come on the number. So it’s based on a reasonable estimation. And I think yes, in the afternoon – the merger after that it did not but you can check the investor pack after the merger that have two consecutive revenue loss. They are down 13% in Q2 and down 14% in Q3.

Operator

And then next one is from Steven Pelayo, HSBC.

Steven Pelayo

Just a few clarification questions. First on the discussion on 12 of 15 overlap customers, combined 50% market shares. That didn’t tell us much about the relative size. So I am curious if those – those 12 customers are 50% of revenue combined, what percentage of total revenue do they represent –

Mike Ma

So we have no comment on that.

Steven Pelayo

Okay, there will be another question, you want to try to understand a bit. It looks like the utilization in your guidance for the first quarter you expect the most significant sell-off in the flip chip bumping area, but you also expect a communications to be slightly up quarter on quarter. So I just am curious, what types of devices that are flip chip and bump that you are seeing the most relative I guess under-performance for the first quarter?

Mike Ma

Mainly on the flip chip, this is a slowdown by PC slowdown.

Steven Pelayo

And then just two more quick question. I was curious with Europe going from kind of 11% to 13%, is there some market share gain there or just is there anything to come out of that, was that broader base, one customer that a bit of surprise, you got strength out of Europe, any more insights there?

Janet Chen

Which segment you mentioned?

Steven Pelayo

Europe, it’s talking about the region, I think from 11% to 13% in the fourth quarter, so pretty good sequential growth.

Mike Ma

We have a Europe customers – the growth in the power management, IT segment.

Steven Pelayo

One China question from me. Teradyne, the largest tester company out there, I guess, non-memory I should say. What would you show booking, I think got more than 60% quarter on quarter. It sounds like ASCs still are little bit more – testing utilization rates in the mid 60s for a year, what do you think is going on there if you are seeing strong order activity, is there something pointing in the second quarter, third quarter, where people – capacity or is there some technology requirements, or is there something out there that you think is driving the strengths – Teradyne advance a second chip and the strength of bookings in the fourth quarter?

Bough Lin

I think it depends on the – different customers. And some of our customers is Apple related, some of our customers is China related, and in the Q4 last year in the first two months I think Apple shipment very strong and after that Apple shipment slowed down and the China shipments is up. So – China New Year. So if they want to be the customer, not this year in these two segments. So that’s why some of our customers is up, some of our customer is down, and --

Operator

[Operator Instructions] If there are no further questions at this point, I will hand over to Jeff Wong, IR manager of SPIL Company.

Unidentified Company Representative

Thank you all for your participation in our fourth quarter of 2015 earnings conference call. And as a reminder, you may find our conference materials at our corporate website for more information and detail. You may also have access to the audio reporting of this conference call online at our corporate website as well. Once again we sincerely thank you for your presence and wish you a wonderful evening and a lovely morning. Thank you very much.

Operator

Thank you. Ladies and gentlemen we thank you for your participation in Siliconware Precision Industries Company conference call. You may now disconnect. Good bye.

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