How Long Will Stock Market Ignore The Unfolding Profit Outburst At ASE Technology (ASX)
Seeking Alpha Analyst Since 2019
Summary
- Very strong Q4 for ASX: Oct & Nov revenues up 20% q-o-q.
- Reasons why stock market has ignored it so far.
- Outlook for '21 extremely favorable.
What to expect from ASX’s Q4 figures
- ASX’s revenues in Q4 are growing rapidly: Oct & Nov sales are up 20% vs. Q3 (Taiwanese companies report monthly revenue figures)
- In addition, profit in Q4 vs. Q3 will jump much stronger than revenues as Q4 will no longer include any Huawei-related effects (Taiwanese companies do not provide non-GAAP figures).
Why ASX’s stock has not reacted to the extremely positive trends:
- Profit for Q3 was ok, but far from compelling; burdened by not fully utilized capacities because of Huawei sanctions and Huawei-related write-offs burdened profit.
- Management’s guidance for Q4 was heavily downplaying the unfolding profit outburst (they however confirmed, that revenue in Q4 will no longer be negatively affected by unutilized capacities, while Q1-Q3 had been).
Which are the recent industry trends:
- Due to US-China tensions, many fabless chip companies from US & EU have shifted their orders out of China and into Taiwan; order books for Taiwanese back-end companies like ASX are fully booked until Q2/21, capacities are currently extremely tight.
- Global demand for high end chips like 5G, gaming, memory, server chips and auto chips is strongly rebounding currently as 5G is unfolding and Covid-related distortions are disappearing.
What to expect from ASX in ‘21
- ASX is by far the largest back-end house in Taiwan; with a. the merger in ’18, b. the large investments into latest bonding and testing technology since and c. the hiring of 3.000 more production people since Summer, ASX’s master plan is unfolding and they are starting to harvest from all investments since ‘18
2. Industry trends like 5G, autonomous driving and gaming are not short term; if anything, '21 might just be the start of another IC mega run
Analyst's Disclosure: I am/we are long ASX.
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