1999 Annual Report ASE Test Limited CONTENTS Group Structure 2 Letter to Shareholders 4 Financial Highlights 6 Company Introduction 10 Operation Overview 16 Financial Statements 30 1 ASE TEST 2 Group Structure Advanced Semiconductor Engineering, Inc. 57.3% ASE TEST LIMITED 70% 30% ASE (Chung-Li) Inc. 70% ISE Labs, Inc. 100% ASE Electronics (M) Sdh, Bhd. 37.7% 99.98%ASE Test, Inc. 10% ASE Material Inc. 30% ASE (Korea) Inc. 70% 3 Letter to 4 Shareholders 1999 was a breakthrough year for all of us at ASE Test. Through strategic acquisitions, we became an international company with operations spanning across several continents from the US to Asia, whilst strengthening both our Taiwan and Malaysia operations. Our revenue for 1999 grew to $276 million, a 50% increase over 1998. The IC testing business, in particular, registered strong growth, doubling in size to $179 million. This positioned ASE Test firmly as the leading independent IC testing company in the world. About half of the IC testing growth can be attributed to ISE Labs, Inc., 70%owned by ASE Test as of May of 1999. ISE is headquartered in Silicon Valley and dominates the independent IC testing market share in that market segment. ISE's unique market position allows us to build a closer working relationship with the Jason C.S. Chang engineering groups of many semiconductor companies. Not only does this help us commence marketing Chairman our services further upstream when products are still in the development stage, but it also adds to our ability to anticipate future technical requirements. ISE also has operations located in Singapore and Hong Kong, both of which are close to many of our customers' warehouse and drop ship centers. With ISE Labs as part of the ASE Test family, we have become a truly full service testing company servicing the needs of the semiconductor industry from the front to the backend market segments. Jointly with ASE Inc., ASE Test also acquired interests in the Motorola Test and Assembly plants in Korea and Taiwan in July 1999. ASE Test owns 30% of each while ASE Inc. owns the other 70%. The percentages represent the split of test and assembly business. These two operations will continue to service Motorola's testing requirements based on a service contract between ASE Test and Motorola, while we will gradually add other customers to take advantage of their specialized expertise in several areas of communication and automotive ICs. We do not consolidate the revenue from these operations in our financial reports, but we effectively own a larger share of the outsourced IC Testing market. Richard H.P. Chang The application segments of the ICs that we serviced also went through a significant change in 1999. Over Vice-Chairman 60% of our revenue was derived from ICs used in PCs in l998. This segment has grown by over 30% in 1999. However, ICs for computers only account for 40% of the products that we serviced in 1999 because of the faster growth in communication and consumer ICs. We are now servicing each major semiconductor segment with fairly even distribution. This diversification should make our business expansion more steady in the future. Our Kaohsiung operation has filled up its 6 story, 330,000 square feet building that we moved into in 1997. A new 10 story building is under construction nearby and is expected to be operational in 2001. We have also constructed a building of 300,000 square feet next to our current operation in Penang, Malaysia that will be ready for factory use in the summer of 2000. Expansion plans are being worked on in California and Singapore. We will have the space to take on the demand of growth from the IC industry expansion and the acceleration of IC testing outsource for the next few years. 1999 was a good year for ASE Test. We grew nicely and have positioned ourselves for even bigger and better things. While we are committed to carry this momentum over into the new millenium, we would like to express our deep appreciation to our shareholders, employees, and customers. 5 Financial 6 Highlights CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Shares, Per Share Data, Operating Data and Percentages) Year Ended and as of December 31 1995 1996 1997 1998 1999 ROC GAAP: Net revenues $101,808 $112,791 $176,541 $184,663 276,333 Cost of revenues 75,402 81,043 112,824 117,743 179,725 Gross profit 26,406 31,748 63,717 66,920 96,608 Operating expenses Selling, general and administrative 7,517 7,930 13,837 13,165 24,686 Research and development 1,338 1,729 3,084 2,384 4,114 Goodwill amortization - - - - 4,674 Operating income 17,551 22,089 46,796 51,371 63,134 Net income $18,948 $24,632 $48,834 $53,851 $62,160 Earnings per share: Fully diluted $0.28 $0.34 $0.57 $0.62 $0.70 U.S. GAAP: Major adjustments: Compensation expense -2,497 -1,919 -2,875 -4,279 -6,682 Net income $15,086 $22,696 $45,948 $49,590 $55,356 Earnings per share: Diluted $0.22 $0.31 $0.54 $0.57 $0.63 Net Revenues 1999 1998 1997 1996 1995 0 50,000 100,000 150,000 200,000 250,000 300,000 In Thousands US Dollars Gross Profit 1999 1998 1997 1996 1995 0 20,000 40,000 60,000 80,000 100,000 In Thousands US Dollars Operating Income 1999 1998 1997 1996 1995 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 In Thousands US Dollars Net Income 1999 1998 1997 1996 1995 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 In Thousands US Dollars Earnings Per Share (U.S. GAAP) Diluted 1999 1998 1997 1996 1995 0 0.2 0.4 0.6 0.8 1.0 In US Dollars 7 CONSOLIDATED BALANCE SHEET DATA (In Thousands, Except Shares, Per Share Data, Operating Data and Percentages) Year Ended and as of December 31 1995 1996 1997 1998 1999 ROC GAAP: Current assets $40,800 $66,930 $67,291 $60,439 $137,768 Long-term investments - - 6,596 24,303 70,708 Fixed assets 120,134 136,265 188,094 231,673 373,270 Total assets 164,782 211,523 271,009 332,286 657,258 Current liabilities 37,399 35,830 67,730 47,904 85,060 Long-term debts 38,792 27,644 45,401 73,499 264,872 Total liabilities 76,191 63,535 113,247 121,647 350,304 Shareholders’ equity 88,591 147,871 157,742 210,614 295,380 U.S. GAAP Shareholders’ equity $87,492 $147,051 $155,546 $208,054 $292,294 SEGMENT DATA (In Thousands, Except Shares, Per Share Data, Operating Data and Percentages) Year Ended and as of December 31 1995 1996 1997 1998 1999 Net revenues: Testing $41,889 $56,266 $82,931 $98,210 $178,667 Packaging 59,919 56,525 93,610 86,453 97,666 Testing 41.1% 49.9% 47.0% 53.2% 64.7% Packaging 58.9% 50.1% 53.0% 46.8% 35.3% OPERATING DATA (In Thousands, Except Shares, Per Share Data, Operating Data and Percentages) Year Ended and as of December 31 1995 1996 1997 1998 1999 Testing gross margin 44.1% 43.2% 48.1% 45.1% 41.8% Packaging gross margin 13.2% 13.2% 25.5% 26.1% 22.4% Overall gross margin 25.9% 28.1% 36.1% 36.2% 35.0% Operating margin 17.2% 19.6% 26.5% 27.8% 22.9% 8 TESTING OPERATION (Percentage of Net Testing Revenues) Year Ended and as of December 31 1997 1998 1999 Logic/mixed-signal testing 84.8% 88.2% 94.7% Memory testing 15.2 11.8 5.3 Total net testing revenues 100.0% 100.0% 100.0% PACKAGING PRODUCTS (Percentage of Net Packaging Revenues) Year Ended and as of December 31 1997 1998 1999 BGA - 0.4% 6.0% QFP/TQFP 41.6 54.6 50.2 PLCC 28.7 22.9 22.4 SOJ/SOP/TSOP 13.9 11.1 7.6 PDIP 14.1 10.2 8.5 Other 1.7 0.8 5.3 Total net packaging revenues 100.0% 100.0% 100.0% END USE APPLICATIONS (Percentage of Net Revenues) Year Ended and as of December 31 1997 1998 1999 Communications/consumer 42.7% 45.9% 52.1% Personal computers 38.5 36.9 31.8 Industrial/others 18.8 17.2 16.1 Total net revenues 100.0% 100.0% 100.0% GEOGRAPHIC AREAS (Percentage of Net Revenues) Year Ended and as of December 31 1997 1998 1999 North America 84.3% 83.1% 77.4% Asia 12.2 12.2 18.3 Europe 3.5 4.7 4.3 Total net revenues 100.0% 100.0% 100.0% 9 Company 10 Introduction A very fruitful 1999 January 1999 ASE Test Taiwan obtains QS9000 certification. March 1999 200 million Taiwan Depository Receipts (TDRs) were listed on the Taiwan Stock Exchange, representing 2.5 million ASE Test Limited shares. This was in addition to the 240 million TDRs that were previously listed in January 1998 representing 3 million ASE Test Limited shares. The TDRs were sold by ASE Inc., our parent company. April 1999 ASE Test Limited shares undergo a two-for-one stock split. April 1999 Purchased 70% of the outstanding shares of ISE Labs, the leading independent semiconductor testing company in Silicon Valley. June 1999 Appointment of Mr.
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