Advanced Semiconductor Engineering Inc. ADRASX

Morningstar Rating

Stock Research and Analysis

by John Ayling

Advanced Semiconductor Engineering is the largest subcontractor of outsourced assembly and testing (OSAT) services for the chip industry. Although ASE is well positioned relative to major rivals, we think its long-term profitability will be limited by the commoditylike nature of the OSAT industry. Read more

Bulls Say

As more and more semiconductor firms outsource assembly and testing functions, OSAT firms such as ASE can benefit, as an increasing number of firms become reliant on its facilities.

Chip designers will often outsource the semiconductor wafer fabrication portion of the manufacturing process to third-party foundries. ASE has a strong relationship with the premier foundry, TSMC.

As the largest OSAT provider, ASE has scale advantages over new entrants and smaller rivals. Read more

Bears Say

The OSAT industry has experienced downward long-term pricing pressure, as the industry is competitive and chip customers look to reduce assembly and testing costs.

The OSAT industry is commoditylike in nature, and we believe it will be difficult for ASE to differentiate itself from other firms and develop an economic moat.

Rumors have swirled that TSMC could bring OSAT testing facilities in-house, which would probably end ASE's alliance with the foundry and could deal a big blow to the company's revenue.

ASE has funded its facilities through the issuance of debt and is responsible for significant interest and principal payments regardless of the overall health of the economy and chip industry. Read more

Strategy

ASE's strategy is to use its scale advantages to expand upon its portfolio of packaging and testing products, in order to attract a wider array of chip customers. At the same time, the company aims to focus on cost control and ensure that its facilities are fully utilized, in order to better cover its high fixed overhead. Read more

Management

ASE is essentially a family-run company. Jason C.S. Chang has served as chairman since the firm's founding in 1984 and has been CEO since 2003. His brother, Richard Chang, was the previous CEO and still retains the titles of president and vice chairman. Read more

Profile

Advanced Semiconductor Engineering is the largest outsourced assembly and testing firm as measured by revenue. The company has a long-standing relationship with the largest chip foundry in the world, Taiwan Semiconductor. Read more

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