ChipMOS TECHNOLOGIES INC.
Q1 2021 Earnings Call Transcript

Published: 12 May 2021

[Operator:]

Greetings, And welcome to the ChipMOS First Quarter 2021 Results Conference Call. I would now like to turn the conference over to Dr. G.S. Shen of ChipMOS Technologies Strategy and Investor Relations team to introduce the management team of the company in conference. Dr. Shen, you may begin.

[G.S. Shen:]

Thank you, operator. Welcome, everyone, to ChipMOS First Quarter 2021 results conference call. Joining us today from the company are Mr. S.J. Cheng, Chairman and President; and Ms. Silvia Su, Vice President of Finance and Accounting Management Center. We are also joined on the call today by Mr. Jesse Huang, Spokesperson and Senior Vice President of Strategy and Investor Relations. S.J. will chair the meeting and review business highlights and provide color on the operating environment.

[S.J. Cheng:]

Yes. Thank you, G.S. We appreciate everyone joining our call today. We achieved record quarterly revenue in Q1 2021. Our performance in Q1 was even more impressive given this is normally a seasonal low period. We are very pleased with our record Q1 revenue and with our team’s continued execution. Let me give you some highlights from the quarter. First, revenue for the Q1 2021 increased 15.7% year-over-year to a new record high and grew 2.5% from the prior to Q4 2020. Gross margin declined 20 basis points for Q1 2021 to 24.2% compared to Q4 2020 as we grew despite headwinds from higher materials and supply chain costs in Q1. Operating expenses declined to 6.6% of revenue in Q1 from 7.1% in the year ago period as we continue to focus on supply chain costs and driving operating efficiencies. EPS for the first quarter of 2021 was TWD 1.32, which increased 40.4% from the prior Q4 2020 and increased 34.7% compared to Q1 2020. Given our business strength, demand strength and balance sheet strength, our Board of Directors has already approved the 2020 dividend of TWD 2.2 per common share. This is pending shareholder approval at our AGM. We expect our 2021 dividend will be higher than 2020 based on our positive business trends and cautiously optimistic 2021 outlook. I am also pleased to report we improved overall utilization to 86% from 79% in Q1 2020 and 85% in Q4 2020. Q1 assembly utilization level increased to 95%, up from 81% in Q1 2020 with tightness continuing from Q4. Testing also significantly increased to 81% compared to Q4 2020. Our high-end DDIC test platforms, including new capacity we added in Q1 were also fully utilized in support of strong customers demand. Both bumping and LCD driver were improved in first quarter. Regarding our manufacturing business, assembly was up and represented about 28.8% of Q1 revenue. Testing represented around 21% and wafer bumping represented more than 21% of Q1 revenue.

[Silvia Su:]

Thank you, S.J. All dollar amounts cited in our presentation are in NT dollars. The following numbers are based on the exchange rates of TWD 28.48 against $1 as of March 31, 2021. All the figures were prepared in accordance with Taiwan International Financial Reporting Standards. Referencing presentation Page 12, consolidated operating results summary. For the first quarter of 2021, total revenue was TWD 6,465 million.

[S.J. Cheng:]

Thank you, Silvia. Q2 2021 is starting out strong for us. We expect to benefit from several important trends in Q2. 5G build-outs are continuing worldwide and market consumption continues to recover and the major digital transformation in industrial and automotive continues. Tightness remains in the semiconductor supply chain with capacity shortages and longer lead times for raw materials. Based on public comments, we expect this situation to remain in 2Q 2021. On the other hand, we are very positive in the outlook for ChipMOS. We expect the positive trends from Q1 will continue in our all product segments with momentum continuing with strong demand and tight OSAT capacity. Profit is also expected to improve as the OSAT ASP increasing. In memory, we are increasing the assembly capacity to meet the strong capacity demand from customers, particularly wire bonder capacity. We are benefiting from momentum in DRAM with customers restocking. We expect flash businesses, including NOR and NAND, will continue to grow as we move through Q2 2021. In DDIC, we are closely monitoring the continuing tightness of wafer fab capacity and supply. We expect to continue to gain more allocation share in key customer cooperation projects with COF utilization level for TV and notebook on track for further improvement. We also expect the utilization level will remain on high as we benefit from continued strong demand levels in smart phone.

[Operator:]

Thank you. Our first question comes from Jerry Su from Credit Suisse. You may begin.

[Jerry Su:]

Chairman, Silvia and everybody, considering the positive guidance for both of memory and DDIC segments, could you please give us the more color for Q2 and April revenue?

[S.J. Cheng:]

Jerry, to answer your question, there is one workday less in April compared to March and non-linear wafer incoming of DDIC. Those were the main impacts. We expect to continue to benefit from strong demand in May and June. Therefore, we could expect better Q2 revenue at least by high single-digit growth.

[Jerry Su:]

One more question about mixed-signal segment. You mentioned it grew around 30% in Q1 compared to Q4 2020. Could you give us more color about the products and how the momentum could be sustained?

[S.J. Cheng:]

There are two major product groups. First is for our Japanese customer. To meet the strong demand, ChipMOS built a captive line to serve the customer. Second is from two of our domestic customers for TV SoC chip, including T-Con. The demand will likely be very strong, and we could continue to grow depending on the customers’ assembly subcon’s capacity support, which is not managed by ChipMOS. New testing capacity would be installed accordingly. That is why we are optimistic about mixed-signal segment growth this year.

[Jerry Su:]

Could you commend the assembly price hike in coming quarters?

[S.J. Cheng:]

As we mentioned before, to reflect the raw material cost increasing and the tightened capacity in assembly, we increased assembly price around 5% to 8% from Q4 ‘20 to Q1 2021. Additionally, since the raw material supply is still very tight, we will try to reflect the material cost to our customers in proper time again.

[Operator:]

Next question comes from Stanley Wang from SinoPac Securities. You may begin.

[Stanley Wang:]

There are two questions. First is the pricing strategy to customers and second is safety stock preparation guidelines under current tight demand and supply.

[S.J. Cheng:]

Under the condition of longer raw material and equipment lead times and also tight wafer supply, our customers could absorb the cost pressure so that we could have favorable pricing. As for the inventory question, considering the longer lead time, we have increased the inventory preparation level to roughly three months.

[Stanley Wang:]

Is there any potential price increase in second half of this year?

[S.J. Cheng:]

Yes, we are monitoring closely.

[Stanley Wang:]

[S.J. Cheng:]

Based on the new capacity installation schedule and strong customers’ demand, we could expect further consecutive quarter-on-quarter growth.

[Operator:]

Next question comes from Jerry Su from Credit Suisse. You may begin.

[Jerry Su:]

I have a follow-up question. If we could see consecutive quarter-on-quarter growth this year, plus on the previous earnings call, giving double-digit YoY growth, could you guide more specifically for the double digits growth, potential chance toward 20%?

[S.J. Cheng:]

With the first quarter result and current business visibility, we could potentially see 15% to 20% YoY growth.

[Jerry Su:]

The market is concerned about China’s smart phone demand correction and India’s worsening COVID-19 pandemic. While your company is preparing more capacity at this moment, do you worry about the weaker smart phone demand in second half causing idle capacity due to customer forecast declines?

[S.J. Cheng:]

Under the tight wafer supply condition, our customers are optimizing their product mix in order to maintain the better revenue and margin. We are doing the same for higher value-added product and cooperating closely with strategic customers to leverage the capacity.

[Operator:]

Thank you. And I am not showing any further questions in the queue. I would like to turn the call back over to G.S.

[G.S. Shen:]

Thank you. I will orally read some questions from foreign institutional investors. The question is asking about Unimos. Could the company give an update on the recent performance of Unimos? Is Unimos now profitable on an ongoing basis?

[Jesse Huang:]

Unimos was profitable this quarter led…

[G.S. Shen:]

That concludes our question-and-answer session. Thank you for participating. I’ll turn the floor back to Mr. S.J. Cheng for any closing comments.

[S.J. Cheng:]

Thank you, everyone, for joining our conference call. Please email our IR team if you have any more questions. We appreciate your support. Goodbye.

[Operator:]

Ladies and gentlemen. This concludes today’s conference call. Thank you for participating. You may now disconnect.