Discover the Hidden Gem in Chip Manufacturing Stocks

Key Points

• Taiwan-based ASE Technology is the world's largest semiconductor packaging company, with over 91,000 employees.
• ASE Technology counts Apple, NVIDIA, Broadcom, and QUALCOMM as some of its largest clients.
• ASE Technology confirms that companies are working through the computer chip inventory glut due to the pandemic.

ASE Technology Holding Co. Ltd. NYSE: ASX is a Taiwan-based semiconductor manufacturing company you’ve probably never heard of. However, this industry giant has 91,000 employees and operates as the world's largest chip assembler. Its A-list customers in the computer and technology sector include Apple Inc. NASDAQ: AAPL, NVIDIA Co. NASDAQ: NVDA, Broadcom NASDAQ: AVGO, QUALCOMM Inc. NASDAQ: QCOM and Huawei. The artificial intelligence (AI) boom hasn’t produced a large surge in its business yet. However, it’s important to remember that the semiconductor industry has normalized as companies work through the inventory glut that built up after the pandemic.   

A Semiconductor Jack-of-All-Trades

ASE Technology was originally named Advanced Semiconductor Engineering Inc. The company acquired Siliconware Precision Industries, the #4 chip packaging and testing firm in the world, for $5.8 billion. ASE Technology grew into a dominant semiconductor packaging, testing, and electronics manufacturing giant. It’s the leading provider of semiconductor assembly and testing services (ATM) and electronic manufacturing services (EMS).

ASX Stock Breaks Down from its Ascending Channel

The daily candlestick chart for ASX illustrates a breakdown through its ascending price channel. Higher highs and higher lows formed parallel ascending upper and lower trendlines that peaked at $12.86 on July 11, 2024. However, the breakdown occurred when ASX fell through the $11.67 lower trendline. The daily relative strength index (RSI) fell to the 41-band in correlation with the sell-off in chip stocks. Pullback support levels are at $10.90, $10.36, $9.45, and $8.84.

ASE Technology Release Q1 2024 Earnings

ASE Technology reported Q1 2024 EPS of 4 cents, matching consensus estimates. Revenues fell 9.5% YoY to $4.28 billion, beating $4.25 billion consensus estimates. Gross margin was 51.5%, and net income was $178 million. Operating margin fell to 5.1% compared to 7.4% in Q4 2023. Net interest expense was $111 million. The company ended the quarter with 91,568 employees.

Q1 Results for ASE's ATM and EMS Segments

For the ATM segment, revenues rose 0.8% YoY to $7.39 billion but down 9.9% sequentially. Raw material costs represented 27% of total net revenues at $2.01 billion. Labor costs were 17% of total net revenue of $1.22 billion. Gross margin decreased by 2.4% to 21%. Its four largest customers accounted for nearly 46% of total ATM revenues. Two customers accounted for over 10% of total net revenues. The top 10 customers contributed 61% of total net revenues, up from 58% in Q4 2023.

The EMS segment was robust, with revenues rising 2.8% YoY to $5.94 billion. However, they fell 25% sequentially. Raw material costs represented 79% of total net revenues at $4.66 billion. Labor costs were just 5% of total revenues at $301 million in the quarter. Gross margin increased by 0.9% to 9.3%. Operating margin was 2.8%, down from 3.5% in Q4 2023. ASE Technologies' largest customers accounted for 67% of total net revenues. One customer accounted for over 10% of total net revenues. Its top 10 customers contributed 75% of total net revenues, down from 79% in the previous quarter.

ASE Technology Issued Downside Q2 2024 Guidance and Affirms Full Year 2024

ASE issued downside revenue guidance for Q2 2024 of $7.44 billion to $8.11 billion versus $8.41 billion consensus estimates. Gross margins are expected to be between 50% and 51%. The company reaffirmed full-year 2024 revenue guidance of $30 billion versus $29.97 billion consensus estimates.  

ASE Technology Q1 2024 Conference Call Highlights 

ASE Technology's head of investor relations, Ken Hsiang, commandeered the conference call along with CFO Joseph Tung. Demand for its EMS business was slightly ahead of initial expectations, which resulted from improving customer inventory levels. Gross profits for ATM were $3.7 billion to $15.6 billion sequentially and up $0.8 billion YoY. The gross margin for the ATM business fell 2.4% to 21%, mostly due to lower revenues due to typical seasonality.

Hsiang stated, “Going forward, we believe many products may take a fresh AI angle and may create a shorter-than-normal refresh cycle and thus kick-start overall demand. As such, although the market recovery appears to be playing out a bit slower than previous customer forecasts, we are not looking to adjust our full-year outlook. For the upcoming quarter, we still see a slightly improved demand environment for our services.”

ASE Technology analyst ratings and price targets are at MarketBeat. There are two Wall Street analyst ratings comprised of one Buy and one Hold rating.