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A Loss-Making Year for STATS ChipPAC Ltd.

STATS ChipPac Ltd. (SGX: S24) is a leading service provider of semiconductor packaging design, bump, probe, assembly, test and distribution solutions.

It is one of the largest players in the semiconductor industry and it currently operates manufacturing facilities in South Korea, Singapore, China and Taiwan. The company also has a 52% owned subsidiary, STATS ChipPac Taiwan Semiconductor Corporation, which is listed on the Taiwan Stock Exchange.

STATS ChipPAC Ltd is 84% owned by Temasek Holdings (an investment arm of Singapore’s government) through the latter’s full ownership of Singapore Technologies Semiconductors Pte Ltd.

Performance

STATS ChipPAC released its full year results last Wednesday. The company had a tough year in 2013, with its annual revenue dropping 6.1% from US$ 1.7 billion to US$ 1.6 billion.

The weakness continues to come from the computing and consumer markets which overshadowed stronger demand the company’s seeing from its wireless communication customers; the proportion of revenue that comes from STATS ChipPAC’s communication customers increased from 68.3% in the previous year to 69% in 2013.

The company’s gross margin for 2013 also decreased to 14% from 16.8% a year ago due to weaker pricing.

STATS ChipPAC’s business is segmented into three categories: advanced packaging; wirebond packaging; and testing. Revenue from the advanced packaging category decreased by 1.5% for the year, mainly due to lower demand from the wireless communications market and wafer level packaging.

Meanwhile, the wirebond packaging category’s revenue dropped 17.7%, largely because of weakness in the the personal computers, consumers, and multi-applications markets. Lastly, the company’s test services segment was able increase revenue by 4.2% for the year.

STATS ChipPAC ended 2013 with a US$ 41.5 million loss, compared with a net profit of US$ 16.6 million in 2012.

Plant Closure

Following the company’s decision to close down its Malaysia plant to consolidate operations with its Qingpu, China facilities, STATS ChipPAC incurred a closure cost of US$ 36.9m stemming from employee severance expenses and other asset impairment costs. That was one of the main causes for the decline in the company’s profitability.

Outlook

The company has increased its debt level from US$ 843 million to US$ 912 million and its leverage ratio (total assets over total equity) had also gone up from 2.2 to 2.4.

STATS ChipPAC’s capital expenditure plans for the first quarter of 2014 is around the region of US$ 105 to US$ 125 million. Based on the company’s resources as recorded on its balance sheet, it seems likely that it might need to take on more debt to fulfill its capital expenditure programme.

From the company’s outlook statement, it seems that STATS ChipPAC will be facing more headwinds in the near future, with management “expect[ing] first quarter 2014 revenues to be impacted by seasonality and decrease 8% to 14% compared to the prior quarter.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.