SEC Info - Asat Holdings Ltd - 6-K

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): .

The Company is attaching to this report as Exhibit 99.1 the following updated disclosure of ASAT Holdings Limited and its consolidated subsidiaries: risk factors, business, additional financial disclosure, directors and senior management and major shareholders and related party transactions, dated January 5, 2004.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ASAT HOLDINGS LIMITED

By:		/s/ ROBERT J. GANGE

		Robert J. Gange Chief Financial Officer

The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations. We cannot assure you that any of the events discussed in the risk factors below will not occur. If they do, our business, financial condition or results of operations could be materially adversely affected.

This disclosure contains forward-looking statements made as of the date hereof regarding our expected performance that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and those filed in our SEC reports.

Our business is and will continue to be substantially affected by the highly cyclical nature of the semiconductor industry, which cyclicality is beyond our control.

Our business is substantially affected by market conditions in the semiconductor industry, which is highly cyclical. The industry has been subject to significant downturns characterized by reduced product demand, increased competition and declines in average selling prices and margins. Semiconductor industry conditions are often affected by manufacturing over-capacity and declining demand and reduced pricing in end-user markets.

Beginning in the fourth quarter of calendar year 2000, the semiconductor industry experienced a severe downturn. Accordingly, our customers cut back production orders, reflecting inventory corrections and lower demand experienced in their end-user markets. This downturn has had a very pronounced and adverse effect on our sales and financial performance. In particular, we suffered the adverse implications of declining average selling prices (or “ASPs”) for assembled units. In part, this decline in ASPs reflected a shift in product mix to lower cost devices. However, a significant part of this decline in ASPs resulted from external pricing pressures throughout the downturn. In the face of declining ASPs, we must continue to expand our production capacity and through-put if we are to maintain or increase our revenues.

While we believe the semiconductor industry began a modest recovery in the second quarter of calendar year 2002 and the overall demand for semiconductors picked up significantly in the second quarter of calendar year 2003, a resumption of the downturn would adversely affect our business, financial condition and results of operations and further erode our cash position. In that regard, if the downturn were to resume, we may be required to seek new financing and, if so, there could be no assurance that such financing would be available to us on acceptable terms or at all. We may also be required to reduce our capital expenditures, which in turn could hinder our ability to implement our business plan, including the move of a substantial portion of our manufacturing facilities to Dongguan, China, and to maintain our competitiveness. Because of the downturn in the industry and the uncertainty of the recent gradual recovery, we continue to re-evaluate our product mix and the direction of our business. Such re-evaluation led to significant write-down of property, plant and equipment in the amount of $81.8 million in the fiscal year ended April 30, 2003 and may necessitate additional write-downs in the future.

Our ability to rapidly develop and successfully bring to market advanced technologies and services is important to maintaining our competitive position and profitability.

The semiconductor industry is characterized by rapid technological developments and our research and development efforts may not yield commercially viable packages or test services to keep up with these technological changes. Any inability to meet our customers’ schedules for new product introductions could affect

our revenue, growth and future customer relationships. Our customers seek advanced and quick time-to-market assembly and test capabilities for their increasingly complex end-user applications. Failure to advance our designs and process technologies successfully and in a timely manner could have a material adverse effect on our competitiveness and our profitability. Technological advances typically lead to rapid and significant decreases in prices for older products. Extended reliance on older products would reduce our gross margins and profitability, as prices decline in the face of newer, higher performance products.

We could be required to incur significant capital expenditures for manufacturing technology and equipment to remain competitive.

Semiconductor manufacturing has historically required, and in the future is likely to continue to require, a constant upgrading of process technology to remain competitive, as new and enhanced semiconductor processes are developed which permit the manufacture of smaller, more efficient and more powerful semiconductor devices. Our manufacturing, assembly and test facilities have required and will continue to require significant investments in manufacturing technology and equipment in the future. We have made substantial capital expenditures and installed significant production capacity to support new technologies and increase production volume. In addition, in connection with Phase II of our move to Dongguan, China, we expect to increase our capital expenditures in order to implement this move. Even though we cannot presently estimate the amount of this increase beyond 2004, it could be significant. We cannot assure you that we will have sufficient capital resources to make further necessary investments in manufacturing technology and equipment. In addition, due to the long lead-times involved in the pre-deployment development and product qualification activities that must precede a new product release, we may be called upon to make substantial investments in both package design efforts and in new manufacturing equipment well in advance of our being able to record appreciable revenues derived from those new products. Further, during each stage of the long qualification process required by customers for our products, which could take up to six months to complete, there is a substantial risk that we will have to abandon a potential assembly or test service which is no longer marketable and in which we have invested significant resources. Even if we are able to qualify new packages, a significant amount of time will have elapsed between our investment in new packages and the receipt of any related revenues.

Because our industry is highly competitive and many of our competitors have greater operating and financial resources, we may not be able to secure new customers or maintain our customer base.

The semiconductor packaging and test industry is highly competitive, with more than 40 independent providers of semiconductor assembly services worldwide. We believe our principal competitors include Advanced Semiconductor Engineering, Inc., Amkor Technology, Inc., ChipPAC, Inc., Carsem Semiconductor Sdn. Bhd. (a division of the Hong Leong Group), Siliconware Precision Industries Co., Ltd. and ST Assembly Test Services Ltd. Many of our competitors have greater operating capacity, financial resources than we do and have proven research and development and marketing capabilities. If demand for semiconductor assembly and test services were to continue to increase, our competitors would be at an advantage to us to capture this increased demand by utilizing their greater financial resources to more rapidly increase capacity. Many of our competitors also have established relationships with many large semiconductor companies that are current or potential customers of our company. Further, lengthy qualification periods and a familiarity between potential customers and their current assembly service providers may limit our ability to secure new customers.

We also compete indirectly with the in-house assembly and test service resources of many of our largest customers, the integrated device manufacturers or “IDMs.” These IDM customers may decide to shift some or all of the assembly and test services to internally sourced capacity.

Due to this highly competitive environment, we may experience difficulties in securing business from new customers, additional business from our existing customers or even maintaining our current level of business with our existing customers. In addition, if the trend for semiconductor companies to outsource their packaging needs does not continue, we may not be able to increase our customer base.

If any of our competitors grow through acquisitions and we are unable to similarly grow, we may have difficulties competing against those competitors in terms of volume production, price competitiveness and array of services.

Some of our competitors with greater financial resources have been able to grow through acquisitions. There have been instances where one of our competitors has acquired the entire back end assembly operations of an IDM. As a result of such growth, these competitors may have increased capacity and may be better positioned to increase their market share by decreasing prices. Additionally, as a result of such acquisitions, these competitors may be able to provide a broader array of services. If we are unable to grow our business through acquisitions, we may have difficulties competing successfully against these competitors.

Our assembly and test processes are complex and prone to error, which may create defects and adversely affect production yields.

Both assembly and test services are prone to human error and equipment malfunction. Defective packages may also result from:

These factors have periodically contributed to lower production yields and may continue to do so, particularly in connection with any expansion of capacity or change in processing steps. In addition, our production yields on new packaging technologies could be lower during the period necessary for us to develop the requisite expertise and experience with these processes. Any failure by us to maintain high quality standards, acceptable production yields or full “turn key” solutions (i.e., one-stop design, assembly and test services), if significant and sustained, could result in the loss of customers, delays in shipments, increased costs and cancellation of orders, which could have a material adverse effect on our business, financial condition and results of operations.

Adding new test equipment to improve production yields, meet customer demands and to provide new capacity can be very capital intensive and may not result in expected revenues and/or margins.

Semiconductor test, particularly testing of mixed-signal semiconductors which perform both analog and digital functions, are complex processes involving sophisticated equipment and a skilled workforce and requiring high levels of precision. Many customers seek to do business with independent assemblers who can provide full “turn key” assembly and test services. In order to satisfy such customer demands, we may be called upon to acquire additional test equipment capacity. However, it is typical for customers requesting “turn key” test services to be unwilling to commit to the utilization of such additional capacity beyond their short-term forecasts. Accordingly, if such customers do not ultimately produce expected orders, we could have excess capacity, which could have a material adverse effect on our business, financial condition and results of operations.

We have been operating at a net loss for each year since the fiscal year ended April 30, 2002.

We have been operating at a net loss for each year since the fiscal year ended April 30, 2002. Our net losses for the fiscal years ended April 30, 2002 and 2003 and for the October 2003 quarter were $102.8 million, $99.1 million and $2.9 million, respectively. We cannot assure you that we will return to profitability.

The decrease in demand for assembly services in our principal market in the communications sector has placed downward pressure on selling prices.

A significant percentage of our net sales is derived from customers who use our assembly or test services for semiconductor devices used in the communications sector. We are currently experiencing a prolonged industry-wide slowdown in demand in the communications sector, even though this sector seems to have stabilized in calendar year 2003. In the fiscal year ended April 30, 2003, our sales were adversely affected as a result of the continuing low level of production orders received from our customers in this sector, reflecting inventory corrections and lower demand from their end-user markets. In addition, a decline in the average selling price of communications products caused by lower demand has placed downward pressure on the prices of the components that are used in these products. As the average selling price of communications products continues to decrease, the pricing pressure on services provided by us could lead to further reduction in our net sales and increase in our losses. For the past two years, we have embarked upon a strategy to diversify our customer base and reduce dependency on the communications sector and the other sectors adversely affected by the current downturn. However, the execution of our strategy will continue to take time and may ultimately not be successfully implemented, especially if other independent assembly and test companies were to focus on the same market sectors that we have targeted. If we are unable to successfully implement our diversification strategy, our financial condition and results of operations could be materially adversely affected.

Our profitability has been affected by low capacity utilization rates, which are significantly influenced by factors outside of our control.

As a result of the capital intensive nature of our business, our operations are characterized by high fixed costs. Consequently, insufficient utilization of installed capacity can negatively affect our profitability. In spite of the write-off of certain obsolete equipment during the fiscal year ended April 30, 2003, our capacity utilization rates ranged from averages of approximately 42% to 67% per month for our assembly operations, even though they have recently increased on average to approximately 71% in the July 2003 quarter and to approximately 86% in the October 2003 quarter. A utilization rate of greater than 80% is considered to be full capacity due to the downtime required to change shifts and service machinery. The low utilization rates we experienced in the fiscal year ended April 30, 2003 were a result of the weak demand for our assembly and test services resulting from the prolonged downturn in the semiconductor industry. We believe that the recent higher utilization rates have been a result of the recent upturn in the semiconductor industry. However, no assurances can be given that such higher utilization rates will be maintained, which could adversely affect our financial condition and results of operations. If we are unable to maintain current capacity utilization rates for our assembly operations, our financial condition and results of operations would be adversely affected.

We may be unable to meet the increased demands of our customers, which could have a negative impact on our results of operations.

Our facilities historically had sufficient assembly and test services capacity to meet the current and expected demands of our customers. Beginning in the July 2003 quarter, there was a significant increase in overall semiconductor demand for some of our products and services, and in the October 2003 quarter our assembly processes were at full capacity with a utilization rate of approximately 86% per quarter. If these high levels of demand continue or increase, we may not have sufficient capacity to meet this demand. Moreover, because the semiconductor assembly and test services business requires investment in expensive capital equipment and is characterized, from time to time, by intense demand, limited supply and long delivery cycles, we may not be able to readily increase our operating capacity. This would lead to a loss of sales of our assembly and test services, which could ultimately lead to a loss in market share and have a negative impact on our results of operations.

We face risks associated with potential acquisitions, investments, strategic partnerships or other ventures, including whether we can identify opportunities, complete the transactions and integrate the other parties into our business.

We believe that the semiconductor packaging industry may undergo consolidation, both with regard to consolidation among independent assembly service providers and with respect to the outsourcing of in-house assembly capacity of semiconductor IDMs. We believe it may become increasingly important to acquire or make investments in complementary businesses, facilities, technologies, services or products, or enter into strategic partnerships with parties who can provide access to those assets, if appropriate opportunities arise. From time to time we have had discussions with companies regarding our acquiring, investing in or partnering with their businesses, products, services or technologies, and we regularly engage in such discussions in the ordinary course of our business. We may not be able to identify suitable acquisition, investment or strategic partnership candidates, which may place us at a disadvantage if our competitors are able to grow their market share through acquisitions. If we do identify suitable candidates, we may not be able to complete those transactions on commercially acceptable terms or at all. If we acquire another company, we could have difficulty in integrating that company’s personnel, products, operations and technology. In addition, the key personnel of the acquired company may decide not to work for us. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses.

We generate a significant amount of revenue from a limited number of customers. The loss of, or reduced purchases by, one or more of our larger customers may have an adverse effect on our results of operations.

For the October 2003 quarter, our top five largest customers by net sales and our top ten largest customers by net sales accounted for approximately 58.3% and 77.0% of net sales, respectively, and our largest customer by net sales accounted for approximately 17.9% of net sales. For the fiscal year ended April 30, 2003, our top five customers by net sales and our top ten customers by net sales accounted for approximately 63.2% and 77.5% of net sales, respectively, and our largest customer by net sales accounted for approximately 25.1% of net sales. If any key customer were to significantly reduce its purchases from us, our results of operations would likely be adversely affected. While sales to major customers may vary from period to period, a major customer that permanently discontinues or significantly reduces its purchases from us could be difficult to replace.

In line with industry practice, new customers usually require us to pass a lengthy and rigorous qualification process that can take up to six months at a significant cost to the customer. As a result, customers are reluctant to qualify new assembly and test service providers and it may be difficult for us to attract new major customers and/or break into new markets. In addition, if we fail to qualify packages with potential customers or customers with which we have recently become qualified do not use our services, then our customer base could become more concentrated with an even more limited number of customers accounting for a significant portion of our revenues. Furthermore, we believe that once a semiconductor company has selected a particular assembly and test company’s services, the semiconductor company generally relies on that vendor’s packages for specific applications and, to the extent possible, subsequent generations of that vendor’s packages. Accordingly, it may be difficult to achieve significant sales from a customer once it selects another vendor’s assembly and test services.

Because a significant portion of our production is in Asia, we are vulnerable to weaknesses in the economies of Asian countries.

Most of our important suppliers of raw materials, leadframes and the semiconductor chips delivered to us for assembly and test are located in Asia. Although substantially all our customers are United States or European multinational companies and nearly 100% of our invoices are billed in U.S. Dollars, we estimate that approximately 49.2% and 43.2% of our net sales during the October 2003 quarter and the fiscal year ended April 30, 2003, respectively, represented packages shipped to distribution centers and destinations within Asia. These factors raise a number of financial, operational and business risks, including:

These factors could adversely affect both our operations and the operations of our suppliers and customers. In addition, the sharp economic downturn in Asia in recent years adversely affected our business by reducing demand for our customers’ products in Asia. Future economic downturns in Asia or elsewhere would likely be detrimental to our business, financial condition and result of operations.

In moving our facilities from Hong Kong to Dongguan, China, we may experience unanticipated costs, delays or business interruptions, which could adversely affect our financial condition and results of operations.

In August 2002, we entered into a 15-year lease agreement and a 6-year contract processing agreement with the Dongguan Changan County Changshi Development Company (“Changshi”), our development partner in Dongguan, China. In August 2003, during Phase I of our move to China, construction of the modern facility was completed by Changshi to our specifications and we started moving assembly equipment to this newly built, 180,000 square foot, leased assembly and test facility in the Zhenan Technology and Industrial Park, Changan County, Dongguan City. We expect to complete our first internal qualification runs by February 28, 2004, to complete our first customer qualification runs by March 31, 2004, to achieve significant commercial production in China during our July 2004 quarter and to transfer more than one-half of our current assembly and test capacity (measured as of the October 2003 quarter) to China by December 31, 2004. In calendar year 2004, we expect to commence construction on a 300,000 square foot Phase II manufacturing facility. To this effect, we entered into a letter of intent with Changshi in November 2003 to construct this facility. Under the terms of the letter of intent, we intend to lease the completed Phase II facilities from Changshi for a period of 15 years. The financial terms of this lease have not yet been determined and there can be no assurances that such terms will be acceptable to us. If we do not enter into definitive agreements with Changshi related to this facility within three months of signing the letter of intent, Changshi can terminate the letter of intent and pursue alternate development plans for our Phase II facility. However, we have the right to extend the letter of intent for an additional three months. If we do not fulfill our obligations under the letter of intent, including entering into definitive agreements, and Changshi pursues alternate development plans, this could have a material adverse impact on our financial condition and results of operations as we may be required to find an alternative location for our Phase II facility and our expansion plans may be limited. The Phase II facility is expected to house the balance of our Hong Kong manufacturing operations plus provide space for the future expansion of our assembly and test operations.

We may experience unexpected costs or delays in moving our assembly and test equipment to the new facility during Phase I and/or II, which could have a material adverse impact on our financial condition and results of operations. In addition, even though we are on track to complete our first internal qualification runs by February 28, 2004, to complete our first customer qualification runs by March 31, 2004, to achieve significant commercial production at this facility during our July 2004 quarter, to transfer more than one-half of our current assembly and test capacity to China (measured as of the October 2003 quarter) by December 31, 2004 and to commence construction in calendar year 2004 of an additional facility in China, we may not be able to achieve such results by such dates if our move is delayed for any reason, if we encounter other unexpected delays or if our customers fail to agree to qualify their products for assembly and/or test in this new facility. During the October 2003 quarter, we were running at full capacity in our Hong Kong facilities. Any interruption in manufacturing or delays in shifting capacity to our China plant would have a material adverse impact on our financial condition and results of operations.

We have a new partner in China and do not have any significant experience working with this partner. Decisions that our partner makes in China with respect to our facility may not be consistent with our interests.

Our development partner in China, Changshi, is an entity established by the Dongguan government to develop and manage several newly designated industrial parks in Changshi prefecture Chang An town,

Dongguan City, Guangdong Province. We believe that our interests are aligned with those of Changshi and pursuant to our agreements with them, Changshi must assist us in operating the facility to our requirements. However, we do not have any significant experience working with Changshi. As a result, we may experience difficulties in our relationship with Changshi, and the decisions made by Changshi may not be consistent with our interests, which in either case could be disruptive to our operations. In addition, if Changshi were to breach one or more of their agreements with us, we would be called upon to initiate binding arbitration in Beijing before the Beijing Branch of the China International Economic and Trade Arbitration Commission. The outcome of any such arbitration would be controlled by Chinese law and could be time consuming and unfavorable to us.

Operating a new facility in China can be fraught with uncertainty and there can be no assurances that this China facility will bring intended benefits to us.

Many legal, operational and financial risks may prevent us from realizing our intended benefits in China in connection with our move to Dongguan, China. These risks include:

While China’s economy has experienced significant growth in the past twenty years, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy in China, but may also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by governmental control over capital investments or changes in tax regulations applicable to us.

The economy in China has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over China’s

economic growth through allocation of resources, controlling payment of foreign currency denominated obligations, setting monetary policy and providing preferential treatment of particular industries or companies.

The Chinese legal system is based on written statutes. Prior court decisions may be noted for reference but have limited precedential value. Since 1979, the Chinese government has promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new and because of the limited volume of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve significant uncertainty. In addition, as the Chinese legal system develops, changes in such laws and regulations, their interpretation or their enforcement may lead to additional restrictions on our business.

With most of our operations conducted in two facilities in Hong Kong and with our new facility scheduled to become operational in Dongguan, China within the next few months, we are vulnerable to natural disasters, and other disruptive regional events, which could cause us to lose revenue and perhaps lose customers.

We currently conduct all our assembly operations in one of our facilities in Hong Kong and our test operations at our other facility in Hong Kong. Significant damage or other impediments to either of these facilities, whether as a result of fire, weather, disease, civil strife, industrial strikes, breakdowns of equipment, difficulties or delays in obtaining imported spare parts and equipment, natural disasters, terrorist incidents, industrial accidents or other causes could temporarily disrupt or even shut down our operations, which would have an adverse effect on our financial condition and operating results. Additionally, our newly leased factory which is located in Dongguan, China is also subject to many of these shared regional phenomena. For example, our existing operations in Hong Kong and our future operations in Dongguan are both vulnerable to regional typhoons that can bring with them destructive winds and torrential rains which can in turn cause plant closures and transportation interruptions.

With respect to our facilities in Hong Kong, we maintain insurance, including business interruption insurance, against some, but not all, of these events. With respect to the facility in Dongguan, China, Changshi has procured insurance covering the buildings and public liability insurance and we have procured insurance covering the contents of the buildings and public liability insurance. Because significant commercial production has not started at the facility in Dongguan, neither we nor Changshi have procured business interruption insurance. We cannot assure you that our insurance or the insurance procured by Changshi would be adequate to cover any direct or indirect loss or liability resulting from those events.

Our new facility is scheduled to become operational in Dongguan, China within the next few months and any disruptions in available power supply in Dongguan could disrupt our operations, reduce our revenues and increase our expenses.

More than one-half of our current assembly and test capacity, measured as of the October 2003 quarter, is expected to be transferred to the Dongguan factory by December 31, 2004. In Dongguan, demand for power exceeded supply during calendar year 2003. Should our Dongguan facility be subject to rolling blackouts or should the power shortage increase in severity and affect our Dongguan facility, our operations may suffer temporary shutdowns.

The Dongguan power authority has reported that an additional 20% of capacity will be available line for our supply area in Changan by the end of calendar year 2003 and another 35% by the end of calendar year 2004. Additionally, the power authority has executed supply agreements to import coal to supplement local sources for the additional requirements. The government’s expectation is these additions will be sufficient to meet the demand.

We currently have a dedicated hi-voltage supply line and dedicated 11K volt transformers on site supporting the Dongguan facility. This line should not be subject to rolling blackouts as a dedicated power source. In addition, we currently have back-up generators supporting our Dongguan facility that can provide short term emergency power in the event of a power blackout or shortage. However, no assurances can be given that the transformers or the generators will be able to provide adequate power during prolonged blackouts. If the

4transformers or the generators are unable to provide power during prolonged blackouts, we would be temporarily unable to continue operations at this facility. Phase II of our move to China is expected to include the installation of a separate supply line from an alternative power plant which we expect to provide independent and continuous back-up power. Nevertheless, no assurances can be given that this separate power line will be able to provide adequate power during prolonged blackouts. Any interruption in our ability to continue our operations at the Dongguan facility could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue and increased expenses, any of which would substantially harm our business and results of operations.

In addition to the above, if retail electricity prices rise dramatically in Dongguan, we would expect our expenses to increase and our operating results to be harmed.

We may not be able to continue to reduce our cost structure. Even if we do, it may not reduce our operating expenses by as much as we anticipate.

Beginning in 2001, in response to the severe downturn in the semiconductor sector, we began to reduce costs. Over the past seven quarters, or since the end of the January 2002 quarter, we began to implement our corporate restructuring program in order to reduce our overall cost structure and improve profitability. We implemented cost savings measures, including: reductions in material, labor, overhead and administrative costs. We continue to reduce our cost structure and have recently started the installation of the SAP enterprise resource planning solution and Camstar’s manufacturing tracking and execution system to enable us to implement improved business processes. We are also moving our assembly and test facilities from Hong Kong to a lower-cost facility in Dongguan, China. We cannot assure you that these cost saving measures will increase profitability or that any expected net savings will occur. During the remainder of fiscal 2004, we anticipate that there will be some additional expenses associated with commencing production in our China facility. In addition, with respect to our new information systems, there can be no assurances that we will not encounter delays, errors or cost-overruns or other adverse consequences in implementing such systems. As we upgrade our information systems, we may encounter difficulties in integrating such technology into our business and we may find that such new systems may not be appropriate for our business. If our new information systems prove to be inadequate or their implementation severely delayed, our business, financial condition and results of operations may be harmed.

We rely on the development and perfection of ownership interests in a substantial amount of intellectual property in our business. If we are unable to protect this intellectual property, we may lose advantages in innovation over our competitors.

We have patents (including, as of October 31, 2003, approximately 20 U.S. patents), confidentiality agreements, collaborative agreements and other arrangements intended to protect certain of our proprietary manufacturing processes and product technologies. In addition, during the October 2003 quarter, we entered into a QFN patent cross-license agreement with Amkor Technology, Inc. These protections and any future measures we take might not adequately cover or protect our intellectual property. In particular, our competitors may be able to develop similar or superior products or manufacturing technologies, and many of these competitors invest greater amounts of capital towards such development efforts than we do. As a result, our patent portfolio may not have the breadth or depth of that of some of our competitors. Also, we cannot assure you that the Asian countries in which we manufacture and market our products will protect our intellectual property rights to the same extent as does the United States. That could leave us vulnerable to willful patent infringement or to the theft of trade secret information. However, even if we have valid protections in place, we may not have sufficient financial and legal resources to protect or enforce our rights. Furthermore, because many of our products and technologies are not covered by any patents or pending patent applications, they are susceptible to independent duplication and/or reverse engineering by competitors.

We are vulnerable to intellectual property infringement claims by third parties and may need to enforce our intellectual property rights against third parties.

The semiconductor industry is characterized by frequent claims regarding patent infringement. From time to time, third parties may claim that we are infringing on their intellectual property rights, particularly regarding patent rights in the highly competitive and technology intensive semiconductor sector. Such claims could have a serious adverse effect on our business and financial condition.

If a third party were to bring a valid legal claim against us for patent infringement, we could be required to:

We may seek licenses from such parties, but they could either refuse to grant us a license or demand commercially unreasonable terms. We might not have sufficient resources both to pay for the licenses and to remain competitive. Such infringement claims could also cause us to incur substantial liabilities and to have to suspend or permanently cease the use of critical technologies or processes for the production and/or sale of major products.

We may also need to enforce our patents and other intellectual property rights against infringement by third parties. If we were called upon to defend against a claim of patent infringement, or were we compelled to litigate to assert our intellectual property rights, we could incur substantial legal and court costs and be required to consume substantial management time and engineering resources in the process.

We are subject to litigation with Motorola. If we are found to be liable, this could have an adverse affect on our financial condition and results of operations.

On April 9, 2003, ASAT Holdings and ASAT US as co-plaintiffs initiated a lawsuit against Motorola, Inc. (“Motorola”) in the United States District Court for the Northern District of California by filing a complaint for Declaratory Judgment. This litigation arises out of the interpretation of certain defined terms in a patent cross license agreement entered into between Motorola and QPL on October 1, 1993 (the “Immunity Agreement”). The dispute relates to the understanding of the parties regarding the scope and range of royalty bearing assembled products covered in the Immunity Agreement. On April 10, 2003, Motorola filed an essentially identical complaint naming ASAT Holdings and QPL as co-defendants in the United States District Court for the Northern District of Illinois. The litigation in the Northern District of Illinois was dismissed on August 27, 2003. On August 5, 2003, Motorola filed a counterclaim in the Northern District of California naming ASAT Holdings, ASAT US and QPL as co-defendants and alleging that the defendants owe Motorola approximately $8,000,000 in back due royalties and further alleging that Motorola is entitled to receive additional interest at the rate of 1% per month on the alleged unpaid royalties. We filed a Motion to Dismiss the Motorola counterclaim and on September 24, 2003, Motorola’s counterclaim was dismissed, with leave to amend. On October 30, 2003, Motorola filed its Second Amended Counterclaim against ASAT Holdings, ASAT US, and QPL. On November 26, 2003 ASAT Holdings and ASAT US filed their Motion to Dismiss portions of Motorola’s Second Amended Counterclaim. A hearing on our Motion to Dismiss is expected to be held in early January 2004.

We continue to deny the allegations that Motorola is owed additional royalties in any amount beyond those already paid to Motorola under the Immunity Agreement and we intend to vigorously pursue this litigation. However, should we fail to prevail in this litigation, Motorola could be awarded damages in excess of $10,000,000. However, we believe it is too early to assess the range of our possible liability at this stage, if any, and no amounts have been provided for such matters in our condensed consolidated financial statements. Losing this litigation may have adverse effects on our business and result in unexpected costs. Additionally, the distractions of a prolonged trial may divert the attention of management.

Since May 2002, we have assembled a senior management team to implement our strategy, but no assurances can be given that they will be able to successfully implement our strategy. The loss of key executive officers and engineers could negatively impact our business prospects. In addition, our inability to retain key personnel at all levels would limit our ability to develop new and enhanced assembly and test services.

We depend on our ability to attract and retain highly skilled technical, managerial, sales and marketing personnel. Since May 2002, we have assembled a senior management team to implement our strategy and continue to turn-around the company. However, our senior management team has on average been with us for less than one year and there can be no assurance that this team will be able to implement our strategy successfully. In addition, competition for highly skilled technical, managerial, sales and marketing personnel is intense, particularly in Hong Kong and Southern China and the retention of skilled engineering personnel in our industry typically requires attractive compensation packages. In attracting and retaining such personnel, we may be required to incur significantly increased compensation costs. We cannot predict whether we will be successful in attracting and retaining the personnel we need to successfully develop and market new and enhanced assembly and test services in order to sustain our growth and profitably.

The loss of key suppliers or their failure to deliver sufficient quantities of materials on a timely basis could negatively impact our business prospects. Our inability to qualify second sources for certain suppliers could limit our production capabilities.

The principal materials used in our assembly process are polymer substrates, leadframes, gold wire and plastic molding compounds. In the ordinary course of business, we purchase most of our leadframes from QPL and our substrates from several suppliers in Japan, Korea and Hong Kong. To maintain competitive packaging operations, we must obtain from these suppliers, in a timely manner, sufficient quantities of acceptable materials and equipment at competitive prices. We purchase all of our materials on a purchase order basis and, other than QPL, have no long-term contracts with any suppliers. From time to time, particularly during industry upturns, vendors have extended lead times or limited the supply of required materials to us because of vendor capacity constraints and, consequently, we have experienced difficulty in obtaining acceptable materials on a timely basis. In addition, particularly during industry upturns, prices that we pay for materials may increase due to increased industry demand. This increase could negatively impact our operating results especially if we are unable to pass this cost on to our customers. Further, if any of our vendors, particularly QPL, were to cease operations for any reason, we may experience difficulty in obtaining acceptable materials from alternative vendors on a timely, cost-effective basis.

Although we have identified alternative sources for many materials, our customers may require us to complete a rigorous approval process with new vendors before we can utilize the new vendor. We cannot predict how much time this approval process will take to complete and we may not be able to utilize alternative sources on a timely or cost-effective basis. Our business and results could be negatively impacted if our ability to obtain sufficient quantities of materials and other supplies in a timely, cost-effective manner was substantially diminished or if there were significant increases in the cost of materials that we could not pass on to our customers.

Environmental, health and safety laws could impose material liability on us and our financial condition may be negatively affected if we are required to incur significant costs of compliance.

We are subject to environmental, health and safety laws in Hong Kong. These laws impose controls on our air and water discharges, on the storage, handling, discharge and disposal of chemicals, and on employee exposure to hazardous substances. If these laws were to change, they could require us to incur costs to maintain compliance and could impose liability to remedy the effects of hazardous substance contamination. Although we have not incurred any significant liability under these laws in the past, stricter enforcement of existing laws, the adoption of new laws or regulations or our failure to comply with these laws or regulations could cause us to

incur material liabilities and require us to incur additional expense, curtail our operations and restrict our ability to grow.

Our operations in China will be required to comply with various Chinese environmental laws and regulations administered by the central and local government environmental protection bureaus. We will also be subject to the environmental rules introduced by the local Chinese governments in Dongguan, China. These laws impose controls on our air and water discharges, on the storage, handling, discharge and disposal of chemicals, and on employee exposure to hazardous substances. If these laws were to change, they could require us to incur costs to maintain compliance and could impose liability to remedy the effects of hazardous substance contamination. Stricter enforcement of existing laws, the adoption of new laws or regulations or our failure to comply with these laws or regulations could cause us to incur material liabilities and require us to incur additional expense, curtail our operations and restrict our ability to grow. The Chinese national and local environmental laws and regulations impose fees for the discharge of waste substances above prescribed levels, require the payment of fines for serious violations and provide that the Chinese national and local governments may at their own discretion close or suspend any facility which fails to comply with orders requiring it to cease or cure operations causing environmental damage. Under the terms of our lease agreement with Changshi, they have agreed to assist us in procuring the necessary environmental licenses and permits in Dongguan, China, including a Certificate of Waste Substance Discharge. According to the Administration Measures of the Certificate of Waste Substances Discharge of Guangdong Province, the term of such certificate is five years. However, the local authority of environmental protection usually issues a Certificate of Waste Substances Discharge with a term of three years. Therefore, the Certificate of Waste Substances Discharge obtained by our facility in Dongguan, China must be renewed every five or three years based upon the term of such certificate. Furthermore, in accordance with the Administration Measures of the Certificate of Waste Substances Discharge of Guangdong Province, the Certificate of Waste Substances Discharge must be subject to the annual review by the local authority of environmental protection. Our facility in Dongguan, China received an Interim Certificate of Waste Substances Discharge for its probationary production on November 10, 2003. The Interim Certificate of Waste Substances Discharge will expire on May 9, 2004. After the Dongguan facility becomes fully operational, the local authority of environmental protection will conduct an assessment on the waste substance discharge facilities. If our Dongguan facility passes the assessment, a formal Certificate of Waste Substances Discharge will be issued. We do not anticipate incurring any significant costs in connection with procuring these licenses and permits. Any failure on the part of Changshi to obtain or to maintain such license could materially and adversely affect our operations.

QPL has provided us with chemical waste disposal services in Hong Kong due to our respective manufacturing operations being located in the same building. QPL, as the landlord of our assembly facility in Tsuen Wan, Hong Kong has provided these services to us pursuant to a license issued to QPL by the Hong Kong government, which must be renewed by October 31 every other year. However, in June 2003 QPL relocated all of its manufacturing operations from our shared facility to its new facility in Dongguan, China. QPL has agreed to continue to renew this license for our benefit and we received a renewal license in November 2003. Any failure on the part of QPL to obtain or to maintain such a license could materially and adversely affect our operations.

We do not anticipate making material environmental capital expenditures in connection with our current operations or the construction of the new facility in Dongguan, China. However, we cannot predict whether future environmental, health and safety laws in either Hong Kong or China will require additional capital expenditures or impose other process requirements upon us, curtail our operations, or restrict our ability to expand our operations. We could be subject to material liabilities if the government adopts new environmental, health and safety laws, we fail to comply with new or existing laws, or other issues relating to hazardous substances arise.

Some of our costs are denominated in foreign currencies and the continued depreciation of the U.S. dollar against such foreign currencies could increase these costs.

While substantially all of our revenues are U.S. dollar denominated, a portion of our costs are denominated in other currencies, primarily Hong Kong dollars and to a lesser extent Japanese yen. The Hong Kong dollar

historically has accounted for the largest share of our costs. Because the exchange rate of the Hong Kong dollar to the U.S. dollar has remained close to the current linked rate of HK$7.80 = $1.00 since 1983, we have not experienced significant foreign exchange gains or losses associated with that currency. However, the Hong Kong government could change the linked rate or abandon the link altogether. The Japanese yen has fluctuated significantly against the dollar in recent years and may continue to fluctuate. The depreciation of the U.S. dollar against the Hong Kong dollar or Japanese yen would generally increase our Hong Kong dollar or Japanese yen expenses, which could have an adverse effect on our financial condition and results of operations.

Additionally, when our new facility in Dongguan, China becomes fully operational, our exposure to fluctuations in the value of the Chinese Renminbi will significantly increase since expenses related to the Dongguan facility will be paid in Renminbi. The value of the Renminbi fluctuates and is subject to change in China’s political and economic conditions. Since calendar year 1994, the conversion of Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the People’s Bank of China, which are set daily based on the previous day’s interbank foreign exchange market rates and current exchange rates on the world financial markets. However, the government of China could change or abandon its existing currency policy at its sole discretion. In fact, recently, the Chinese government has been under increasing pressure from its trading partners to cause the Renminbi to appreciate against the U.S. dollar. If the Renminbi were to appreciate against the U.S. dollar, our costs relating to our planned China operations would increase resulting in lower potential margins from our China operations.

We are controlled by two principal groups of shareholders and their interests may conflict with your interests.

Three groups of private equity funds separately managed by or affiliated with JPMP Master Fund Manager L.P. (formerly Chase Capital Partners), Olympus Capital Holdings Asia Holdings and Orchid Hong Kong Investment Holdings, respectively, referred to as the “investor group”, collectively owned approximately 43% of the outstanding ordinary shares of ASAT Holdings as of November 19, 2003. The investor group has signed an agreement generally to vote in unison on certain matters. QPL and its controlling shareholder collectively owned approximately 43% of the ordinary shares of ASAT Holdings as of November 19, 2003. In addition, the investor group can acquire additional shares of ASAT Holdings from QPL in satisfaction of indemnification claims against QPL and under a credit support arrangement with creditors of QPL. The investor group and QPL together control ASAT Holdings’ board of directors, management and policies. The investor group and QPL are not obligated to provide any financing under their current shareholders’ agreement. The investor group and QPL are not obligated to exercise their rights as shareholders in the interests of ASAT Holdings or holders of ASAT Holdings’ securities and may engage in activities that conflict with such interests. See “Major Shareholders and Related Party Transactions.” Furthermore, disagreements between the investor group and QPL which cannot be resolved could adversely affect the management of our company. QPL and the investor group are subject to a shareholders’ agreement and vote together on certain matters, including directors.

Economic, political and legal developments in Hong Kong could affect our business.

Our results of operations, financial position and prospects are subject to a significant degree to the economic, political and legal developments in Hong Kong. From July 1, 1997, Hong Kong became a Special Administrative Region of the People’s Republic of China when the People’s Republic of China resumed the exercise of sovereignty over Hong Kong. The basic policies of the People’s Republic of China regarding Hong Kong are embodied in the Basic Law of Hong Kong, which was adopted by the National People’s Congress of the People’s Republic of China on April 4, 1990 and came into effect on July 1, 1997. The Basic Law provides that Hong Kong will have a high degree of autonomy and enjoy executive, legislative and independent judicial power, including that of final adjudication, in accordance with the provisions of the Basic Law. Under the principle of “one country, two systems,” the socialist system and policies will not be practiced in Hong Kong, and the previous capitalist system and way of life shall remain unchanged for 50 years. There can be no assurance that economic, political and legal developments in Hong Kong will not adversely affect our operations.

Outbreaks of epidemics and communicable diseases in Hong Kong, China and other parts of Asia may disrupt our business operations, causing us to lose customers and revenue.

In early calendar year 2003, China, Hong Kong and certain other countries, largely in Asia, experienced the spread of the Severe Acute Respiratory Syndrome (“SARS”) virus. The SARS virus was believed to have first originated in Southern China and then spread to Hong Kong before becoming an international health concern. The World Health Organization and several countries issued travel warnings against international travel to Hong Kong, China and several other Asian nations during the period of the alert. This severely curtailed customer visits to our facilities. In addition, we have been unable to obtain insurance coverage at commercially reasonable rates for business interruptions resulting from the spread of communicable diseases. In that regard, there can be no assurance that the SARS virus and/or a different or even more virulent influenza virus will not make a reappearance in the future. If such an outbreak were to occur in Hong Kong and China, and if the outbreak were to be prolonged, uncontrolled and/or associated with high mortality, our operations could be severely impacted, which may lead to plant closures and other emergency measures, which would have material adverse effect on our financial condition and results of operations. Furthermore, any outbreak in any of our premises or manufacturing plants could result in our management and employees being quarantined and our operations being required to be suspended.

Changshi hires our Dongguan employees and we expect these employees to unionize. If we encounter future labor problems, we may fail to deliver our products in a timely manner, which could adversely affect our revenues and profitability.

Pursuant to the terms of the contract services agreement with Changshi, Changshi began hiring engineering, managerial and direct labor employees for staffing the Dongguan facility. Although these workers will be employees of Changshi, they will have been selected by us and will be under our direct supervision and control. The employment agreements, which include workplace rules, salaries and benefits, have been drafted and approved by us and we believe that they are fully compliant with the employment laws of the PRC. None of these employees or our other employees are currently represented by a union. However, we expect the workers in our Dongguan factory to unionize, even though we are not sure what percentage of this workforce will be affected. It is possible that the union will be subject to collective bargaining and wage agreements. These agreements could increase our labor costs in China and have an adverse impact on our operating results. In addition, once unionized, this workforce may undertake labor protests and work stoppages, which could also have an adverse impact on our operating results. We cannot assure you that any potential issues with the expected labor union or other employees will be resolved favorably for us in the future, that we will be successful in negotiating any potential wage and collective bargaining agreements, that we will not experience significant work stoppages in the future or that we will not record significant charges related to those work stoppages.

We are an innovative and highly customer focused independent provider of semiconductor assembly and test services. We are a leader in the development of advanced packages and have recently achieved significant growth in chipscale packages, including the fpBGA and LPCC package families. LPCCs, a QFN package, is our fastest growing package family.

We work closely with customers to design and provide advanced assembly and test solutions for each new product generation. Our sales offices and representatives are strategically located in the United States, Germany, Hong Kong, South Korea and Singapore, allowing us to work directly with customers at their facilities to provide effective package design and customer service. Through this network we are able to provide rapid time-to-market and highly focused design and production solutions. During the fiscal year ended April 30, 2003, we shipped products to over 100 customers and many of our top customers are among the world’s largest semiconductor companies. Our top three customers (in alphabetical order) by net sales for the October 2003 quarter were: Altera, Analog Devices and Broadcom. Each of Analog Devices and Broadcom accounted for 10% or more of net sales in the October 2003 quarter and each of Altera, Analog Devices and Broadcom accounted for 10% or more of net sales in the fiscal year ended April 30, 2003.

Beginning in 2001, in response to the severe downturn in the semiconductor sector, we began to reduce costs. Over the past seven quarters, or since the end of the January 2002 quarter, we have undergone significant changes as we have made progress in implementing our corporate restructuring program to increase our focus on developing advanced packages, diversifying our customer base, significantly improving our customer focus and reducing our costs. With respect to our organizational structure, we have an experienced management team that was put in place beginning in May 2002. On the customer side, we have recently implemented a comprehensive customer service program with our sales force and are leveraging our leading products to diversify our customer base to include the consumer and personal computer/data processing segments. On the cost side, we have started the installation of a modern cost management information and control system which is expected to further reduce material costs, manufacturing labor costs, overhead costs and administrative costs. We have purchased and are installing the SAP enterprise resource planning software and the Camstar manufacturing tracking and execution system which will be the platforms to further enhance our customer service and cost containment efforts. We recorded an impairment charge on property, plant and equipment of $81.8 million during the fiscal year ended April 30, 2003 and ceased funding to our French subsidiary, ASAT S.A., which resulted in a $24.3 million write-off in the fiscal year ended April 30, 2002.

Furthermore, as part of our corporate restructuring program, we made a strategic decision to move our Hong Kong manufacturing operations to China in order to significantly reduce our costs and access the high-growth

semiconductor market in China. We plan to conduct this move in two phases. In August 2003, during Phase I of our move to China, we started moving assembly equipment to a newly built, 180,000 square foot, leased assembly and test facility in Dongguan, China. We expect to complete our first internal qualification runs by February 28, 2004, to complete our first customer qualification runs by March 31, 2004, to achieve significant commercial production in China during our July 2004 quarter and to transfer more than one-half of our current assembly and test capacity (measured as of the October 2003 quarter) to China by December 31, 2004. In calendar year 2004, we expect to commence construction on a 300,000 square foot Phase II manufacturing facility. This facility is expected to house the balance of our Hong Kong manufacturing operations plus provide space for the future expansion of our assembly and test operations.

We believe that our restructuring efforts have contributed to our improved operating results in recent quarters and that we are well positioned to continue to grow our business profitably, even though no assurances can be given that we will be able to do so. In the October 2003 quarter, we had sales of $48.1 million compared to sales of $44.0 million in the previous quarter and $40.7 million in the October 2002 quarter, representing quarter-over-quarter growth of 9.1% and year-over-year growth of 18.0%. Also, in the October 2003 quarter, we had Adjusted EBITDA (for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss) and net cash provided by (used in) operating activities, see “Quarterly Summary Financial Data”) of $6.7 million, compared to Adjusted EBITDA of $6.1 million in the previous quarter and Adjusted EBITDA of $5.4 million in the October 2002 quarter. With the continued focus on our strategy and on our move to China, we expect to continue to improve our financial performance.

Semiconductor packaging protects the enclosed semiconductor chip and provides a network of connections between the chip and a printed circuit board. Non-CSP leadframe packages are a distinct packaging family type in that the chip is first attached to a metallic leadframe and then electrical interconnects (usually with fine gold bonding wires) are provided between the chip’s active components and the corresponding leadframe electrical contacts. The chip and leadframe are then encapsulated in plastic leaving external metal leads from the leadframe exposed and surrounding the edge of the package. These exposed leads will enable the device to be electrically connected to the circuit board on which it will be mounted. By contrast, in non-CSP laminate packages, the chip is mounted on a plastic substrate (not on a metallic leadframe) to which it is electrically connected (usually with fine gold bonding wires) to printed metallic interconnect circuitry that is in turn electrically connected to the printed circuit board via solder balls which have been incorporated as electrical contacts on the bottom of the package. Chipscale packages include both leadframe and laminate based packages and are typically used in high-end packaging of semiconductors for applications that require small device footprints and high electrical and thermal performance characteristics.

We believe that we are differentiated from our competitors on the following bases:

Our overall strategy is to grow market share, focus on margins, lower costs and improve profitability. The principal elements of this strategy include:

We offer assembly services for a broad range of semiconductor packaging including chipscale and non-chipscale packages. Most of the revenue derived from test services comes from test services performed in connection with assembly services and the revenue generated from only test is not significant to us. The following table sets forth the breakdown of net sales by product category for the periods indicated:

Exhibit No.		Description

99.1		Updated disclosure of ASAT Holdings Limited and its consolidated subsidiaries: risk factors, business, additional financial disclosure, directors and senior management and major shareholders and related party transactions, dated January 5, 2004.

Asat Holdings Ltd · 6-K · For 1/5/04

Filed On 1/5/04 5:31pm ET · SEC File 0-30842 · Accession Number 1193125-4-660

Report of a Foreign Private Issuer · Form 6-K
Filing Table of Contents

This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]

Asat Holdings Ltd · 6-K · For 1/5/04

Filed On 1/5/04 5:31pm ET · SEC File 0-30842 · Accession Number 1193125-4-660

Report of a Foreign Private Issuer · Form 6-KFiling Table of Contents

This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]

Report of a Foreign Private Issuer · Form 6-K
Filing Table of Contents