Money Matters - Simplified

Here's How Siliconware Precision Industries May Be Failing You

Margins matter. The more Siliconware Precision Industries (Nasdaq: SPIL) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why I check on my holdings' margins at least once a quarter. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong Siliconware Precision Industries' competitive position could be.

Here's the current margin snapshot for Siliconware Precision Industries and some of its sector and industry peers and direct competitors.


TTM Gross Margin

TTM Operating Margin

TTM Net Margin

 Siliconware Precision Industries




 Advanced Semiconductor Engineering (NYSE: ASX)




 Amkor Technology (Nasdaq: AMKR)




 ChipMOS Technologies (Bermuda)(Nasdaq: IMOS)




Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

Unfortunately, that table doesn't tell us much about where Siliconware Precision Industries has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Siliconware Precision Industries over the past few years.

(Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them.)

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 29.3% and averaged 23.6%. Operating margin peaked at 24.4% and averaged 18.1%. Net margin peaked at 26.4% and averaged 18.7%.
  • TTM gross margin is 16.9%, 670 basis points worse than the five-year average. TTM operating margin is 11.7%, 640 basis points worse than the five-year average. TTM net margin is 13.4%, 530 basis points worse than the five-year average.

With recent TTM operating margins below historical averages, Siliconware Precision Industries has some work to do.

© 2010 UCLICK L.L.C.