Editing by William Zhang and Greg Gao

The recent acquisition by Chinese private equity firm Wise Road Capital of the four packaging factories on the China mainland from Taiwanese ASE Group underlines China's strategy to build a stronger packaging and testing sector after being blocked by the U.S. in advancing its semiconductor front-end manufacturing. This is the view most industry analysts and observers hold on the deal.

Wise Road Capital has long recognized the semiconductor packaging and testing potential, having purchased related overseas assets, including UTAC in Singapore in 2020, over the last couple of years. Chen Yuenan, JW Insights senior analyst, commented, "Wise Road is consolidating its packaging and test assets, and this helps China become a stronger player in this field."

Since its establishment in May 2017, Wise Road Capital publicly issued and managed 14 funds, accomplishing one of the most semiconductor-related M&A deals in China's industry, media reports said.

Data show that the global semiconductor packaging and test market was $69 billion in 2020, of which the scale of the outsourced packaging and testing market was $35.5 billion. With the advent of the "post-Moore's law era," continued specialization in the semiconductor industry, outsourced packaging, and testing service will play a more significant role. China is already strong in this sector. An industry observer said that the Wise Road deal corresponds with China's strategy of creating an autonomous supply chain for mature chip manufacturing technology.

The deal between Wise Road Capital and ASE is valued at $1.46 billion, as announced on December 1. ASE will sell to Wise Road Capital shares and equity interests in GAPT Holding, which directly or indirectly holds 100% equity interests in Global Advanced Packaging Test (Hong Kong), ASE (Weihai), Suzhou ASE, and ASE Advanced Semiconductor (Shanghai), and ASE (Kun Shan).

ASE pointed out that the transaction will improve its overall competitive edge by optimizing its strategy and resource allocation in China while further enhancing its investment in advanced technology development and expanding its leading-edge capacities within the Taiwan region. ASE believes it can better leverage its global presence and leading-edge technology to better serve its global customer base.

Lu Xingzhi, a well-known semiconductor analyst, looks closer into the deal between Wise Road Capital and ASE.  He listed out the following factors: Firstly, the four factories accounted for less than 3% of ASE Group's revenue and profit, selling of which will not have much long-term impact for itself. Secondly, The four factories are mainly engaged in discrete semiconductor devices, mid-end and low-end packaging and testing, and materials business, not the high-end packaging and testing business that ASE Group focuses on. Thirdly, its Chinese mainland subsidiary's Price-to-Earnings (P/E) ratio of 21 is slightly lower than the usual P/E ratio of 20-30 of China's local packaging and testing plants.