Ken Hsiang - Head of Investor Relations Tien Wu - Chief Operating Officer Joseph Tung - Chief Financial Officer

Randy Abrams - Credit Suisse Roland Shu - Citigroup Rick Hsu - Daiwa Securities Aaron Jeng - Nomura Securities

Hello, I’m Ken Hsiang, Head of Investor Relations for ASE. Welcome to ASE Group’s First Quarter 2016 – oh, Second Quarter 2016 earnings release. All participants consent to having their voice and questions broadcast via participation of this event. Please refer to page 1 of our presentation, which contains our Safe Harbor notice. I would like to remind everyone on this call that the presentation that follows may contain forward-looking statements. These forward-looking statements are subject to a high degree of risk and our actual results may differ materially from these forward-looking statements. For the purposes of this presentation, dollar figures are generally stated in New Taiwan dollars unless otherwise indicated. After – for this earnings release, Dr. Tien Wu, our Chief Operating Officer will be giving a set of opening remarks, after which I will be going over the financial results. Joseph Tung, our CFO, along with Dr. Wu will be answering questions during our Q&A session. Following the event, our VP in charge of Public Relations, Eddie Chan will be addressing the media in Mandarin Chinese. Dr. Wu?

Good afternoon. Thank you for joining the second quarter earnings announcement of ASE. I would like to give you a brief business recap and outlook. First of all, the second quarter, which we just completed, we have seen a broad-based rebound in communication, consumer, automotive and also industrial markets. So it’s a broad-based rebound comparing to first quarter. ASE Group revenue up by 0.4% quarter-on-quarter. IC ATM revenue up 8.3% quarter-on-quarter. We’re seeing the loading improvement between April to May to June. So from a month-on-month perspective, we’re seeing a strengthening of the loading. This ramping up continues well into the third quarter. The third quarter outlook right now, we’re seeing a general strength driven by new product launch, as well as continuation of seasonal demand. Capacity has been tight in Q2. Much effort has been put into adding capacity. We’re seeing Q3, we will have about 5% more capacity coming online, and our utilization will also increase by another 5% compared to Q2. As we have stated before, we maintain the view of quarter-to-quarter growth for the second-half of this year on the consolidated revenue for the Group. I would like to give you an update on the SPIL transaction. As of this afternoon, we have submitted the joint application between SPIL and ASE to the Fair Trade Commission of Taiwan. Right now, we will be waiting for the government disposition as for the feedback. In terms of the other application to the other authorities, we’re also in preparation. Thank you. Ken?

Thank you, Dr. Wu. We will now proceed to the financial review section. Please turn your Slide to page 2, quarter-over-quarter consolidated P&L. For the quarter, we saw monthly pick-ups within our IC ATM business. We are capacity-constrained on a number of key product lines. However, we remain careful in our assessment of the overall market. Capacity expansion remains carefully monitored and generally remains in line with our previous estimates. On a fully consolidated basis for the second quarter, the company delivered fully diluted EPS of NT0.51 and basic EPS of NT0.61. Our packaging and testing businesses were both up 8%. Our EMS business was flat. Our direct materials business was down 15%. We booked other revenues of NT0.3 billion related to real estate sales versus NT2.7 billion in the first quarter. Total revenues for the consolidated group were flat at NT62.6 billion. Gross profit increased 7% from NT11.4 billion to NT12.3 billion, with consolidated gross margins improving 1.2 percentage points from 18.4% to 19.6%. Operating expenses edged up by NT0.1 billion. Our operating expenses as a percentage of sales increased slightly to 10.1% as a result of higher R&D and salary expenses at EMS. Operating profit for the quarter was NT5.9 billion, up NT0.7 billion from NT5.2 billion in Q1. Operating margins increased 1.2 percentage points from 8.3% to 9.5%. During the second quarter, we had a net non-operating gain of NT0.5 billion, flat with the previous quarter. Included in this amount is our estimation of SPIL’s contribution for the current quarter of NT934 million and a write-down of equipment related to the discontinuation of one of our optical business lines. Pre-tax profit for Q2 was NT6.5 billion, up 14% from NT5.7 billion in Q1. Income tax expense for Q2 was up to NT1.5 billion from NT1.3 billion in Q1. The higher effective tax rate this quarter was principally associated to our annual undistributed net earnings tax. We expect our effective tax rate to return to normalized levels next quarter. Net income for Q2 was NT4.7 billion, up NT0.5 billion from NT4.2 billion in Q1. Net margin improved to 7.5% from 6.7% in Q1. Page 3, quarterly results on a year-over-year basis. Here you can see the company starting to turn the corner off of last year’s downturn. Our packaging and test business improved 5% and 4%, respectively, on a year-over-year basis. Our Direct Materials and EMS business declined 10% and 28%, respectively. It is worth noting that during Q2 of last year, our EMS business launched its wearable SiP product. On a year-over-year basis, our consolidated net revenues declined by 11%. With our product mix being more heavily weighted towards IC ATM, our gross profits were up 6% with gross profit margins improving 3.1 percentage points from the previous year. Operating profits were up 10% with operating margins improving 1.8 percentage points. Net profits were up 28%, with net margins improving 2.3 percentage points. Page 4, our IC ATM P&L. Please note the intercompany revenues, including the SiP technology business performed by our IC packaging business unit on behalf of our EMS business unit are eliminated during consolidations. Our IC ATM net revenues improved by NT3 billion, or by 8% during the second quarter to 38.5 billion. Revenues for our IC Packaging and Testing business increased 9% and 8%, respectively. Our Direct Materials business decreased by 14%. As anticipated, our business improved along with typical seasonality. NT dollar appreciation had a 1.32% unfavorable impact on revenue and a 0.62% unfavorable impact to gross margins. Gross profit was up 22%, or NT1.7 billion to NT9.6 billion. Gross margin improved 2.8 percentage points. Gross margin improvement was principally the result of seasonally strong second quarter related to our core IC ATM business. Raw materials were NT8.5 billion, up NT0.4 billion, were 22% of total net revenues, down 0.9 percentage points. Labor costs NT7.5 billion, up NT0.3 billion, 19.4% of total net revenues, down 0.8 percentage points. D&A plus rental was NT6.4 billion was flat, 16.6% of total net revenues, down 1.3 percentage points. Factory supplies of NT3.8 billion, was up NT0.5 billion, was 9.8% of total net revenues, up 0.7 percentage points. Utility was flat at NT1.3 billion, 3.4% of total net revenues, down 0.3 percentage points. Gold price movement decreased IC ATM gross margin by 0.2%. We estimate that for every $50 of gold price movement, there will be a 0.1% impact to IC ATM gross margin. Operating expenses were flat at NT4.6 billion. Operating expense percentage declined 1.0 percentage point to 12% from 13%. Our OpEx percentage decreased as a result of the inclusion of professional fees related to the tender offer in the first quarter. Operating margin was up 3.8 percentage points to 12.9% from 9.1% in Q1. Operating profit was up 54%, or NT1.7 billion to NT5.0 billion – to NT5 billion. Page 5, year-over-year. Here you can see our year-over-year comparison for IC ATM business. Given the downturn during 2015, you can see that we are in the midst of a modest recovery. Packaging and Testing businesses are up 2% and 4%, respectively. Our Direct Materials business is down 7%. Gross profit is up slightly at 1% improvement. Operating income, meanwhile, is down 3% primarily related to a difference in the calculation of bonus recognition. Pretax income is up 15% and net income is up 28%. Page 6, packaging operations. In Q2, our packaging revenue increased 9% sequentially and 2% year year-over-year to NT31.2 billion. Our packaging gross margin increased 2.4 percentage points to 21.5% sequentially. The margin improvement was caused by a higher loading as compared to the first quarter, resulting in higher revenues and a semi-fixed cost structure. Raw materials was NT9.3 billion, up NT0.6 billion, as a percentage of sales is 29.8%, down 0.5 percentage points of sales. Labor was NT5.8 billion, up NT0.2 billion, as a percentage of sales is 18.6%, down 0.9 percentage points of sales. D&A and rental expense were flat at NT4.4 billion; as a percentage of sales is 14.2%, down 1.2 percentage points of sales. Factory supplies were NT2.9 billion, up NT0.4 billion, as a percentage of sales is 9.4%, up 0.6 percentage points of sales. Factory supplies increase as a result of increased chemical consumption related to start-up of bumping and fan-out factory lines. We would expect factory supplies to return to a more normalized rate in the coming quarter. Utility was flat at NT0.9 billion, as a percentage of sales 2.9%, down 0.3 percentage points of sales. During the quarter, packaging capital expenditures were US$136 million composed of wafer bump and flip-chip equipment at US$56 million, common and SiP equipment at US$52 million, and wirebond-related equipment at US$28 million. On a capacity overview, during the quarter, we added 377 and retired 86 wirebonders. We exited the quarter with a total of 15,920 wirebonders in operation. 8-inch bumping capacity remained unchanged at 95,000 wafers per month; 12-inch bumping capacity, including fan-out increased 11,000 wafers to 100,000 wafers per month. Test operations. Test revenues of NT6.5 billion were up 8.5% sequentially and 4.4% year-over-year. Gross profit margin was sequentially up 3.9 percentage points to 36.8%. The change in gross margin were principally the result of higher seasonal loading in a semi-fixed cost environment. Overall, cost of services for test increased slightly to NT4.1 billion, as a result of increased factory supply consumption. Our testing utilization rate improved to the mid to high 70 percentiles. CapEx for the test business was US$107 million in Q2. We added 205 and retired 29 testers during the quarter. At the end of Q2, our total tester count stood at 3,629. Page 8, materials. Revenues for our Materials business of NT2.5 billion were sequentially up 9.1% and 11.1% year-over-year. During the quarter, NT759 million was from sales to external customers, down 15% as compared to Q1. This decline was primarily the result of weak sales to memory-related customers. Our internal self-sufficiency rate increased to 37% from 31% by value. Gross margins were sequentially up by 1.9 percentage points to 18.8%. The gross margin increase was principally the result of higher loading and more favorable product mix as compared to the first quarter. Page 9, IC ATM market segment. Our communication market segment share percentage increased from 51% to 52%. Our computing market segment stayed flat at 12%. Our automotive, consumer and others declined a percentage point to 36%. From a quarter-over-quarter perspective, we are effectively loaded a lot by very similar applications. From a year-over-year perspective, our segment share generally shows lower loading within SiP and stronger computing segment performance. Page 10, our EMS business unit. During the second quarter, revenues for our EMS business unit were sequentially up 0.4% to NT24.9 billion from NT24.8 billion. Revenues within our EMS business were ahead of where we anticipated as a result of slightly higher SiP revenue and revenues from engineering service fees related to product development. Revenues year-over-year were down 28% as compared to NT34.6 billion in Q2 of 2015. This is primarily a result of the inclusion of launch revenues related to our wearable SiP product in the year ago quarter. Gross margins increased 2.2 percentage points to 10.3%, principally as the result of engineering service fees recognized. Margins for our EMS business would be similar to previous quarter’s margins without the inclusion of said engineering service fees. EMS gross profit increased to NT2.6 billion. Capital expenditures for our EMS business unit was US$4 million during the second quarter. The EMS business segment mix. During the second quarter, our communication products segment decreased segment share from 51% to 46%, while our consumer, industrial and computing EMS segment shares increased 3%, 1% and 1%, respectively. Looking out into Q3, we would expect communication and consumer segments to ramp as our SiP season picks up. Page 12, balance sheet. At the end of the quarter, we had cash, cash equivalents and current financial assets of NT40.5 billion, decreasing from NT49.4 billion the previous quarter. The cash decline was principally the result of capital equipment purchases and debt pay-down in excess of operating cash flows. Our interest-bearing debt declined slightly from NT118.7 billion in Q1 to NT110.4 billion in the current quarter. Our investment in SPIL of NT48.8 billion is recorded in investments, equity method. As of June 30, 2016, total unused credit lines amounted to NT185 billion. EBITDA improved to NT14 billion from NT13.2 billion during the quarter. Capital expenditures. Capital expenditures for the second quarter totaled US$256 million, of which US$136 million was used for packaging, US$107 million for testing, US$4 million for EMS, and US$10 million for internet connect materials. EBITDA on a U.S. dollar basis was US$431 million for the second quarter. We continue to expect our capital expenditures for the year to be below our depreciation and amortization levels. Looking out into the third quarter, we see strong loading across our core IC ATM product lines and across all our market segments. Many of our customers are preparing for various end-market product launches; as such, we believe customer order flow should remain strong throughout the quarter. Our SiP products should start picking up during the quarter. We will keep our expectations somewhat tempered for the time being. Expectations can be whatever they may be, in the end, it depends on the actions of the consumers. With SiP picking up, we believe our EMS business will start to get busier too. For IC ATM, as our COO indicated, we see our capacity increasing 5% and our blended utilization rate increasing 5% also. Our IC ATM gross margin should be around fourth quarter 2015 levels. For the EMS side, our SiP and Wi-Fi businesses should see a meaningful ramp during the quarter. We optimistically believe that business should approach second quarter 2015 levels. We also see our EMS gross margins normalizing from the previous quarter and should approach first quarter 2016 levels. Q&A Q - Randy Abrams: Okay, thank you. It’s Randy Abrams from Credit Suisse. The first question I wanted to ask on the ASE SPIL merger going through, if you could talk about the steps and the timeline now that you’ve submitted the first application, how long you expect the application process and target for closing? And if you can also talk about just your initial view about any synergies you could get on operations or on the CapEx side?

We submitted the application, it was a joint effort by SPIL and ASE. We have seen a lot of good spirit in terms of collaboration in filing this application. In terms of timeline, it’s up to the government. In terms of preparation for the other authorities, we would like to have some initial feedback in terms of areas that we might need to augment, complement or strengthen before we do the application to the other authorities. Right now, there is no timeline. However, the – I think it’s both companies’ wish we would like this process to be as fast as we can. In terms of synergy, right now the holding company has not been formed yet. So all of the collaboration are strictly confined and restricted to the application to the antitrust authorities. So at this point in time, we will not comment on any synergy or any collaboration as prohibited by law. Thank you.

And the second question, I wanted to ask about the two, what could be growth areas. SiP, if you think we’ve reached a point of stabilization, like because you’ve been rebalancing projects, if you could talk about the pipeline at your lead customer and new customers? And then you started an engineering line on the fan-out, just a progress on fan-out as well?

Let me comment on the SiP. The – it’s difficult to say whether we have reached to a saturation point, because the market demand for the SiP technology is very strong. As we have told you before, about the – two years ago we have engaged with many customers on the SiP technology productization. We had multiple customers engaged with us at various stage of development or early production. I think the issue right now is most of the SiP related to system products, they tend to be small volume. The market acceptance as well as how pervasive or the standardization of the SiP does take a longer time than we would like to see. At this point in time, we are comfortable in terms of the SiP overall product portfolio in terms of capacity planning, P&L, and also the margin roadmap, okay. I think in terms of SiP we remain to be very optimistic. We are hoping multiple product qualification, as was early production can yield to volume, which we will be happy to report to all of you in due time. Let me comment on the fan-out. As we have reported, we have very strong demand from multiple segments, as with customers demanding different technology levels of fan-out. Fan-out represents a technology that can be a segment into a much more complicated technology portfolio. As you can see there, we have increased the fan-out overall capacity in Q1 and Q2. You will see the similar effort well into Q3, Q4, as well as in the coming years. I think that was the answer you asked, right?

I guess, with that if you expect – when you expect some contribution or if by next year we could see some notable projects, where it can be a few percent of revenue from that area?

From SiP or fan-out?

From the fan-out, like where you said there would be a lot of – sounds like capacity put in place the next few quarters. I guess, if you can give an idea how much capacity or how much type of revenue with this capacity by next year?

Okay, it’s difficult to give you an overall number, because the fan-out has different degrees of technology, right. But in the leading edge, the – we will have again – it’s like all new technology. On the leading edge fan-out, we are seeing dramatic improvement increase because of the overall demand. Right now it’s capacity constrained. The – for the lower-end, we are seeing incremental improvement also. So I will not be able to give you a revenue increase for next year, but on the leading edge it’s going to be dramatic, yes.

Is it? And then should we think it’s the same application, it will be volume in the mobile and smartphone space, or is it other areas?

Again, we have multiple customers engaging with us with a different requirement, we won’t be able to comment too specifically on that.

Okay. The last question I wanted to ask, the EMS where margin went to 10% this quarter, if that engineering fee is a one-time – or if we should expect low season when there’s less SiP, the gross margin could come back to that 10% range, or if what you are guiding closer to 8% is the right range for that business?

I think it’s safer to say that, it should be maintained at a normalized level. The engineering service revenue is recurring, but it’s all typically collected about doing product development stage. But the of it or the size of it is very different, depending on different projects. So I will suggest that we normalize the margin at EMS side at whatever you have saw – have seen in the first quarter of this year.

Thank you.

Roland, name and company please?

Good afternoon, Ken and Joseph. I’m Roland Shu of Citigroup. First question, you talk about in second quarter several of your capacity was constrained. So can you clarify what kind of a capacity was constrained? I think that Ken talked about the leading edge fan-out how capacity was constrained and what else?

I have to be careful here, because a lot of customers are reading this report, all right. We are seeing the general constrain in the testing. The – we are also seeing some wirebond in the bumping, of course, in the fan-out. I think that pretty much covers the majority of the advanced and the conventional packaging.

Okay. And you said in Q3 you are going to increase 5% of the capacity, so what kind of the capacity are you going to increase?

Okay. As we have discussed just now, you are seeing wire bonder. You are all seeing some numbers of testers, I think you can refer to the previous page. You are also seeing a good percentage of increase in terms of the bumping and the fan-out. So those are the specific examples that we have already provided with data.

Okay. So by doing so, what kind of the CapEx are you going to spend this year?

The CapEx number remains to be the – our previous guidance. The – what was it?

Which would not be over the D&A that we have for the year.

Okay.

Our D&A for the quarter is about NT6.9 billion a quarter.

Okay. And then how about the overall depreciation this year?

It will be very, very similar to the overall number in last year.

Okay, thank you. And then, I think, we have a 5% capacity increase and a 5% utilization increase, how about the ASP?

ASP right now, because of capacity constraint is quite steady, yes.

Steady, so it means flat or are we going to see increase at all?

Flat would be a good assumption, yes.

Okay, thank you. And for 3Q the consumer revenue for SiP is going to up, so can we assume this is due to the increase for – reason for this wearable SiP product?

I will not comment on that. Thank you.

Okay. The other question is, given your – in second quarter actually for this wearable SiP actually, the revenue contribution has been very small. So last year actually we have inbuilt a lot of the capacity for this wearable SiP. So going forward in second-half starting – when we’re starting to resume this wearable product, can all the capacity can be totally used for this new wearable project?

No comment, I’m sorry.

Okay. I don’t know why – how – why cannot comment on this?

I don’t want to get burned. Well, I think in a general sense most of the capacity that we put in place for the earlier generation is still in use; the additional investment required for the new generation product is very, very limited. I think although the – I think the loading or the utilization could be at a satisfactory level, but then the – that’s – some of – in some of the product lines it’s because we did make some adjustment in terms of the overall capacity for that particular product. So right now, we are going through a lot of steps in terms of streamlining that business and to put it at the more satisfactory level.

Okay, thank you. Last question then, what is a normalized tester level going forward?

I think something around 20%?

20% the whole year or every quarter?

On a quarterly basis, yes.

Quarterly basis, 20%.

Except whenever there is a dividend payout. If we don’t pay the whole amount then there is tax on the retained earnings.

That actually, this happened in the second quarter.

That actually happened, exactly.

How about the following 3Q, 4Q?

For the other quarters, it should stay at around 10%.

Okay. Thank you.

Yes, hi, good afternoon. This is Rick from Daiwa Securities. Just one housekeeping question, sorry, I missed, Ken. Ken was talking about the bumping capacity 8-inch and 12-inch for Q2, can you remind me again?

Hey, Ken.

Ken is missing.

Bumping capacity, right?

Right, for 8-inch and 12-inch in Q2?

8-inch is 95,000 and change.

Okay.

12-inch is up 11,000 wafers to 100,000 wafers.

All right. So could, Joseph, please run through the utilization rates across the bumping and testing in Q2?

Wirebon, we’re at – actually for both wire bonding, flip-chip bumping, we’re at the high 70s, going to low to mid-80s in the third quarter. Testing-wise we’re at mid-70s for the quarter and we’ll go up to around 80.

Right. So testing from high 70s go up to around 80s, that’s for testing, right? Okay.

Testing is mid-70 to around 80.

Mid-70 to around 80s, okay. Thank you. Second question, about your SPIL – your deal with SPIL, now you are submitting the application to – for approval to several countries, including not only Taiwan, but can you run through what would be the major other countries that you are waiting for – you are expecting for approval?

Well, I think the whole process actually takes different approvals from different authorities. One is, of course, the Fair Trade Commission that includes Taiwan, China, and particularly the States. We are also subject to shareholders’ approval. We each have to hold our respective shareholder meeting. And also for the formation of the holding company, we also need the SEC’s approval for that.

All right. And which country would you expect to see more challenge than other countries?

We don’t speculate on that. I think it’s a normal application, and we are confident that things will be approved.

All right. Thank you so much.

Thank you, Aaron Jeng from Nomura Securities. A question on your last quarter gross margin of IC ATM business, which you reported 24.8%. I recall last time your guidance was that, it’s going to approach the 4Q 2005 level, which was a 26%. So can I say this margin result is slightly lower than what you thought three months ago?

It’s a little bit below, I think, the bulk of it is, because there was some degree of price adjustments – pricing adjustments that happened in the second quarter.

Okay. So it’s mainly the pricing issue in the – okay, no problem. The question, I’m not sure whether Roland already asked and you already answered. Regarding this wearable SiP, at one point in time probably you ever said last year it was losing money, but this year it can be probably break-even, at least, not losing money further. And is this guidance or is this still your thought?

Okay, this question is in between no comment to some answers.

Better than I thought.

All right. So I will not be able to tell you whether this would be profitable or losing money. We don’t comment on specific product. However, we are moving in the right direction as you can see from the earnings announcement. Okay, thank you.

I have no question. Thank you.

Yes, I just have a couple of follow-ups. The fourth quarter, I wanted to clarify the growth, I think, you mentioned consolidated level. Do you have a view yet on the ATM, if you may also see growth or is it too early to call on ATM?

I think you already said it’s too early to call, because the – it not only depends on the end market for Q4, which is very difficult. It also depends on your baseline in Q3. For example, it really depends on the sell-through, as well as the WIP in the Q3. As we can see that now there are some capacity constraints in Q2. We are trying to resolve carefully the capacity constraint in Q3 if there is remaining WIP at the end of Q3, which will go into Q4. So really it depends on execution of the Q3, the market sell-through, as well as how do we manage the intricate balance between capacity versus the future outlook six to nine months down the road. We decided to add capacity, because we believe the general demand for certain technology is real, for bumping, for fan-out, for copper wirebond, for flip-chip technology, and also for some of the high-end testing. We believe those demands are real well within the next few years, which is why we add capacity. In general the CapEx, the capacity increase, how do we manage the global demand from all customers are very, very carefully in Q1 and Q2 as was Q3 and well into Q4.

Okay. And then the follow-up to that, your utilization is mid-80s wirebond, test 80. Is that what you consider now full capacity or are there some areas underutilized?

We are trying to add more automation or IT system to enable the – however, historically the mid-80s is a good number. Now, we have done high 80s to low 90s, we have done that historically. However, you will have other issues associated with this kind of capacity constraint. It depends on the product mix and how much loading and how much do you have in the wafer bank, so it’s difficult. But sporadically you might have some high 80s, low 90s, but in general 85 is a good number, it’s a very good number to be in.

The last question I had for the product mix in EMS, consumer and comms are leading. For ATM, any segments leading or lagging in your outlook for third quarter?

Third quarter we are seeing the – again, it’s – all segments are strong. I’m not going to tell you any particular segment that is relatively weaker. But right now, we do see the general strength in all segments.

Okay. Very good. Thank you.

Okay. Thank you very much.