Ken Hsiang - Head of IR Tien Wu - COO Joseph Tung - CFO

Bill Lu - UBS Rick Hsu - Daiwa Securities Sebastian Hou - CLSA Steven Pelayo - HSBC

Hello, I am Ken Hsiang, the Head of Investor Relations for ASE. Welcome to ASE Group's Fourth Quarter 2017 Earnings Release. All participants consent to having their voices 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. For today's event, Dr. Tien Wu, our COO will be making a brief presentation. I will then be going over the financial results. Afterwards, we will have a Q&A session with Dr. Wu and Joseph Tung, our CFO. Following the event, our VP in-charge of Public Relations, Eddie Chang, will be available to address the media in Mandarin, Chinese. And now Dr. Wu, our Chief Operating Officer.

Good afternoon, everyone. 2017 has been a very challenging and rewarding year for ASE. I would like to take this opportunity to thank all of you for all of your support to the company over the very challenging but rewarding year. I would like you to give you a brief presentation. What I'll do is I'll start with the ASE and SPIL transaction update. Here is a list of all the approvals we have received from government, namely Taiwan, November 16, 2016; United States, May 16, 2017; and finally, China on November 24, 2017. We have received the MOFCOM conditional approval and with a two-year restricted behavior. For more details, please visit the MOFCOM website. The key days which will follow will be January 27 to February 9, we will go through the electronic voting period. 2018 February 12 both ASE and SPIL will have the EGMs. April 17, tentative schedule. It will be the last trading day of ASE and SPIL. April 30, that will be the effective day of the new co, which will be named ASE Industrial Holding Company Limited. In 2019, November 24, if we comply with all of the regulations, the MOFCOM conditional approval restriction will be expired. Two years. I would like to give you a brief recap of 2017. We have achieved record high revenue at the group level, as well as the business level. In 2017, the group revenue came in at US$9.6 billion, up 12% year-on-year. In Q4 of 2017, the group revenue was US$2.8 billion, up 14% quarter-on-quarter. The EMS revenue came in at $1.4 billion, up 31% quarter-on-quarter. We have seen clear momentum in growing markets. 2017 ASE Group SiP business grew 42% year-on-year. We do expect to see the SiP growth continue in 2018, which we will elaborate in the Q&A session. The Bumping, Flip Chip, Wafer-level Packaging grew 11%. We will also see the same momentum going into 2018. We have seen good signs of the new applications. We have seen strength in the broader space, general semiconductor device such as analog, MCU, PMIC, sensors, MEMS, in all kinds of new applications, which are very encouraging sign. The profitability has improved. In 2017, the IC ATM gross margin would have improved under the constant currency, which Joseph will talk a little bit more later. In 2017, USI gross margin expanded to 10.2% from 9.8%. 2017 USI net profit reached a record high at US$189 million, which is 65% year-on-year. Just to give a recap, 2017 was a good year for ASE Group. What we have seen in the macro trend is the following. We have seen more system companies designing sub-module and SiPs. We have also seen more IC company as well as OEM, ODM companies, designing the SiP and the modules that let us to believe the theme of ASE growth for the future, System-in-Package is in the right sector in the right area. As a result of the last five years of endeavor with all the customers, we understand that the industry needs an open design flow and design tools. Today at 2:45, we have made a press release with Cadence, announcing the next generation of SiP Intelligent Design. I believe the press release can be found on our website, as well as the press. In the next generation of SiP design tool, ASE closely collaborate with Cadence over the last four years together with many of our customers coming up to a very efficient, effective design tool, which is sponsored and backed by the ASE manufacturing database that we have collected over the last few years. With this tool, we believe that not only we will be able to integrate the advanced packaging. We can also use the same design tool leading to more complicated SiP format, as well as with sensors, MEMS, we will understand the performance, as well as the potential yield during the manufacturing. This can also greatly reduce the design cycle time and time to market. With that, I would like to offer you brief 2018 outlook. In 2018, we are optimistic we will continue to drive topline growth and margin improvement across EMS, as well as IC ATM. We do expect a strong pickup starting second quarter of this year. We will continue to drive the SiP business growth. We have also seen strong design in pipeline across communication, automotive, memory and high-performance computing. In 2018, we will also continue our investment in strategic technology for growth, as well as strengthen the SiP-id collaboration with Cadence, as well as all of our customers. We will continue to enrich technology portfolio with embedded substrate, Fan-Out, 2.5D as well as the other relevant SiP building blocks. And finally, we would like to thank SPIL team. Over the past year, they have closely collaborated with us to go through all of the government regulatory approval and we would like to - on behalf of ASE, would like to welcome all SPIL team that we can join hands start a new era for ASE and SPIL. Thank you.

So thank you Dr. Wu. With that, let's start the financial overview. I think we will take a slightly different approach for the numbers, at least for this presentation. Outside the group results, we will try to focus less on reciting at the displayed results, which you call all read. Instead focus on whether we can add any color to their information presented. So second page. So I have here the foreign exchange implication. Before we get further into the results, I want to spend just a bit of time to highlight the impact of the NT dollar-US dollar foreign exchange rate on our 2017 results. Here you can see our group and IC ATM revenues for the year on a US dollar versus NT dollar basis. Given our purchase orders are predominantly received on a US dollar basis, we believe the 12% group and the 6% IC ATM revenue figures more accurately reflect our true business performance. The chart next to the revenue chart shows the NT dollar fluctuation impact on group and IC ATM margins. Through internal analysis, we approximate that every 1 percentage point, the NT dollar appreciates, there is a corresponding 0.4 percentage point impact to IC ATM gross profit margins. And similarly, we approximate for every percentage point, the NT dollar appreciates, there is a corresponding 0.3 percentage point impact to group gross profit margins. So here, given the 5.6% NT dollar appreciation, IC ATM gross margins received a 2.3 percentage point impact, while group gross margins received a 1.5 percentage point impact. Thus in a flat NT dollar environment, we approximate group and IC ATM gross margins would have been 19.7% and 26.6%, respectively. This represents increases of 0.8 and 1.7 percentage points increases to 2016 group and IC ATM gross margins. As we mentioned towards the beginning of 2017, we believe that we would be able to improve margins during the year. We continue to believe there is incremental room for margin expansion during 2018. Page 3. On a fully consolidated basis for the fourth quarter, the company delivered fully diluted EPS of $0.71 and basic EPS of $0.74. Total revenues for the consolidated group increased by 14% to a record $84 billion. Our Packaging and EMS businesses were up 1% and 31%, while our testing and direct materials businesses were down 5% and 3%, respectively. Revenues for our EMS business unit was a historical record of $43.3 billion. Gross profit for the group increased from $13.8 billion to $14.8 billion with consolidated gross profit margin declining 17.6%. The margin decline is mainly associated with higher EMS revenue mix during the quarter. Operating expenses increased to $7.1 billion, primarily as a result of increased SPIL transactional costs. Operating expenses as a percentage of sales decreased 0.8 percentage points from 9.2% to 8.4%. Operating profit for the fourth quarter increased $0.6 billion to $7.7 billion with operating margins declining to 9.2%. The operating margin decline was mainly driven by higher seasonal EMS revenue mix. During the fourth quarter, we had a net non-operating gain of $0.2 billion versus a net non-operating gain of $0.7 billion in the previous quarter. During the current quarter's non - the current quarter's non-operating gain includes the following. Net gain related to foreign exchange and hedging activities of $0.6 billion; net interest expense of $0.3 billion; income from SPIL, net of purchase price accounting, of $0.1 billion; and other non-operating expenses of $0.1 billion, including a goodwill write-down. Pre-tax profit for the fourth quarter was $7.9 billion. Income tax expense was $1.1 billion in the fourth quarter. This amount and its corresponding effective tax rate were flat with the third quarter. During January 2018, Taiwan passed legislation, which increased corporate tax rates by 3 percentage points. As a result, we will recognize a sub $0.7 billion impact for the revaluation of our net deferred tax liability position in the first quarter of 2018. Further, we estimate our ongoing effective tax rate will increase by 2.2 percentage points because of this legislation. Net income for the fourth quarter was $6.2 billion. Page 4. Quarter results on a year-over-year basis. On an NT dollar basis, our fourth quarter group-wide consolidated net revenue increased by 9% compared with fourth quarter 2016. When taken on an US dollar basis, these revenues grew by 14%. Our EMS business grew in excess of our IC ATM businesses during this period. EMS strength was across the board, driven by its SiP, seasonal and traditional EMS products. Our Packaging and Testing businesses with differing end-product concentrations declined 2% and 10% relative to the fourth quarter of 2016. It should be noted that in addition to the NT dollar appreciating 5% during this timeframe, the fourth quarter of 2016 in retrospect is considered an overproduction inventory building period. Consolidated group gross profit margin declined 2.3 percentage points to 17.6%, primarily as a result of higher EMS product mix. In a flat NT dollar environment, we estimate our fourth quarter group gross profit margin would have been 18.8%. Page 5. On a full-year perspective, total 2017 group revenues of $290.4 billion was a record, improving by 6% over 2016. As mentioned earlier, in US dollar terms, 2017 group revenues grew by 12% over 2016. Gross profit margins declined 1.1 percentage points, which was primarily attributable to NT dollar appreciation and higher EMS product mix. And as mentioned earlier, we estimate that in a flat NT dollar environment, 2017 gross profit margin would have been 19.7% improving 0.8 percentage points. Page 6. Our fourth quarter IC ATM net revenues were as expected, flattish with the third quarter at $41.8 billion. Revenues for our IC packaging business were up 1% while revenues for our testing and direct materials businesses decreased 5% and 6%, respectively. Gross profit improved 4% sequentially to $10.9 billion from $10.5 billion, with gross margins improving 0.9 percentage points from 25.1% to 26%. The gross margin improvement was fundamentally the result of improved efficiency and a product mix shift resulting in lower raw material cost of products. Operating expenses edged up $0.1 billion to $4.9 billion for the period, principally as a result of higher transaction-related expenses. Operating margins ended up 0.7 percentage points to 14.4%. Page 7. As with the previous fourth quarter year-over-year comparison, we are comparing the current period with the period of inventory build, and one which the NT dollar was 5% weaker. Our total IC ATM revenues declined 4%. On a US dollar basis, IC ATM revenues grew by 1% year-over-year. Gross profit was down 7% with our gross margin declining 0.8 percentage points to 26%. Without the effect of NT dollar appreciation, we approximate our IC ATM gross margin would have improved by 1.2 percentage points year-over-year. Operating income was down 6% or $0.4 billion with operating margin down 0.3 percentage points. Our operating margin decline was again principally attributable to NT dollar appreciation. Page 8. IC ATM on a full-year. From a total year perspective, our IC ATM revenues were relatively flattish with our packaging and direct materials businesses growing 1% and 11%, while our test business declined 3%. On a US dollar basis, total IC ATM revenues grew 6%. The gross profit and margin movements are again primarily attributable to NT dollar appreciation. And as mentioned earlier, in a flat NT dollar environment, we estimate IC ATM gross margin to be 26.6%, representing a 1.7 percentage point improvement as compared to 2016. Page 9, Packaging. During the fourth quarter, our packaging revenue improved 1% sequentially and was down 3% year-over-year to $34.3 billion. On a US dollar basis, packaging revenue was up 2% year-over-year. Our packaging gross margin improved 1.6 percentage points sequentially and it was down just 0.2 percentage points year-over-year. We believe that this is a significant accomplishment, especially given the NT dollar decline during the year. Sequential margin improvement was mostly attributable to improved factory efficiency and a lower raw material product mix. Year-over-year improvement is primarily attributable to improved factory scale efficiencies. During the quarter, capital expenditures were US$103 million, composed of wafer bump, fan-out and copper pillar equipment at US$46 million, and common SiP and wire bond equipment at US$57 million. We exited the quarter of total of 16,076 wirebonders in operation, 8-inch wafer processing capacity remained at 104,000 wafers per month, 12-inch wafer processing capacity, including bumping, fan-out and copper pillar, remained at 128,000 wafers per month. Page 10, Test. During the fourth quarter, test revenues were sequentially down 5% to $6.6 billion. On a year-over-year basis, test revenues were down 10%. On a US dollar basis, year-over-year test revenues were down 5%. US dollar revenue decline was principally the result of a major customer switching to a consigned tester business model. Under a consigned tester business model, our customer bearers substantially more business risk. However, this results in lower revenues for our test business. Test gross profit declined $0.2 billion sequentially with test gross margin down 1.2 percentage points sequentially and down 1.8 percentage points year-over-year. Gross margins were down sequentially, principally as a result of decreased loading during this quarter in a semi-fixed cost structure. Test gross margin declined year-over-year principally as a result of NT dollar appreciation. Outside of NT dollar appreciation, our test gross margins would have been stead improved to 0.4 percentage points. Overall cost of services for test decline $0.1 billion sequentially and $0.3 billion year-over-year to $4.2 billion. Our blended test utilization rate on a percentage basis decreased to the low 70s. Capital expenditures for the test business were US$28 million in the fourth quarter. During the quarter, we added 61 and dispose 40 testers, ending with 3,760 testers. Page 11. During the fourth quarter, our materials business unit had revenues of $2.1 billion sequentially and year-over-year down 2%. On a US dollar basis, our materials year-over-year revenue would have improved 3%. $922 million of revenue was from sales to external customers. This amount is a 3% decline as compared to the third quarter. Our internal self-sufficiency rate measured by value remained at 25%. Gross margins were down by 0.9 percentage points sequentially and 1.6 percentage points year-over-year to 12.2%. The margin decline is in part, the result of NT dollar appreciation in a higher manufacturing cost-oriented product mix. Page 12. Sequentially for the fourth quarter, our market segment movements were not particularly dramatic, with communications decreasing a percentage point and computing increasing a percentage point. Looking over the last two years, it does appear that the communication segment is becoming a smaller part of our revenues. This segment shift is not so much about the communications business shirking in as it is about new generations of products beginning to ramp. Smartphones are the common platform in everyone's pocket. From an IoT perspective, the smartphone is becoming the evermore robust remote control to people's houses, offices and commerce. In particular, we see sensors and AI-type products like autonomous driving, which extend the limits of human capabilities and senses. As mobile phones allowed to people to communicate with people in new ways, we are seeing products which implement AR and VR, allowing people to interface and communicate with the world of machines in new ways. Even passive forms of entertainment are increasingly being antiquated. Ask yourself this question. Who sits in front of the television at a set time for their sitcom anymore? Streaming, live feeds and social media are examples of things increasingly driving servers and data centers to our upgrade to offer more active and dynamic information. We believe we are on the cusp of the next wave of electronics. More units, more iOS, more connections, more product complexity, more business for ASE. Page 13. Here you can see the results from our EMS business. During the fourth quarter, we had record revenues for our EMS business unit at $43.3 billion. This is sequentially up 31% and up 25% year-over-year. The revenue growth was driven by various segments including consumer, communication, industrial, storage and automotive electronic products. Our gross profit climbed 17% sequentially and a 11% year-over-year to $4 billion. As we expected, EMS gross margin declined to 9.2% from 10.3% sequentially as higher volume lower margin product ramped during the fourth quarter. Relative to the previous fourth quarter, we had lower margin - we had more lower margin, high-volume products. We remain positive on our EMS business' prospects and expect positive growth momentum to carry into 2018. Page 14. Here you will note that our consumer segment continued its third-quarter strength into the fourth quarter. During the fourth quarter, our consumer segment accounted for 32% of our revenues, climbing 6 percentage points. And even though computing, automotive and industrial segment shares were either flat or declining. From a dollar perspective, each segment's revenue increased. The EMS business pickup in the fourth quarter was seasonal but definitely broad-based. Page 15. Balance sheet items. At the end of the quarter, we had cash and cash equivalents and current financial assets of $51.9 billion. Our interest-bearing debt decreased from $82.5 billion to $76.9 billion at the end of the quarter. Total unused credit lines amounted to $174.2 billion. Our EBITDA for the quarter was $16.1 billion. Machinery and equipment capital expenditures for the fourth quarter totaled US$142 million, of which US$103 million were used for packaging, $28 million testing, $7 million for EMS and $4 million for interconnect and others. For the full-year of 2017, we spent a total of US$639 million for CapEx, of which $468 million was for packaging, $134 million for testing, $26 million for EMS and $10 million - or $11 million for interconnect and others. Total year CapEx came in slightly below where we expected. Much of this has to do with a sizeable chunk of CapEx originally scheduled for 2017, being deferred into 2018. With that said, from a stand-alone entity perspective, we do expect our 2018 capital expenditures to continue our pattern of being above previous year's CapEx but being below depreciation and amortization. In US dollar terms, EBITDA for the quarter was US$537 million. Looking out into the first quarter, we are of course going to be busy with all our logistical activities, involved with preparing for a combined entity. If we hit all of the dates of our tentative schedule, our first quarter earnings release should be close to the re-listing date of the new ASE Industrial Holding Company. We are looking forward to and our excited by the opportunities of ASE and SPIL functioning under the same umbrella. From the business perspective, we see a positive overall business environment for 2018. We see an above seasonal pattern developing during the first quarter. And at this time, we see a strong seasonal broad-based upswing starting in the latter part of the first quarter, carrying into the second quarter. Crypto-currency mining does play a part in this, but even without such impact, we still see a healthy seasonal pickup in front of us. Of course the end markets will always dictate whether what gets made ultimately gets ordered and then reordered. There is one note of caution though. The geopolitical environment appears to be creating extra volatility and foreign currencies around the world. As we've seen, the NT dollar is continuing to be impacted. We don't believe we can properly forecast the impact of such movements. And as such, we have provided our business guidance outside of such potential impacts. With that, our guidance. In US dollar terms, IC ATM first quarter 2018 business should be slightly ahead of first quarter 2017 levels. Excluding foreign exchange impacts, IC ATM first quarter 2018 margins should be slightly improved versus the first quarter 2017 levels. EMS, the first quarter EMS business should be slightly below third quarter 2017 levels and EMS gross margins for the first quarter should be slightly above fourth quarter 2017 levels. Q - Bill Lu: Hi. Bill Lu, UBS. Happy New Year. So it's been a year, and TSM and UMC have both said that this year they expect semi industry to grow mid-single digit, foundry slightly outgrowing that. Can you give us your outlook for the assembly and testing industry?

I think we are pretty optimistic about the year and from the forecast that we are getting from our customers, it seems to be that we will start off with above seasonal first quarter. And going into second and third, we will see pretty strong uptick, both on the top line. I think the momentum that we are seeing is, aside from communication, I think all the other sectors seems to be going pretty strong. If we typically offset grows 2x the industry average growth, and we are pretty confident that we will be staying ahead on that front.

So you're saying better than 5% then, right, for the industry?

I'm not saying, I'm implying.

Okay. I guess what is a little bit confusing to me is TSMC saying in the smartphone is flat but HPC, bitcoin, these other drivers are taking off. I'm not really sure how that impacts the assembly and test industry because these businesses are smaller volume but very high ASP. So you will thing that that's not so good for the packaging sector. That's more unit-driven. At the same time, these businesses are not as price sensitive as for example smartphones. How do you think about that change for your business?

I think in - Q4 of '16, also Q1 of '17, we have seen some clear buildup at inventory for the cell phone. I think in 2017, we are actually working out of the inventory level. So entering into 2018, relatively speaking, we are much more comfortable about inventory level comparing to last year. So that comment was specific for the cell phone. So let me address on the others. You cannot just think about a packaging as a stand-alone component business. What we are implying here over and over again, and we've been saying this to all investors and I believe this is one of the reason why we really like to invite SPIL to join hand with ASE. If you only focus on the legacy, which is within the current framework, then you can debate about a mobile phone application. You can debate about the chipset. You can debate the number, reduction principle, three becomes two, two becomes one. And then you'll have a different picture about semiconductor. But if you really look back to semiconductor over the last 50 years, it's always about innovation. The application that will be dominating in the next 10 years, we simply cannot see. What we are seeing today is we have more OEM, ODM. We have IDMs and the system house. They are designing numerous new type applications, and those application are real, robust, AI, automation, electrical vehicle. We are seeing uptick on the standard MC to empower management chips that we already understand and we pretty much know what their value but we are seeing uptick on even the most traditional volume, and memory, MEMS sensors. Not only we are seeing the new devices. We are seeing a new combination of different kind of devices for new application and that really get us very excited. So move forward we understand. Now we are not going to comment about the mobile phone, the smartphone, the 5G. I think too many people understand that already but what we are seeing is from the packaging universe, if you only focus your attention on the legacy, you'll have one set of resolution. But the world, the government regulation and us, we have absolutely zero restriction on creativity and innovation, and that should be the area we should all embark and engage. In 2018, I think you will see a strong uptick of the ASE - well, I have to use the packaging but the packaging with a flash nuances of new business application, new model and so we're very exciting.

Thanks very much, Dr. Wu. Just thinking on one last question. So margin, if you look at in terms of US dollar basis was quite good. Can you talk about the drivers behind that maybe in terms of cost cut in terms of pricing environment, in terms of volume, what are some of the major factors?

The pricing environment has always been as competitive as ever. The cost of goods sold, we all understand some raw materials prices gone up. So the market environment has always been friendly or unfriendly as always the stayed. It's always like that. What we are seeing today is because of the scale, because of the automation, because of the factory processing efficiency improvement, you will see a continued drive for output, mainly the efficiency. And we are pretty confident that we have seen good results starting from the rebalancing effort in 2016. I think that rebalance effort move into 2017, even with the very, very adverse NT dollar environment. I think 2018, if there is no major shift in changes, we should see another incremental improvement on our efficiency.

Happy New Year, Dr. Wu, Joseph and Ken. This is Rick from Daiwa Securities. My first question just to follow-up Bill's question about your optimistic outlook for this year. I think apart from the application you mentioned earlier, do you foresee any market share gain or market share recovery for this year to drive your momentum?

The market share gain is a very dangerous word. What we are confident is the business demand from our end customer and also our confidence in the pipeline because the technology content and the cost model that we have provided. Now, right now if you really look at the assembly and test world, you have a new emergence of subsystem or SiPs, and how do we really group that under the traditional component business, or is that EMS type of business? It's neither. So in terms of market share gain, we really have to further quantify that as new application, new devices that did not exist before. And those opportunities are in very, very large scale if you can find the end customer that can drive the market and have consume willing to buy it. So market share gain from that aspect, yes, but in terms of traditional business it becomes very, very convoluted.

Okay. Second question is, I think, we also talk about the new businesses, especially like HPC type of leading-edge product. But as far as I know, right now most of these products, leading-edge when it comes to back-end, it's still quite calculated foundry space including for example like Info or even Korres [ph]. So I'm just wondering how you guys get a piece of business from this.

I will not comment on specific technology because it's too sensitive. But if you look at a segment, there is always reason why end customer will likely to turnkey at the beginning because the yield, the cycle time, the time to market, we understand that. However what I would like to advise is to look at the real business you have to look at business as saturation at maturity. If you always look at the leading edge, I do understand we are making a certain comment and maybe the business rationale are completely correct for the new business. So what I would like to advise you is to look at the broader based foundry, a broader based business requirement from much broader based customer, then you ask the question what will be the technology that can serve the mature market when you scale it. I think those are the - in terms of roles and responsibility, there is always overlap between IC, between OEM, ODM, between foundry and packaging. The overlap on NPI [ph] on the initial yield improvement, and technology development, that's rightly so. We have to have that, otherwise there is no handshake from the whole ecosystem. But my comment has always been, you have to look at a business at the scale and maturity what would be the right business model and who should be and what responsibility. By that aspect, even the high performance computing on the fan-out, on the 2.5D, I believe there is a broader base demand by different customer, different price point and different requirement and different ownership about a sourcing and also about all of the business, the decision because I think there is a place for all sectors.

Okay, thank you so much. One last question, just a housekeeping. I think Ken have mentioned some answer but I still want the whole picture. So your utilization rates for Q4 amounted three, packaging, testing and bumping. So how many wire-bonders you added in Q4 and how many you dropped - you disposed in Q4, and also the guidance, utilization guidance for Q1? Thanks.

I actually misspoke on the testing utilization. It's actually in the mid-to high 70s. Wirebonding was in the low 80s. Non-wire bond was in the mid-80s and then substrate was mid-70s.

Sorry, the substrates how much?

Mid-70s.

Mid 70s and wirebonds in low 80s, right?

Low 80s, yes.

Okay, thank you.

We didn't add any bonders.

Q4, how many bonders we added?

I think we added three bonders in Q4.

That's a lot.

Thank you. Sebastian from CLSA. My first question is TSMC talk about the semiconductor industry grew 9% in 2017. If I calculate ASE, the IC ATM business in US dollar terms probably around 6% to 7%. SPIL even lower than that. Does that mean that - so what was your numbers estimate for the OLSA [ph] industry growth in 2017, and why ASE and both ASE - well, probably you cannot comment on SPIL now, but just ASE lower - why is that a case, lower than that?

If you look at our business model, we rely largely upon our end customer. So if the 9% in 2017 logic semiconductor growth is correct, then obviously we undergo comparing to the industry, which means that some of our end customer, they basically under grow comparing to the industry in 2017 and that will be the logical explanation. And we cannot comment on specific customer. But beginning of 2017, we have seen some slower demand pickup by some of our customer, mainly the communication area. However, if I followed the same logic, I will say that in 2018, we are cautiously optimistic that trend will be reversed. In this industry, we don't always go by year-on-year, but if you look at over three to four, five years or 10 years period, I think that relative comparison is pretty accurate.

Okay. So is that more because you expect your customers will have - will get more share this year, so indirectly you benefit, or is it because a lot of the IDM, they are so tight right now, so the excessive demand they have to outsource, so you benefit, which one?

I think both.

And in terms - second question is that earlier you mentioned about you have the high confidence for demand pickup in the second quarter and third quarter. I guess, smartphone is still weak this year presumably. So which application especially do you expect, and also to give you this high visibility for the pickup in 3 to 6 months from now?

Just a clarification, we did not say smartphone is weak.

Okay so…

I did not say that and I don't want to comment on whether a smartphone is weak or not. I can only comment on my end customer, the forecast and the solid forecast demand they gave to us and it actually includes the smartphone. So I actually cannot comment on that. I have seen strong in electrical vehicle, power devices, and of course the high performance computing or the crypto-currency. We are seeing very broader base and also optical sensors and also memory. I will not comment - I will not give you a comment yes or no, up or down, on the smartphone. That question is just too sensitive and I do not have enough information to make that comment.

Okay, so you mentioned about memory. So is it the discrete memory packaging or the memory goes with other logic?

Both.

Okay. So is DRAM, NAND or smaller density?

It will be in the generate memory terms in a hybrid, in the more advanced packaging type format. It will not be the component level as we knew before.

Okay. Third question is on the capacity and do you experience or do you see any tightness in the capacity or a certain type of the packaging technology?

Yes, we do. That's why the - I think Ken commented in this year, we do expect the CapEx number to pick up. I'm not exactly sure how specific can we be. But this year we do expect to spend more CapEx. And as a matter of fact, I'm not even sure we can talk about the CapEx number. The CapEx number will be - in Q1 and Q2, we will spend the good amount of CapEx to ramp up the capacity, so it's real.

So can I ask more details about the tight capacity is mainly in wire-bonding or bumping or which packaging technology?

I think you have to assume it's everything.

Last question from me is that I'm not sure with your early comment about the crypto-currency mining impacts or demand. I wonder how does that impact your above seasonal first quarter. How much is driven by that?

How much? Well, it's part of the demand that we have. I'm not sure I have the freedom to give you what percentage of our revenue. And I'm not even have knowledge to explain what the key to crypto-currency in terms of next 10 years outlook. But I only know the demand is very strong now. And the question is do we have the supply chain, do we have the capacity and do we have the right margin structure to support that demand today, and how much confidence do we have about the requirement, the demand for the next two quarters or the next four quarters, and those are the judgment based on the capacity allocation, based on the capacity utilization, the margin structure, then we'll make a decision who do we support.

Okay, so do you - so help out, I think no one can predict that in 10 years but the help out just for this year.

I don't think you can predict that even for the year. Where do you think the bitcoin price is going to be tomorrow?

I think what Sebastian is asking is maybe if I know is do we think the demand at least for the packaging is real for 2018. The answer is yes. The demand is real.

So if I tie this with your capacity expansion, are you adding capacity or spending money for this incremental demand or no?

We are expanding capacity for all customers and they are part of it. I am not in the - I don't think I can give you a comment are we spending CapEx specifically only for a particular customer in a particular sector about two quarters. I will not make that comment. But when we make a capacity expansion, we will look at the risk profile as well as the overall demand profile, are we buying the general capacity that we are confident one year, two years and five years out throughout the depreciation period. Do we have a good probability and confidence, we can utilize in the right investment and return and the answer is yes.

Thank you.

Do we have - okay, Bill?

Just a couple of follow-ups. Can you talk a little bit more about this SiP-id platform, as far as how many customers you have working with you on this platform right now?

So I can tell you that in the last five years, you understand ASE thesis has been SiP is brand-new. It's fantastic. We are in the right position, so I don't need to repeat that. Part of the issue we have dealt with is whenever we start working with the customers, they love this technology and they love the projected performance form factor, yield, integrated design and also time to market. The difficulty has been largely they do not have the right design tool. Now if you were an ODM, OEM assist guys, you really do want IC chip design. If you're IC design guys, you really don't do the PCB design. Now both sector, even if you know of both, adding the exposed window for optical sensor, adding the conformance shielding, adding the build-in antenna, adding the RF power, low power, high power, latency, MEMS, memory. Most of the people got lost. They don't understand the boundary, the ground rule. What if I do this 10 components in A format, in B format? What is the yield projection? Just start doing something random. And we have the calibrated explain then you cannot do this, you cannot do that. Eventually you start building prototyping and you realize you have a problem, especially in the RF in certain new form factor that no one has experienced before. So people stop playing with all kinds of DOE [ph]. So in the last five years, we have gone through hundreds of new product NPI with everybody. The demand is there but the cycle time has been laborious. And also in the chip layoff file, you send it to PCBA. You send it to SiP. They are not compatible. You got to do manual check. So we finally get together with Cadence. We talked to cadence about 2.5 years ago and we put in a lot of engineers. We are working with the Cadence team. We together layout all my customs issue and start piecing together the ASE ground rule on PCB, on layout, all kinds of experience that we already have. We understand this is the way you should do it. This is the way you should not do it. And Cadence being the number one, they understand. They stop piecing all of this together. So right now, the SiP-id in the simplest way to understand, it is something you can design from beginning to end using exactly same platform. You don't need to change data file. They understand the beginning to the end. Whenever you want to make a software upgrade, design upgrade, the whole thing it changes right away. So the simple fact that you have a common platform, you have the same template and format, you will save months of design time. Now with this, our customer, as was the industry, they will have the freedom to start designing something out of the current experience base. You have to understand that. The definition of SiP. It is something - there is a better more efficient application that does not exist today. However most of the component, the building block, is already exist and much lower cost. So by doing this, we believe we create a common design platform that can open up the imagination of the designer. I think the key thing is we have to let designer to use their imagination and help us. But this I believe is really a major milestone in this industry because this is the first one substantiated by the real manufacturing empirical database and ground work and then all of the designer at all levels will have something they can use.

If I take that one step further, if you look at the SiP growth this year, would it be fair to say that you've got some new customers that's layering into the growth, or is that going to be later in this year still going to be your traditional customers?

I think both answers are true. We will have multiple customer. The question really now is what application, what volume. And those are the area that we have struggled for the last five years. We will try and get this jump started. We know this technology is good. It's good for the industry. It will be embraced by everybody. But the question now is, how do we really do this? You really have to understand that. For any kind of emerging market, somebody has to take leadership. Infrastructure, design platform is part of the leadership. What areas would like to different this time is we want to just put a flag there. SiP is ASE, and this is the way we will work with everybody in the world to create the building block. Cadence on the design flow. TDK on the embedded system, and work with the other key players which we announced over time in terms of different geography, different business model, and this is really the campaign that we will do for next 10 years.

Is this exclusive? Can Cadence use the same platform and give it to somebody else?

Okay, now the way we do that is there will be a 12-month period where ASE exclusively use this with all of our customers. However, with the agreement of ASE, Cadence can sell the same tool. We are not trying to be parochial, so that only ASE can use it. That was not the intent. However, I do need to have 12 months lead time for all of my customer to start enjoying this, and after 12 month, with the agreement of ASE, anybody can use it. That was the whole concept.

Sorry, I'm going to ask you a question on the ASE-SPIL merger. I know you are limited by what you can say. But the MOFCOM approval was with conditions. Can you just talk a little bit more about within the next two years, what you can and cannot do just in terms of synergies or engineering cost and all the good stuff?

Well, I think to put it simply, I think the restriction is really just put on us, so that we remain as an independent operations between the two of us for two years. And we don't particularly feel very, very strenuous about complying to that because even now ASE itself, we have different profit centers in the different sites, so we are very used to that kind of a model and adding SPIL into the picture doesn't really change the fundamentals of how we work. However with internal competition, of course still exist. There is certain collaborations as well. And mainly will be in the R&D area, as well as to some degree in terms of capacity alignment that sort of arrangement. So the restriction or the plan that the MOFCOM gave us, does provide some flexibilities in these two areas. So I think given time, I can't tell you exactly when and how much or how we can achieve whatever synergies that can be created during this specific period. However there is room for us to collaborate, and I think we are not in a hurry. I think we will let things progress naturally, and it will take some time for us to get used to each other and work together gradually and eventually we see good potential of synergies coming out of this combination. But saving a dollar here or a penny there, it doesn't really make a stretch. I don't think that is really the main purpose for us to have this combination. I think it's really for the longer term. I think eventually we need to have the scale to meet the challenges coming in the next 5 to 10 years. We are seeing consolidation happening in our customers. They are getting much bigger, getting much more leverage over us. We are even in our own segment. We are seeing - our competitors are consolidating with each other as well, like JCET, STATS ChipPAC, Amkor buying J-Device, Nantong bought AMD facilities and so on and so forth. So a lot of upcoming challenges in front of us and scale is really the way for us to meet those challenges. I think that's the ultimate goal for us.

Sorry, one last question. This is the follow-up on the Sebastian's question. But if you look at HPC, and you didn't want to define bitcoin. But if you look at HPC overall, what is that as a percentage of sales?

One follow-up on the - if I can, on the issue with - the upcoming merger with SPIL. Just want to - yes, okay. Just want to clarify. So Joseph you mentioned that MOFCOM allows some flexibility in R&D in the capacity alignment.

Yes.

Okay. So if I read through - I've read through the official documents from MOFCOM. I'm sorry, I want to read this in Chinese to make sure that I don't misinterpret what is said because it allows on some rights between you and SPIL during this restriction period. One of that is say that [Foreign Language - Chinese]. So my question is on the first on really the R&D, second related to non-packaging business - non-IC packaging business. So I think Joseph, you already talk about this, some flexibility on R&D integration. The second is that I want to wonder the non-IC packaging business collaboration. Does that mean that SPIL can work with something with USI?

I think both of us can work with USI. There is no restriction particularly on that. It's just if SPIL wants to work with USI, it has to work on its own, without all three of us teaming to together. I think that's what the restriction is about. But for that really is that at the reason why we have that clause in there is because at the holding level, we want both companies to kind of focus on its core businesses. So if once I wants to do something that's considered first one non-core or now even strategic, the holding companies need to have a say on that. I think that's basically why we have the clause there.

Okay, so how about the material? ASE have the internal material substrate. So does that mean that SPIL can also…

This is under our normal business transaction, our substrate, our material we can sell to whoever, including SPIL.

So go back to the first flexibility that MOFCOM offers on the R&D integration. So does that mean that before November 2019, we could also see some R&D efficiency improvements reflecting on your numbers?

It will certainly help so, yes.

Okay, thank you.

Hi there. It's Rick again. Just a little - one little question. So when you say the holding company was start effective on 3 April and the new share will be also listed on same date, right?

Yes.

Okay. Thank you.

I think timing-wise after the each year on February 12, we will start the process of both delisting and listing. Delisting of ASE Inc. and SPIL, and the listing of the holding company eventually, and all will happen at the same date on April 30 tentatively. On April 30, ACE Inc. and SPIL will be de-listed, while the holding company will be listed.

Just wanted a little clarification, so it's the dual list, both come in Taiwan and US, right?

Yes.

Do we have any more questions? I have a caller online. Steven Pelayo. Steven?

Yes, Steve is on.

Okay, great. Thank you. I don't know if you're aware but the audio was not working for the first 35 minutes of the call, so I apologize if this has been addressed. And I'd also appreciate if there is any way management can maybe release transcripts or something like that. But I'm curious on the CapEx. You're talking about increasing in 2018. Can you just provide some qualitative comments on that? ATM versus EMS, investing more in Taiwan versus China, particular package technologies. Can you give us a little bit of color on where you want to direct that increasing CapEx in 2018?

I think CapEx-wise for the year, as we said, it will be higher than last year but now over the depreciation and amortization put together. I think this time around because of some push out of CapEx from last year, I think the total number will be much closer to depreciation and amortization number. I think the bulk of it will still impact in Taiwan and as well as in packaging. Although I think for test, it will be similar to last year's level. And there will be some spending on some of the new projects that will be taken on.

Given all the plans for increased front end in capacity in China over the next year or so, I think there is 5 to 10 different projects in various stages. Are you going to be directing more CapEx into the mainland as well?

Yes.

Can you quantify maybe a little bit relative to this year versus next year?

Well, I think right now the output from our China factories is about 16% of our overall and we will just make the necessary CapEx as we see the business grow in China.

All right, maybe if I can just sneak one more question in. I'm curious about the new customers. You guys talked about ODM, OEM, system houses. How do we quantify that? Is there some way you can help us understand? I don't know if I heard an answer to Bill's question on what percentage was total HPC business. But if I'm looking at companies like Google and Microsoft taking their own chip, how do I try to quantify that? Can you help us provide maybe color on what these newer customers might represent for you guys?

Well, we typically grew customer in the - we have system customers. The two examples that you just referred to, I think they will be quantified as a system customers. Then you also have some ODM, OEM customer that are typically like the EMS or the ODM with their own brand. That will be the second category. Then we also have the IC design house that could be the IDM and it could be fab-less and they sometimes will also like to design their own module for whatever reasons. And by the way, we did not offer the percentage of the HPC.

You did not. Okay. Can you for how much revenues for the system houses and how much you think that could grow this year?

That we don't. No. right, we do?

From a group perspective, I think it's over 20%.

Over 20%, okay.

Any additional questions? I guess that's it. Thank you very much for attending the ASE fourth quarter 2017 conference call and earnings release. See you next quarter.