Ken Hsiang - Head of Investor Relations Joseph Tung - Chief Financial Officer Tien Wu - COO Eddie Chang - VP in-charge of Public Relations

Randy Abrams - Credit Suisse Rick Hsu - Daiwa Securities

Hello, I am Ken Hsiang, the Head of Investor Relations for ASE. Welcome to ASE Group’s Second 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 this earnings release, Dr. Tien Wu, our COO will be providing a recap of the quarter and I will be going over the financial results. Joseph Tung, our CFO and Tien Wu will be answering questions during our Q&A session. Following the event, our VP in-charge of Public Relations, Eddie Chang will be addressing the media in Mandarin Chinese. Without further delay, our Chief Operating Officer, Dr. Tien Wu.

Good afternoon. What I would like to do is to give you recap for the second quarter performance as well as the first-half recap. Also I would like to give you a indication for the second half outlook. As you can see on the chart, our Q2 revenue came in US$2.189 billion 3% quarter-on-quarter and 13% year-over-year. As you all know, second quarter of 2017 has been a challenging quarter. We have seeing some inventory adjustment, also mild. We have also seen some demand. Regardless ASE Group has performed above our expectation. The Q2 net earnings came in US$260 million. Ken Hsiang will give you a more detailed breakdown for the composition of the US$260 million net earnings. To recap the first half, revenue for the group came in US$4.32 billion, year-over-year represent 13% growth. The first half industry environment we all know that we have seen some mild inventory adjustment as was some slowdown in particular segment. Our observation based on the customer input is the inventory status right now for the second half will be in check. It’s purely a demand driven. We do have some healthy product cycles, but right now for the second half, from the ASE group perspective, we maintain our view of quarter-to-quarter growth. We are optimistic about the demand. We have seen healthy demand in the industrial, automotive. PC is also in check, we believe the wireless will have some new product cycle and should be healthy to the ASE growth. Let me give you a recap for the ASE-SPIL transaction update. I’m sure many of you have questions. I would like to give you a summary. On this page, we have reported all major events through the announcement. Just to give you recap. November 16 last year, Taiwan has offered approval. On May 16 of this year, United States has offered approval. We have filing showing the August 25, 2016 we filed with the Chinese MOFCOM. On June 6 of this year, we withdrew and re-filed the same case. And right now we have no new additional information to report. The only we can tell you is that all parties are aggressively going through the process and hopefully we can get this done as soon as we can, thank you.

Thank you Dr. Wu. As Dr. Wu stated in his opening remarks, we expected a soft seasonal environment to the communication sector and we got it. We even properly foresaw the amount of NT dollar appreciation impact to our earnings, to our results and margins. We also were able to unlock value within our balance sheet. We generated a sizable gain for our shareholders and as a direct result of that gain; we are required to accrue bonuses within the company that is the picture of our finance that our financial results will show. So before we get into the detail of the financial presentation, we have prepared two slides here to go over the impact of NT dollar appreciation in the investment gain in our second quarter results. I apologize for not being able to make the cut off time to the printer for these the slides. I would recommend that you take pictures of the slides as it isn’t included in your packet. The slide will also be available from our website. We’ve prepared an estimated summary of the impact of NT dollar appreciation on the group and IC ATM and EMS business units. There are three tables here. The top table shows the various average US dollar to NT dollar exchange rates used for this earnings release, quarter-over-quarter or year-over-year and first-half comparisons. The table on the bottom left shows the impact NT dollar appreciation had to the group. IC ATM and EMS gross margins for quarter-over-quarter and year-over-year. And finally, the table on the bottom right shows our revenue growth rate in US dollar and NT dollar formats. And then to -- during the quarter we entered a transaction to introduce a local partner to help co-develop our [Indiscernible] sites Living Zone. Again associated with this transaction, was NT$5.6 billion. With associated taxes of $1.4 billion recorded in the tax provision. Further, as required by our corporate policy we accrue bonuses based upon the net income of the company. As such, this resulted in incremental bonus accrual at the group and IC ATM level of 0.1 billion in cost of goods sold and 0.3 billion in operating expense. Group in IC ATM had impacts of 0.2 and 0.3 percentage points to gross margin, and 0.6 and 1.0 percentage point impacts to operating margin. Payout of the bonuses accrued are still subject to the approval of our board of directors. Once you adjust for tax impact and the bonus in the bonuses tax impact, the gain has a NT$3.9 billion impact to earnings or NT$0.48 per share. With that, let’s start the financial overview. On a fully consolidated basis for the second, the company delivered fully diluted EPS of NT$0.89 per and basic EPS of NT$0.97. Our packaging and direct materials businesses were up 2% and 4% respectively. Our test business was flat and our EMS business was down 4%. Total revenues for the consolidated group declined by 1% to NT$66 billion, however, on a US dollar basis, revenues grew by 3%. Gross profit increased from NT$12 billion to NT$12.1 billion with consolidated gross profit margin increasing 18.4%. As presented earlier, Taiwan dollar appreciation had a one percentage point impact to consolidated gross margin. Operating expenses increased slightly by NT$0.1 billion to NT$6.9 billion. Our operating expenses as a percentage of sales increased from 10.1% to 10.4%. Bonus accrual related to investment gain accounted for NT$0.3 billion of operating expense. Operating profit and margin for the second quarter were flat with the first quarter at NT$5.2 billion and 7.9% bonus accrual had a 0.6 percentage point impact to operating margin. During the second quarter, we had a net non-operating gain of NT$6.2 billion as versus a net non-operating loss of NT$1.4 billion the previous quarter. The current quarters non-operating gain includes the following; net gain related to foreign exchange and hedging activities of NT$0.6 billion net interest expense of NT$0.4 billion, gain from investment of NT$5.6 billion, income from spill net of purchase price accounting of 0.4 million or billion, stock movement was neutral for this quarter thus our ECB had no material non-operating impact during the quarter. Pretax profit for the second quarter was NT$11.4 billion up from NT$3.8 billion in the first quarter. Income tax expense was NT$3.2 billion in the second quarter. This amount includes tax related to the investment gain of NT$1.4 billion and in addition to undistributed earnings tax expense of NT$0.8 billion. Net income for the second quarter was NT$7.8 billion. Group quarterly results on a year-over-year basis comparing the current quarter’s results versus the same quarter last year our packaging direct materials and EMS businesses grew by 122% and 14%, while our test business was down 2%. On a on a year-over-year basis, our consolidated net revenues increased by 5%, and in US dollar terms, revenues increased by 13%. Our gross profit was down 1% to NT$12.1 billion. Our gross profit margin declined 1.2 percentage points to 18.4% from the previous year, principally as a result of NT dollar appreciation. Despite higher EMS product mix, paired with seasonally soft IC ATM revenue, our gross profit margin would have actually improved significantly outside of NT dollar appreciation impact of 2.1 percentage points, and investment gain bonus accrual of 0.2 percentage points. Operating profit was down with our operating margin declining 1.5 percentage points. This decline was primarily caused by NT dollar appreciation that flowed through from gross profit. Revenue mix shift from a soft communications sector and bonus accrual related to investment gain. Page four, IC ATM P&L, during the second quarter our IC ATM net revenues increased by 2% to NT$39 billion. IC ATM revenues on a US dollar basis grew by 5%. Revenues for IC packaging in direct materials businesses increased 2% and 3% respectively while our test business stayed flat. Gross profit improved to NT$9 billion from NT$8.8 billion. Despite NT dollar having a negative 1.4 and investment gain bonus growth having a negative 0.3 percentage point impact to gross profit margin. We were still able to improve gross profit margin slightly to 23.1%. Operating expenses inched up to NT$4.9 billion from NT$4.8 billion with our operating expense percentage staying flat at 12.6%. The increase in operating expenses primarily attributable to incremental bonus related to our investment gain. Operating profit improved to NT$4.1 billion, operating margin for the second quarter was up slightly to 10.5% bonus accrual for investment gain had a 1.0 percentage point impact to IC ATM operating margins. Page 5 IC ATM year-over-year. Our packaging business and direct materials businesses were up 2% and 20% respectively, while our test business was down 2% on a year-over-year basis. Total IC ATM revenues inched up 1% while on a US dollar basis IC ATM revenue grew by 9% year-over-year. Gross profit was down 6% with our gross margin declining 1.7 percentage points. NT dollar appreciation negatively impacted year-over-year gross margins by 2.9 percentage points. Operating income was down NT$0.8 billion with operating margin down 2.3 percentage points. Our operating margin decline was again attributable to NT dollar appreciation and bonus accrual related to investment gain. Page 6 packaging operations. During the second quarter our packaging revenue improved 2% sequentially and year-over-year to NT$31.7 billion. On a US dollar basis, packaging revenue improved 6% sequentially and 9% year-over-year. Our packaging gross margin declined 0.1 percentage points sequentially, and 0.9 percentage point’s year-over-year, both of these margin declines were driven by NT dollar appreciation of 1.4 percentage points sequentially and 2.9 percentage points year-over-year. NT dollar appreciation and bonus accrual were offset in part by better factory efficiency. During the quarter, capital expenditures were US$161 million, composed of wafer bump, fan-out, and copper pillar equipment at US$78 million and common SiP and wirebond equipment at US$83. We exited the quarter with a total of 16,118 wirebonders in operation. 8-inch wafer processing capacity increased slightly to 98,000 wafers per month and 12-inch wafer processing capacity, including bumping fan out and copper pillar remain increased 12,000 units to 128,000 wafers per month. Page 7 test, test, revenues were sequentially flat at NT$6.4 billion. On a year-over-year basis, test revenues were down 2%. Gross profit margin of 34.2% was up 0.8 percentage points sequentially and down 2.6 percentage points year-over-year. Margins were up sequentially as a result of product mix offset in part by NT dollar appreciation of 1.6 percentage points. Margins year-over-year declined primarily as a result of seasonally soft quarter and NT dollar appreciation. NT dollar appreciation had a 3.2 percentage point impact on year-over-year test gross margins. Overall, cost of services for test stayed relatively flat at NT$4.2 billion sequentially and increasing NT$0.1 billion year-over-year. Our test utilization rate on a percentage basis remained in the low to mid 70s. CapEx for the test business was at US$47 million in the second quarter. Page 8 materials, revenues of NT$2.1 billion were sequentially up 3% and down 13% year-over-year. During the quarter NT$928 million was from sales to external customers. This amount is a 4% increase as compared to the first quarter. Our internal self-sufficiency rate remained at 27%. Gross margins were sequentially up by 2.4 percentage points to 14.4%. Page 9, IC ATM revenue up by application Here’s an interesting trend which further illustrates the seasonally soft communications segment. The communication market segment declined by two percentage points to 48% in our automotive, consumer and our automotive consumer and other segment increased two percentage points. Other our computing segment stayed flat at 11%. Page 10. EMS. Here you can see the results from our EMS business. During the second quarter, revenues for our EMS business unit was at NT$28.2 billion, sequentially down 4%, but up 14% year-over-year. On a US dollar basis, revenues were flat quarter-over-quarter and up 22% year-over-year. In the same timeframe despite the revenue decline, our gross profit was flat with the previous quarter at NT$3.1 billion and up 22% year-over-year. Our EMS gross margin increased to 11.1% from 10.6% sequentially up half a percentage point based on higher margin products. Gross margin was up 0.8 percentage points year-over-year. Our EMS businesses gross margin should begin to subside as lower margin, higher volume products begin their seasonal climb during the last half of the year. Page 11, don’t have much commentary here, view it as you wish. Page 12, ASE group balance sheet at the end of the quarter we had cash, cash equivalents and current financial assets of NT$48 billion, increasing from NT$46.2 billion the previous quarter. Our interest-bearing debt decreased from NT$97.9 billion to NT$91.6 billion at the end of the quarter. Total unused credit lines amounted to $175.7 billion Our EBITDA increased by 62% to NT$19.1 billion, EBITDA per share was NT$2.35. This was helped out significantly by our investment gain recognized. It should be noted that on Wednesday, July 26, we delivered notice of our intent to redeem our zero coupon convertible bond due 2018. These bonds will be redeemed on September 6, 2017 at 100% of the principal amount, the last day for bondholders to request conversion will be August 30, 2017. As of July 15, 24% of these bonds have been converted to common shares. 313 million shares remain to be converted. Page 13, capital expenditures, machinery and equipment capital expenditures for the second quarter totaled US$213 million of which US$161 million were used for packaging operations US$47 million in testing operations, US$4 million and US$1 million for internet -- interconnect materials. In US dollar terms, EBITDA for the quarter was US$633 million. We continue to be committed to our capital expenditure discipline. We continue to see our capital expenditures for the year to be below our depreciation and amortization expenses. If you look at the whole picture, the company delivered improved quarter-over-quarter results and our slow moving inventory chewing environment. Nearly everything was marginally better, revenues, gross margins, operating margins, but as we expected NT dollar appreciation clouded those results and making our second quarter performance even less obvious our investment gain triggered gross and operating margin charges all related to bonus. For what ASE does, we can't afford to be neutral in our view of which end product does well or does poorly. As the worldwide leader in outsourced assembly and test we know that products will become more complicated. We know that transistor densities within a defined set of space will increase. We know that the connections from the transistor level out into the real world will increasingly become more complicated. Complexity, density, technological advancement, our ASE friends. Whether it would be the new, new smartphone, artificial intelligence, self-driving vehicle or the third, forth or even fifth coming off IoT there are commonalities in the types of packaging necessary to deliver these products. We choose to focus on the broad packaging and testing technologies that service these products trend of the future. SiP, copper pillar, fan-out along with plain old wire bonding are part of the necessary array of solutions available for our customers to provide the next new thing. Looking into the third quarter, there are exciting products on the horizon. Here is an interesting fact actually. From an analysis of the sales numbers there is no difference between a consumer eagerly waiting to buy something versus a consumer not interested in buying anything at all. Both these individuals have not purchased anything, but one will and one will not. And yet they look the same. And when we and the industry look at the composition of the potential consumers in places like the U.S. and China it’s difficult to figure out one from the other. With that said, we believe there to be a pickup coming up, however we believe our simulations show a wider range of potential results. This is where we generally say things lack a lot of clarity. We do for a soft communications environment to subside. We also don’t expect NT dollar appreciation to make a major impact to our results, but of course that is not within our control. We are cautiously optimistic. Our third quarter should be good. So with that said, our third quarter 2017 IC ATM business should be a notch or two below third quarter 2016 levels. Our third quarter 2017 IC ATM gross margin should be similar to the second quarter 2016 levels. Our third quarter 2017 EMS business should be similar to the average of the third and fourth quarter of 2016. Our third quarter 2017 EMS gross margin should be similar with the average of the first and second quarter of 2016. Before we start our Q&A, I would like everyone to note that we cannot provide any further details in regards to our discussion if any with regulatory entity as it relates to ongoing transaction with the SPIL. The company appreciates if we do not have further questions related to such. Thanks. Q - Randy Abrams: Yes. Thank you. It’s Randy Abrams, Credit Suisse. The first question I want to ask if you're seeing changes in seasonality for second half. The guidance applies kind of mid to high single-digit growth for IC ATM, and also I think EMS looks a bit more flattish than the prior couple of years. So if you’re seeing a shift in seasonality. And maybe if you can elaborate on the wider range of outcome to some of the volatility you’re seeing?

We’re not seeing different seasonality. If you’re asking between this year versus the previous few years. So I think the third quarter, I think we have provided some implied guidance that you can probably crunch out the numbers.

I guess what I was asking here, you seeing maybe then a bit softer than prior year like last year I think it was up over 10%. In the past years EMS, it look like had a sharper ramp in third quarter. So is it either softer, do you see potentially say a bit more shifting in the fourth quarter than normal?

I think the industry has experienced the first half where we do have some slower demand. In other words, if the second half is mainly product driven than we need to be careful. We can only speculate it to a certain extent, but right now based on the customer forecast, based on internal stimulation and this is the set of the implied guidance that we can come up with. In terms of the overall demand for any segments, I think it’s fair to use the whole year number in the -- instead of using the first half number.

Hi, guys, as Tien mentioned we don’t see any significant changes in terms of seasonality. I think we are seeing some ramp up in both IC ATM as well as EMS. In terms of magnitude, I think we’re coming off with slower first half and we will see some softness in some segment market. Therefore the overall momentum seems to be impacted a little bit, but more so on the EMS -- but I think the EMS is really not the change of seasonality, but more towards our effort in rebalancing our SiP bases, which we have been more selective in terms of what business we want to get into and that has an impact on the overall growth momentum.

Follow-up on the EMS rebalancing. The first half and actually gross margins have done very well to pick up that’s you’re guiding. It looks like the sales are bit mild but more a gross margin impact. Is it just more of the mixed profile that second half have more SiP and less of the traditional EMS at higher margin?

That’s correct. I think going into the second half, I think particularly in the EMS business that is SiP business will start to pickup and it has some impact on the margin.

Okay. The other question I wanted to ask. Just your tick I guess seeing SPIL in the market. It looks like their sales have been a bit slower like sales are probably down slightly year-on-year and gross margins say reported are down about four, five points from where they were say year or two ago. Are you seeing change just with this deal kind of going on for a while, changes that somehow it's behaving in the market just from competitive positions?

I don’t think we can see for a SPIL. I think we really need ask them those questions.

Okay. And then the final question I just wanted to ask. When you mentioned softness in the market, I think there were some softness Android, first half. If maybe you can point to any area you’re seeing softness continue as you go towards second half?

We’re not going to comment on the product. Thank you.

Thanks a lot.

Name and company.

Yes. Hi. My name is Rick Hsu from Daiwa Securities. Good afternoon. So, my first question, again is a housekeeping question. So among your wirebonding, testing and pumping, what capacity was a new add and retire for each segment second quarter?

Let me dig out the numbers. I think for founders we had 205, we retire 50 or so.

Yes. 50.

All right. In testers.

Added 104, deleted 90. Ended the quarter at 3,796 with 1,184 consigned.

Your next is question is utilization, right?

That’s right. Thank you.

Pumping in each were 98.

97.8, and then 12-inch at 128, 128,000 [ph].

Yes. And utilization.

Okay. In terms of packaging we are at above mid 70s and for test we are at low 70s, substrates, we are at mid-70s second quarter.

Right. Thank you. So what about the utilizing rate for Q3?

Q3 we’re expecting packaging to be at low 80s, testing at high 70s to low 80s, whereas substrates, it will be inch up to low to mid 80s.

All right. Thank you so much. The second question is, if I look at the guidance from TSMC it looks like the foundries will likely see in above seasonal demand for Q4 and although Q3 is kind of so-so, will you guys see the same trend for your Q4 business outlook about seasonality?

We do believe we will see a quarter-to-quarter growth in Q4 comparing to Q3. At this point in time we do not see a strong deviation from the normal seasonality. But that could be due to the product timing.

All right. Thank you so much.

I think we do have different customer base and also products mix with foundry, I think in TSMC in particular. But I think the percentage doesn't really represent true picture if you make the apples to apples comparison.

Thank you. No further questions from me.

Any more questions? Name and company

So, my first question is on your fan-out business. Can you give us some guidance about your current capacity. What kind of semiconductor project that you’re doing for fan-out now. And for next year what kind of growth you’re expecting from this business? Thanks.

The current fan-out capacity on 12-inch, right now, it’s about 15,000. We will continue to grow the fan-out capacity throughout the year. At this point in time I will not give you the precise number. It really depends on the utilization, as well as the customer adoption rate. I will not be able to comment the specific customers, but we do have a good portfolio of customers. In other words, we do more than five customers signing up for those capacities. And right now if you're asking the utilization, utilization rate is quite healthy.

Okay. Thanks. So I know, it’s a bit sensitive talking about customer, but in general what kind of semiconductors for example, the industry is talking about [Indiscernible], RFIC, even memory, so what kind of semiconductor product you are doing by this fan-out service now?

It’s a combination of high performance computing, as well as the wireless. And in terms of the number of chips as was to composition has all variety, but I think the beauty of fan-out is you can really mix a different nodes as well as the functionality that you can really have a concentrated heterogeneous integration at a low cost. So I think that is the whole premise of fan-out.

Okay. Yes. So, on that fan-out technology, I know there are some discussion regarding technical issues, for example, you've seen the fan-out level carrier, the euro is still quite low and there is some pattern issue, for example, the key IP owned by Infineon and now it belongs to Intel, right? So how ASE solve these – all these problem? And what is a key advantage that ASE has now?

I think what we are ready to disclose at this point in time is fan-out is not a standalone process. In other words, when we talk about capacity for 12-inch fan-out, we are implicitly informing our customers that a fan-out will be a platform of solution. In other words, the current stage of the 12-inch of a particular process node, and that will be scalable and that would extended into a finer node where those IP issues you just mentioned will become a concern. Now while on ASE end, I think we already give a very clear indication. Fan-out is a major platform solution that ASE is driving. So we’re making great strides. We're not ready to disclose any detail, so I’m pretty sure in the next coming year or two and we will like to disclose the whole portfolio of the fan-out solution including the 12-inch, including the panel and some of the IP issues, some of the patterning issues, some of the design tool issues, all of this will be part of the overall solution that we’re presenting to all of our customers. But it is a major platform that we are driving.

Okay. Thanks. So since our company is quite well prepared, well planned for this fan-out trend, right? So this is my main question to you, so in the coming years how ASE is going outgrow semi-industry or the packaging industry organically. So what kind of service or [Indiscernible] you think that can make -- come into outgrow?

All right. If I look at the last 10 years average, the ASE growth has been 2x for semiconductor. And that number has been quite steady. I present this a few times. And I think the recipe for our continued growth with reasonable margin return will be based on innovation and technology. And I think Ken Hsiang already talk about it, we do believe that, the transistor, the integration, the power consumption will be an issue. We also understand that from the process, the wafer process perspective, the investment becomes more hefty over time. So the scalability of the Moore's law as well as how can packaging augment the of the Moore's law, we just took on more and more, the ASE is coming up with portfolio solution, the fan-out will be one of them. We also the embedded solution, we also have the 2.5D, so all of this will become the building block for the innovation, for the readiness of the next wave of application. Mind you, we do not know exactly when the next wave will hit us. And which next wave would be ahead of the other next waves. But right now, IoT, the automotive, the VR and the new generation of high performance computing, the new generation of happy memory. There is a combination of application that is in the marketplace. The good think about ASE, if you look at whole industry and knows that, I believe we are the best position from a technology perspective. We’re also the best position from a customer portfolio perspective. We also have the more in-depth engineer at a system level, as well as the IC level. We also have the widest partnership in all geographies with all segments, including foundry, design house as well as the ADS [ph] company. Going forward this is about global business. This is about technology innovation. It’s about partnership. I think in all three metrics ASE is very well-positioned. Then the only question is how fast we scale and during the scalable process how can we maintain the margin rebalance or a calibration. And I think this is a primary challenge of ASE Group as well as for the rest of the world. But so far based on the last few years performance we have been on track in terms of partnership, technology development, scalability growth, as well as rebalance our product portfolio to maintain a certain margin at a certain cost curve, and I hope that offers you some outlook.

Yes. That’s very helpful. So I will have some follow-up at [Indiscernible] Q1. Thanks.

Do we have more questions? Thank you very much I don’t have any – I don’t know if its conference issue but I don’t have any questions on line either. Thank you very much for attending the second quarter earning release.