Joseph Tung - Director, Chief Financial Officer and Vice President : Thank you. Good morning and good evening everyone. Thank you for attending ASE’s Q3 2006 Earnings Release Conference Call. Before I start to report our financial results for Q3, let me give you a brief update on recent developments. Basically, on August 1, we completed the carve out of our materials operation in Chung Li, to a newly formed subsidiary, ASE Electronics. Total assets for the new company is NT$5.7 billion, with net worth of NT$3 billion. The carve out is to better align our management responsibility for the materials operation, under the group. All right. Now let me start our Q3 financial results. Please turn to page three where you can find our 2006 Q3 sequential comparison. Our Q3 consolidated revenue grew reached a historical high of NT$26.7 billion, which went up slightly by 2% from the previous quarter. Gross profit grew 10% to NT$8.3 billion and operating profit grew 12% to reach NT$6.1 billion. After deducting total non-operating expenses of NT$581 million, pre-tax income amounted to NT$5.5 billion. Net income dropped 43% from the previous quarter to NT$4.2 billion, after recognizing tax of NT$751 million, a minority interest adjustment of NT$607 million. However, if excluding the fire loss recovery recognized in Q2, our net income actually grew 28% sequentially. EPS for the quarter was NT$0.91 while YTD EPS amounted to NT$3.18. Sequentially, assembly and test revenue both grew 2% while material revenue grew 8% as a result of increased sales supply ratio. Utilization rate of both assembly and tests stayed high at around 90% while assembly ASP dropped slightly and test ASP stayed flat. In terms of profit margin, gross margin improved from 28.5% a quarter ago to 31%. Such improvement came largely from lower material costs…

Q – (Dan Hailer?): A couple of questions, first on your pay down of your debt. That’s pretty significant, I’m wondering if you’d give some guidance as to what you think your interest expense will be for 2007 as a result of these pay downs?

I think the net interest expense will be around NT$250 million per quarter. Q – (Dan Hailer?): Starting in Q1 2007?

Yes, Q1 2007. Q – (Dan Hailer?): Does that trend down from there? For the whole year?

I would think so, yes. I think even going into Q2, the first half of next year, we will have a pretty strong cash flow given the limits of capex that we are budgeting for now. Q – (Dan Hailer?): Do you have a debt equity ratio and target in mind, where you plan to take your debt?

I think in Q4, by the end of the year, I think I would drop that to about 0.18. Q – (Dan Hailer?): Then the implications on looking at your record margins and returns for your cash flow, they’re pretty significant on 2007. Are you starting to think more in terms of the excess cash and how that will play out for potential dividends and other strategies?

I think for sure, next year’s dividend pay out will have a much higher percentage to be paid out in cash rather than stocks. In terms of how much will be cash and how much will be stocks, it’s up to the board to decide. I cannot comment at this point. I think it’s pretty sure that the percentage will be much higher than last year’s 10%. Q – (Dan Hailer?): Finally, your capex to sales ratio is also significantly declining, right? What do you think you can sustain your ratio to be on a through the cycle basis?

The utilization rate in Q4 is going to drop, assembly to around 85%, and test to be close to 80%. That gives us actually quite some room for ramp up going into the first half of next year. The overall capex, although we’re still in the budget cycle, at this point I’m expecting pretty much the same level of capex as this year for next year.

The next question comes from William Dong, your line is open. Q – William Dong – UBS Warburg: Two quick questions. One is for the DRAM JV, can you provide a quick update? What do you think the revenue contribution might be as a percentage of sales for next year?

Right now things are moving along on schedule and basically we are in the phase of installing capacity. Right now we have 24 bonders and two testers being installed. By the end of the year we will have up to 48 bonders and four testers. The mass production will be limited. In fact, we are only expecting about US$1.5 million revenue by December, which is still on a trial run basis. In terms of overall revenue for next year, I would think it should roughly be around 3% of overall. Q – William Dong – UBS Warburg: My second question is on the pricing environment. I know during today’s earlier conference you talked about the pricing models, some very small models with pricing coming down. Is the substrate side becoming worse than expected?

In Q4, I think the overall pricing – we are seeing some pressure on both assembly and material, whereas test and ASP, we are aggressively defending our prices by not adding too much capacity. Assembly we’re expecting another 1% to 3% drop on ASP. The material price drop will be more severe. At this point, we’re looking at anywhere from 5% - 6%. Let me correct my earlier statement. I think the memory revenue should account for about a little over 5% of our revenue for next year.

Your next question is from (inaudible), your line is open. Q – (Unidentified Analyst): You made an inventory provision adjustment in Q3. I just want to know what these inventories were?

The adjustment value? Q – (Unidentified Analyst): No, I just want to know what these inventories were.

These were just some obsolete materials that we had. Q – (Unidentified Analyst): Should we expect something similar for Q4?

Not really. I think we’re pretty much done with the material – if there’s any it will be in material. Q – (Unidentified Analyst): What is the FX assumption behind your guidance for Q4?

We are actually budgeting for 32.65.

The next question comes from Eric Rubel(?), your line is open. Q – Eric Rubel(?): Could you quantify the impact you’re seeing if you were to bounce between the slow down we’ve seen in analog and the PC weakness which has been reported in the market among your customers? Which one is affecting you more right now? Can you talk a little bit about the PC weakness related to any slowdown in motherboards you might be seeing?

First of all, we don’t have that much exposure in analog, but in terms of PC we’re seeing that in Q3 the overall PC situation isn’t that bad. What impacted us is really the market share movement among various players in the field. Some of our major customers are losing market share and therefore have some impact on our revenue. We’re seeing that movement yet to be settled in Q4 so if anything else, we should have a much clearer picture than Q1 next year in terms of PC. Overall, I think PC is stabilizing and unfortunately the launch of Vista didn’t really fuel the growth of the PC sector in Q4 yet. We’re seeing some pick up in Q1. In terms of communication, mostly in handsets, we are actually seeing inventory adjustments still going in until the end of the year or early Q1. That’s part of the reason why we’re saying in Q4 we’re actually seeing PC exposure as a percentage of our overall revenue. It should pick up somewhat at the expense of communication. In terms of consumer, we are being impacted mostly on the game box sector where we have our customer going into a product generation change so the first generation product will be pretty much ramped out in the November-December timeframe. We should see volume of second generation products start to ramp up in Q1 next year. In Q4 we’ll see PC being stable, consumer drop – sorry, PC to come up a bit, consumer drop and communications stay pretty much flat. Q – Eric Rubel(?): Thanks for that detailed review of the market. If I can just sort of summarize, there are some customer-specific market share shifts affecting you in Q3 and handset inventory is the bigger driver in looking into the next quarter?

Yes. I think all those things will be adjusted in Q1. That’s part of the reason why we’re saying we’re expecting Q1 to be a strong Q1 for us. Q – Eric Rubel(?): Right, that guidance was definitely good. If I recall, you said assembly utilization remains very high – 90% I think is what you qualified?

In Q3? Q – Eric Rubel(?): Right.

It will drop somewhat to about 85, close to 85% in Q4. Q – Eric Rubel(?): How is the facility running now with utilization in the 90%, or maybe 90% plus range? Is that a level you feel confident with, one that you could look to reach next year again?

Yes. I think 90% utilization has something to do with our OEE as well. That’s the effective usage of our machine. That has been improving steadily over the past eight to nine months. Right now, when we say 90% utilization, it could be 85% after the productivity improvement. I don’t know if you understand what I’m saying here. Q – Eric Rubel(?): I’m not sure what the OEE is, but maybe we can talk about that later.

On the same piece of machinery, the productivity is now higher. For the same amount of time we’re using those machines, the output is higher. Right now we’re seeing 90% utilization rates but if we consider the OEE or the real productivity of those machines, the real utilization can be 85%. That means we have more buffer for us to ramp up. Q – Eric Rubel(?): One more question on housekeeping, you mentioned a number of 8-inch and 12-inch wafers you had available for bumping. Can you repeat those and give me a sense of what the sequential increase was for the quarter and where you think you could be in Q1 next year?

Right now, we have an 8-inch equivalent capacity of about 80,000 wafers a month. For that we’re running at around 80-85%. We also have for 12-inch wafers, a capacity of 15,000 wafers a month. For that we are running at around 50%. Actually, the utilization is actually lower than Q2. In Q2 we were practically running at close to full capacity for 8-inch and about 65% for 12-inch. We’re actually seeing utilization drop somewhat in Q3. Q4, I think we should be at a pretty similar level, if not dropping slightly because of the game box business that’s being run off in the quarter.

The next question comes from (Danau Lu?), your line is open. Q – Danau Lu(?): How do you recognize revenues from this DRAM JV?

On a consolidated basis we will recognize 100% of the revenue and in terms of earnings from the operation, we will recognize the part excluding minority interest, which is 40%. Q – Danau Lu(?): Will this be part of the other revenues or do you have a new line?

No, that will be considered a part of assembly and test revenue. The other revenue that we see on the table is really the direct sales of our material, in ‘other sales’. Q – Danau Lu(?): When you talk about your capex, does that include the capex for the DRAM JV?

No. Q – Danau Lu(?): So the asset of the DRAM JV is not on your balance sheet?

It will be, but now it’s still very minimal. Eventually it will be counted as part of the balance sheet, when we consolidate everything. Q – Danau Lu(?): So right now the capex guidance right now is at $350 million?

Yes. That’s for ASE’s operation, not including Power ASE yet. Q – Danau Lu(?): So the 350 does not include Power ASE? Not the DRAM JV?

Not yet, no, for better comparison. If we look at the numbers, the capex that Power ASE will be spending this year is only about $20 million. Q – Danau Lu(?): Only 20? I thought you were spending $30 million in the second half? Maybe I’m… Okay, so $20 million for DRAM.

For DRAM, yes. Q – Danau Lu(?): Can you just reiterate your capex plan for this year? In different segments?

I think it’s a pretty even split, roughly 120 for assembly and test each, and then another $110 million, over $110 million for material. Q – Danau Lu(?): And then another $20 million for the DRAM JV but that’s not included in the 350?

No.

The next question comes from Frank Wang. Your line is open. Q – Frank Wang: I have two questions. The first one, just a point of clarification, in Q3 the revenue grew by about 2% but if we look at raw materials in absolute dollar terms, it actually went down by roughly about 6% compared to the prior quarter. Could you please elaborate a little bit more on that?

That’s a result of different factors. One is the price of our outsource material, the material that we buy from outside. It’s actually lower in the quarter. Also in terms of sales supply ratio, we’ve raised it from 37% a quarter ago to 42%. Also, I think in terms of (inaudible), since we have some yield improvement on the material as well. The part that we manufacture ourselves. All those will have a positive impact on the raw material costs. That’s the reason why our material content dropped from about 31% to 28.5% in the quarter. Q – Frank Wang: That raw materials percentage, would that continue to come down in Q4?

I think it would be at a similar level for Q4. Q – Frank Wang: My second question is a housekeeping item. Could you please tell us the operating lease expense for the testers for the quarter?

I believe it’s about NT$480 million for the quarter.

The next question comes from (Chicher Gurpal?). Your line is open. Q - (Chicher Gurpal?): A couple of questions. First on the last generation change that you mentioned in the consumer game console segment. Should I interpret this as there is an inventory build up for older generation products which are being rubbed down and hence the temporary thing? There’s nothing really specific in terms of market share gains or losses going on?

No, not really on the game box. Not so much on the market share movements. Merely the customer is going through a generation change in terms of their product. The new start will be brought to a very, very low level for the first generation product. We’re expecting them to start initial production of generation two from November but with a very small volume. Real volume will only come in Q1 next year. Q - (Chicher Gurpal?): And your market share for the new generation is the same as it was for the existing generation?

So far, yes, but I wouldn’t be surprised if the customer actually looked for a second source just to balance off the risk. Q - (Chicher Gurpal?): Moving on to your substrate operations, if I recall at one point you had targeted to achieve a self-sufficient ratio of about 60%. Firstly am I correct, and secondly does that still stand? When you expect to reach that by?

The sales supply ratio? Q - (Chicher Gurpal?): Yes, the supply efficiency ratio of substrates.

Really depending on the overall pricing environment of material, the strategy that we have is really only to build those that have decent margin with reasonable return. If it’s not the case then we would rather go outside. Q - (Chicher Gurpal?): Right now, the thinking is that you would rather go outside given the way prices are falling?

Yes. Q - (Chicher Gurpal?): In terms of 2007, what is the kind of capex you’re allocating towards your substrate division?

I would think it would be very similar to this year. Q - (Chicher Gurpal?): $110 million?

$110 million to $120 million.

The next question comes from (Derou Volra?). Your line is open. Q – Derou Volra(?): I saw that you mentioned that basically your capex for next year would be similar to this year, which is about $350 million.

I qualified that by saying we’re in the budget cycle. Q – Derou Volra(?): But you did say that it’s about nearly the same, right? My question is more on how do you think that will generate in terms of revenue? Does the ratio of 1:1 still hold?

Pretty much, yes. Q – Derou Volra(?): So for next year, you’re not looking for much growth, you’re just looking for what, 10-12% growth?

Yes and no, because like I said, we still have some buffer capacity. Q – Derou Volra(?): Is there a way in which you can increase that conversion ratio of your capex versus revenue next year? If that can be improved in some way, and if that is possible, then how can that be done?

I would tend to say yes, particularly on the material side, because there is still room for improvement on the yield. We have been steadily improving our yield on the standard PBGA from about the 82% to 83% level in the first half of the year to the 85% or 86% level in Q3. We’re expecting that to improve to 88% by year end and go over 90% some time next year. If that is the case, then yes, the conversion rate will be somewhat higher. Q – Derou Volra(?): The second one is more of a housekeeping one, the taxes seem to be much higher this time around. I’m wondering why, and what should we model for Q4 and next year?

I’ll answer the second question first, for Q4 we could expect a similar level of tax in terms of percentage of revenue. The reason why the second half tax is higher is because it’s a little bit complicated to explain. In Q1 and Q2, the accumulated… Because we have a lot of tax credit and also have lots carried forward from last year because of the fire, the taxable income accumulated in Q1 and Q2 is smaller, but going into Q3 as we recognize some of the loss reversal and also have a strong Q3 in terms of profitability, the taxable income becomes higher. Plus in 2006, the government started to implement the so-called ‘minimum tax’ of 10%. In the past, most of our tax could be offset by our tax credit, but now there’s a limit on how much we can offset those taxes. At a minimum, we need to pay at least 10%. Q – Derou Volra(?): Would 10% be your number for 2007?

I would tend to think slightly higher, because 10% is what we have here. In other sites, there are still some taxes to be paid. We’re more or less on a 10% - it’s reasonable.

We have a follow up from Dan Hailer(?). Q – (Dan Hailer?): A quick follow up on your comment on the computer sector. You had initially mentioned that some of the weakness you saw was due to some market share shifts in your customer base and your optimism on Q1. Do you think that’s related to those market share dynamics coming back, is that one of the drivers behind the first quarter?

Yes, but more so on the launch of Vista. We should see some ramp up in Q1, which we were originally hoping to happen in Q4. Q – (Dan Hailer?): Are you finding other opportunities to take share back in other areas if one large customer is particularly weak? Are there other opportunities out there?

We certainly worked very hard on that. Q – (Dan Hailer?): I’m a bit surprised by the computer sector comments. Clearly there seems to be some chipset challenges as well, as Intel seems to be taking share in chipset. Will you be able to secure – is any of the strength driven by any new business or is it existing customers?

All the other customers are a customer as well. In terms of how much multi share we can gain from each and every customer, that really depends on how competitive we can be. I want to say one thing, which is that we are now putting return on margin way ahead of revenue growth. If we do see some business opportunity, but the pricing does not justify it, we will let it go. Q – (Dan Hailer?): As you have a good view of the wireless space, a good chunk of your business has been wireless with a couple of key components – one is the base band side and the bluetooth side I guess has been an area of particular weakness. What are the dynamics there? Are you seeing certain large customers weak and some customers strong? Are you seeing a variance in the pattern? Are you seeing a kind of broad weakness? Some of the upstream comments have been that it’s been fairly mixed between individual customers. That’s the commentary so far, so I’m wondering from your customer base standpoint, what are you seeing?

I think the bluetooth is the most apparent. There is some market share shift among different players. Of course one of our major customers is losing market share somewhat and that will certainly have some impact on us. From what we know, the loss market share given to the other potential customer, I’m pretty confident that by Q1, we should be able to pick it up.

We have a follow up from (Eric Rubel?). Q - (Eric Rubel?): A follow up that’s similar to the previous question, in wireless there’s been kind of a well communicated mix shift to the low end of handsets. I was wondering if you could speak to, as you’re seeing things right now, the slow down – is it more in relation to components, sort of an over exuberance for the components that would go into higher end handsets, so you’re seeing maybe a build versus a problem of sell through in the channel?

We’re seeing this inventory adjustment pretty widespread. I’m not sure which does better than the other. Q - (Eric Rubel?): Could you have a view to whether or not it’s a build in semiconductor components for wireless, or if it’s an actual slowdown in sell through of finished handsets? Like a build up of finished handsets?

I don’t really know, I’m sorry.

Currently there are no questions. If you’d like to ask a question, please press star-one. We have a follow up from (Derou Volra?), your line is open. Q - (Derou Volra?): Could you remind me, you did put out a target once about how much your operating expenses would be left in a year or a year and a half’s time. I realize to date about 8% of your revenue is operating expenses, what is your target?

I thought I’d get away from this one. I was saying that hopefully by the end of the year we should see 7.5% operating expense ratio. Apparently we didn’t do that and Q3 inched up a bit, largely because of the salary increase that we had in Q3 and also the additional professional fee that we paid to the lawyers and accountants. But in Q4, hopefully we can bring this back to below 8%, although we are expecting revenue to drop quite a bit in the quarter. Right now, I think for Q4, looking at about 8% seems to be a reasonable number. Q - (Derou Volra?): What I’m interested in more in the longer term is you have done a great job in terms of rationalizing your costs in 2006, and I was trying to figure out how much more room there is in 2007, so if it’s going to be mostly operating-related, do you think a lower ratio is possible by the end of 2007?

That’s certainly the goal, yes. We’ll continue to drive our expense down, at least in terms of percentage of revenue. In the longer-term goal, we’re hoping we can reach 6.5% first and then we’ll go from there. If there are no further questions, let me sum up our results for the quarter. We had a phenomenal Q3 in terms of profit margins as well as cash flow and although we’re expecting a softer quarter in Q4, I think our strategy remains the same. We want to better protect our margins and returns instead of just chasing for market share gain. There are businesses that we decided not to pursue because of the low pricing. In terms of overall expansion, I think particularly on the materials side, we are delaying our expansion for Q2, but I think that is a very rational decision given the market conditions that we are facing today. We would rather do things right, by not doing the right thing at the wrong time. In terms of the overall financial condition, we will continue to leverage on our internal cash flow to further pay down our debts so we can have an even more healthy balance sheet. We are expecting a much stronger than normal Q1 2007, given the forecast we were given and also the changes in the industry itself. All in all, we’re going to have a close year with very strong earning momentum and we will strive to continue that momentum going forward. Thank you very much for listening in. I’ll see you next quarter. Thank you.