ASE Technology Holding Co., Ltd. (ASX) Q1 2015 Earnings Report, Transcript and Summary

Welcome to ASE Group’s First Quarter Earnings Release. [Operator Instructions] CFO, Mr. Joseph Tung will be going over the financial results followed by question-and-answer session. Following the event, our VP in-charge of Public Relations, Eddie Chang, will be addressing the media in Chinese after the release. 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 high degree of risks, and our actual results may differ materially from these forward-looking statements. Joseph?

Okay. Good afternoon, ladies and gentlemen. Thank you for coming to our meeting. And before I start my presentation, I'll be very happy to report to you that on April 27, we successfully sold roughly 5% of our stake in USI Shanghai through a block trade arrangement, successfully raised US$320 million before tax. The capital came from this transaction was around -- over US$200 million, which we fully recorded as additional paid-in capital under equity, and this additional capital can be distributed as dividend in the future as we deem. This is the second largest in terms of amount - second largest block trade, a non-financial institution block trade that's ever happened in Asian markets in this year, and it's also with the lowest discount to the 20-day average price among all the large tickets. By large tickets, I mean over 10 billion renminbi. The lowest discount among all the large tickets transaction – similar transactions in Asia market this year as well. I'm very excited about this transaction, because through this transaction, not only that it will improve substantially our cash position, but also improve our gearing. And also - this transaction also demonstrates that we have opened up a new avenue for fund raising which is very, very effective -- cost-effective fund raising avenue for us to continue to support our future growth in the future. After the closing, our ownership of USI Shanghai will come down from 82% to 77.2%. And as of yesterday, the market cap of USI Shanghai was about US$7 billion as of yesterday as well. Our 77% stake in this company, the value of such investment is roughly 48% of our overall ASE’s market cap today. So in the future, we will continue to find suitable timing and also suitable methods to continue to monetize this, and to continue to improve our funding capability and also our balance sheet and also to use this as a very effective and efficient funding source to fund our future growth, although we will maintain our controlling interest in the company. Okay. Let me come to the presentation of our first quarter results. Let’s spend a few seconds on Safe Harbor notice. Okay, as expected, we went through a seasonal downturn in first quarter of this year. As you can see, the consolidated revenue came down about 16%, and of which the packaging revenue came down about 8%, test was 7%, and direct material sales stayed relatively flat at 861 million dollars, whereas our EMS business because of the SiP and Wi-Fi seasonality downturn, came down 24%. With the lower revenue, our gross profit margin also came down as expected from 21.4% in previous quarter to 19% this quarter, and operating expenses margin continued to stay at around 9%, and therefore our operating margin came down to 9.7% comparing to 12.8% a quarter ago. This quarter, our non-op loss is over NT$750 million, largely because of the ECB mark-to-market loss of over NT$936 million that we incurred in the quarter comparing to roughly NT$260 million in the previous quarter. After the non-op, our net income - our profit before tax reached about NT$5.5 billion, which is 23% below last quarter whereas after income tax and also the minority interest, our net income for the quarter reached close to NT$4.5 billion, with a basic EPS of NT$0.58 per share. EBITDA for the quarter was close to NT$13.5 billion, compared to NT$17.2 billion in the previous quarter. On a year-on-year basis, our total revenue actually grew 18% whereas in packaging, it grew 10% from last year, test 7%, and direct material sales about 11%, and EMS had a stronger growth of 32% in the quarter. With the expanded operations, the margin also had some slight improvement. In terms of gross margin, it improved from 18.9% to 19% this quarter, and operating margin improved from 9.3% to 9.7%. Net income also improved - increased by 30% to close to NT$4.5 billion compared to NT$3.5 billion the previous year. And EPS grew from NT$0.45 to NT$0.58. Looking at IC ATM, please note that here the packaging number includes the SiP services that we provide for the SiP business, and that’s -- which was eliminated when we consolidated the statements. So, here we see that packaging revenue in the quarter reached NT$31.5 billion, and it’s down 13% from the previous quarter. Of that 13% down, roughly in terms of organic packaging, it was down about 8%, whereas the SiP business - SiP services that we provide in the packaging operation was down about 15% in the quarter. Tests 7%, and as I mentioned earlier on, direct material sales stayed flat. Therefore, the overall revenue - IC ATM revenue for the quarter came down about 12% for the quarter due to the seasonality factors. Gross profit margin came down from 31.4% to 25.9%, largely because of the smaller sales that we generated for the quarter, and therefore, all cost of goods sold items including material, labor, and also depreciation all went up as a percentage of sales. In fact, raw material increased about 1.4%, labor another 1.4%, and depreciation about 2.4% as a percentage of sales in the quarter causing the gross profit margin to come down. Operating - OpEx margin up slightly from 11% in the previous quarter to about 11.5%, and therefore our operating margin came down from 20.4% to 14.4% with the slightly larger gap in gross profit margin. On a year-on-year basis, the revenue grew NT$38.6 billion, and it’s up 12% comparing to last year, of which packaging grew up 14%, tests 7%, and direct material 7%. On the margin front, gross profit margin improved from 24% to 25.9% in the quarter, whereas operating margin in total improved from 12.3% to 14.4%. Looking at packaging operation, it came down 13% from the previous quarter, and therefore with the smaller sales and also increased cost of goods sold, the gross profit margin came down from 29.6% to 23.7% this quarter, although comparing to the last year revenue growth. [Technical Difficulty] revenue had a 14% growth in packaging. Margin also improved from 21.7% and 23.7% in the quarter. Looking at the revenue breakdown, you can see that advanced packaging including SiP percentage came down from 38% to 33%, largely because of the larger seasonality factor in the SiP businesses -- SiP service that we provide, which I mentioned came down about 50% in the quarter, which is a typical quarter in terms of SiP business. In fact, in the fourth quarter of last year, we had even better-than-expected ramp up in the SiP business, and that actually - that same trend actually lasted into the first quarter as well. So, although a drop by 50%, but in terms of the overall momentum, it’s still stronger, much stronger than what happened in previous year. Although with that, the percentage of our advanced packaging actually came down from 38% to 33%, whereas in the wirebonding area, because of the more stable business, with the IDMs and also in the DEM [ph] products – the wirebond business percentage - wirebond business had a smaller drop than advanced packaging, and therefore its percentage came up from 53% from a quarter ago to 58% in this quarter, whereas discrete and others remain pretty much stable at 9%. Looking at tests operation, on a quarterly basis, first quarter came down about 7.3%, and comparing to the same period last year, it came up about 7% as well. With the smaller revenue, the gross profit margin, because of its fixed – some fixed cost structure with the higher operating leverage, the gross profit margin came down from 38.9% a quarter ago to 34.3% this quarter, still about a 2% improvement from the same period last year. Material operation came down about 5% as a whole in terms of direct material sales, which in quarter one represents about 40% of the overall [indiscernible] sales, which stayed pretty much flat because of the IDMs order as well as some of the demand from the DEM vendor. Margins came down a little bit because of the different product mix from 19.2% to 17.1% this quarter, while comparing to same period of last year, they had some improvement from 16.7% to currently 17.1%. Looking at revenue by application, as we mentioned earlier on, in the first quarter, we are seeing SiP revenue because we had a larger seasonality factor. Therefore, it came down about 50% which dragged the overall communications segment percentage-wise to come down from 58% to 55% this quarter. Although in the quarter, we are also seeing some slowdown in terms of demand, particularly in the communication segment, and also -- there are also some customer inventory corrections which will last into the second quarter as well. In terms of computing remained at 11%, although as a whole it also came down roughly 10% from the previous quarter, the overall revenue from computing. Also in consumer, it's relatively stronger than the other two segments. Therefore, its percentage came up actually from 31% to 34% in the quarter. Going forward into the second quarter, we expect pretty much the situation to remain pretty much similar to first quarter, and therefore the percentage may not have that much of the change. EMS operations, we are seeing that on a quarterly basis, the revenue came down about [Technical Difficulty] with margin - gross margin actually edged up a little bit from 7.9% to 8%. In first quarter, we actually had a one-time inventory adjustment, which lifted the gross margin by about 1%. So if we normalize the first quarter gross margin of EMS operation, it is about 7%. The reason for - although in the quarter we had lower SiP as well as Wi-Fi module revenues, the margin still came down a little compared to the quarter four last year, largely because of the new SiP project - EMS SiP projects that are going through a ramp up, and we have early development costs that need to be booked in the quarter. The new EMS SiP project only started to -- volume production much in the later part of the quarter, and therefore the early stage costs need to be borne in the quarter and therefore drag the margin a bit. EMS, as you can see, that the communication because of SiP and because of Wi-Fi module came down in the range of 40% to 50% in the quarter. Therefore, communications segment percentage came down slightly from 67% a quarter ago to 47%. At the same time, we see that consumer-wise, it came up from 13% to 17% - 7% to 18%. This is because of the new SiP project that we are undergoing at this point, and therefore raise the consumer product to a new high of 18%. Looking at our balance sheet. Our cash and cash equivalents came down from about NT$59 billion to currently about NT$55 billion, whereas if you look at total interest-bearing debt, it also came down from NT$99.4 billion a quarter ago to currently about NT$93.6 billion. Now with the block trade completed, as I mentioned earlier on, it will significantly improve or increase our cash balance close to over NT$9 billion, and also it will improve our net worth. In fact in terms of net worth, the capital obtained from the transaction will increase our net worth by roughly NT$0.92 a share, so the overall gearing also pretty improved from this transaction. And going forward, we will continue to find suitable ways and timing to further monetize such investment opportunity to make further improvement in our overall, not only cash flow and funding capability, but also our gearing in the balance sheet. In the quarter, we spent CapEx of NT$138 million, of which about NT$67 million was spent for packaging and NT$52 million for tests, about NT$15 million for EMS, and then another NT$4 million for interconnect which is materials. Of the $67 million invested in packaging, roughly $31 million is for flip chip and bumping, $34 million for common equipment and also for some projects, roughly $2 million only for wirebonders. In terms of wirebonder counts, in the quarter, we added 15 bonders and retired about 35. So all in we have 15,722 bonders in operation and of which 84% or 13,271 bonders are copper capable. In the quarter, the copper wirebonding was 54% of our overall wirebonding revenues, came down slightly from previous quarter because of the product mix in the quarter. In terms of packaging utilization, it was around low 70%, about -- mid-70 in the wirebonding area. About close to 80% in advanced packaging. In terms of tests. Tests account in the quarter, we spent $52 million for CapEx and added about 121 testers and retired 49, so the total tester count in the quarter is 3,339. Utilization was maintained at mid-70s. Okay. With that, let me share with you our second quarter outlook. I think in the later part of this quarter, we're starting to see some inventory corrections happening, and we're seeing weakening demand for sell-through particularly in the android area. So we're seeing - we are starting to see - in the later part of the quarter, we're starting to see customer forecasting adjusted. So based on our current business outlook and also exchange rate assumptions, we are putting it at 31.23 [ph] for the quarter. We project that overall performance of the second quarter of 2015 to be as follows. In terms of IC ATM, production capacity will be up around 2% and blended IC ATM utilization should be flat or up 2% for the product. Gross margin for IC ATM should stay relatively unchanged from the previous quarter. EMS business should reach a level between the results of the last two quarters. The last two quarters being first quarter of this year and fourth quarter of last year, the number will fall between them. Now, as I mentioned earlier on, we are still at the early stage of ramping up the new EMS SiP product. So, the EMS gross margin might be slightly lower than the normalized margin in the previous quarter, which I mentioned earlier on the normalized margins in the first quarter is about 7%. They are lower than the low normalized margin in the previous quarter due to customer supply chain issues. Now, for the whole year, we still remain confident that we will continue to see quarter-on-quarter growth and the softer-than-expected second growth momentum is likely to be pushed out to second half of the year. In terms of CapEx, I think in second quarter, the amount that we spend is similar to what we had incurred in the first quarter. Okay. That concludes my presentation. I will open the floor for questions. Thank you.

Thank you. Ladies and gentlemen, we would now pose for questions. [Operator Instructions]

Hi Joseph. A couple of questions, one on SiP and one on IC ATM. If you look at EMS, you said that's going to be between the last two quarters, specifically on SiP what is the trend quarter-on-quarter?

I think in the first quarter, the overall SiP was about 15% of our overall revenues, and actually it came down from 18% in the previous quarter. Going into second quarter and onwards, the second SiP package will be running into mass production for the whole quarter. Although because of the value chain issues the customers are experiencing, we are not yet up to the full capacity and we are seeing that gradually being worked out and hopefully in the second half we will start to see a larger pick up in the SiP business.

Just so I understand the last statement that there’s customers supply chain issues, is the correct interpretation that your overall run rate for this new EMS business in 2Q is higher than it was in 1Q, because you’ve got a full quarter worth, but it is not as high as it should have been, and therefore it is a drag on margin. Is that the right way to read?

Yes.

Okay. What will it take to get that new EMS SiP businesses to get better margins? Is it purely volume driven or do you need to make the other improvements as well?

Well, I think there is a lot of variables involved in here, because first of all, volume is one thing. And also that depends on really - the volume really depends on the how quickly the component shortage situation can be corrected or improved. Of course, there is also yield, that’s also another variable involved. So right now, we're still at the early stages, and it is a completely new product. There’s still a lot of uncertainties in variables, particularly in this first generation product. But yes, I think by and large, the most critical component or the variable there in terms of margin is really the volume or the utilization of our capacity.

And then just going back to IC ATM, if you look at [indiscernible], both up quarter-on-quarter in 2Q versus the foundries are flat-to-down. I guess we've seen over the last month or so, sort of this inventory correction and demand weakness across tech. Are you worried that they see it a little bit earlier than you, and therefore your 2Q is better than the foundries, but the weakness is going to sustain a little bit longer into the second half for the back-end?

I think the visibility right now is not so clear at this point. Yes, we do - we still - we keep a very, very close contact with our customers, and we are running on the monthly volume forecast. Therefore, right now we're seeing third quarter or second half of the year, we still have fairly good confidence on that. Also, I think the growth driver not like the -- comparing to our competitors, second half growth driver is largely the SiP business, and the SiP product is supplied to the company that has the strongest performance at that point. Therefore, I think the overall situation in the second half should have quite a bit of improvement.

Let me just sneak in one last question on that. So if you look at SiP, we know about current projects. What’s the outlook for new projects in the second half of the year?

What's the outlook? What do you mean by outlook?

Well, are you seeing that it’s going to be new projects that come in, in the second half of the year?

Okay. I think overall SiP business for us, I think this year is really multiple projects for us, I think aside from this new project that we launched practically in the second quarter, I think going into third and fourth, we will see other projects coming in, in a smaller scale but still good sized projects that we will be undertaking.

When you get the microphone, introduce your name and your company.

Michael Chou, Deutsche Bank. Two questions. One is what is your guidance for NT dollar ASP for Q2 and the currency assumptions for Q2?

Q2 is 31.23.

So, do you expect that NT dollar ASP to be flat quarter-on-quarter in Q2?

Yes.

The next one is, what would be the depreciation in Q2?

In Q1, the IC ATM depreciation was about NT$6.5 billion, and we expect in Q2 to be slightly lower than that. But for the overall, it's about NT$7.1 billion and that should remain pretty much the same in the second quarter.

Thank you.

Let’s go to someone in line. Let's go with the Dan Heyler, BofA. Dan? Daniel, are you there? Dan?

Yes sir. Our first question comes from Daniel from Merrill Lynch. Thank you.

Thank you. Can you hear me now?

Yes.

All right, thanks. There were a little bit of some audio problems, a little bit of cutting out there. So, forgive me if you had answered these. So I wanted to ask first, when you talked about some warning signs in terms of some of the end-markets there due to limited visibility, can you maybe elaborate a bit on that as, is mobile one of the major areas or is it some broader kind of FX emerging marketing thing, or what's your feeling as you talk to customers?

We are seeing sort of inventory correction happening at this point. And I think most of them, at least from what we've heard, I think people are expecting things to be looked out in the second half, maybe starting from third quarter. That’s pretty much what we have so far. And we can only look at our own forecast, customer forecast to decide what kind of scenario we’ll be facing.

Okay, great. And so on the SiP multi-projects that may be coming in, I just wanted to get a feeling for the margin situation, because as you have new projects, this initial project has been bit of a drag on margins. With all these projects, can SiP overall, kind of, get back to say the EMS average in the second half? I know these are new projects, and I appreciate the fact that there is growth in 2016. So I want to get a for whether we shall anticipate a lower average EMS margin in the second half due to the SiP drag?

Well, as I mentioned, there are still a lot of variables involved. So, I think our goal is really to bring the overall SiP business I think, particularly the EMS business to be above its operating margins of what we’re seeing now. So that's really the goal. And we’re working very hard on that.

Thanks. That sounds great. And then as you are - there are two variables you talked about right now on the existing project, one being yield. I assume yield is not a bottleneck. I assume you said there was a supply chain issue and volume. So what kind of volume at current yields would you need to get back to the corporate average? What kind of volume you're looking at current yields or at projected yields?

No, I cannot answer that question at this point.

Okay, got you. Then moving on to this, congratulations on this excellent USI sell-down. What's the tax stream end of that?

The taxes that we need to pay, 10% on the capital gains.

Okay.

As we call it capital gain. It’s the difference between the sales price and the original holding cost.

Okay. Do you have a number on when does that hit - I mean when does that hit your income statement?

It's about close to $24 million.

In the first quarter or second quarter?

In the second quarter.

In the second quarter, okay. Excellent. And then you kind of mentioned the three benefits of the sell-down, my last question, it’s an excellent funding source, going forward, it also gives you an ability to potential to pay a dividend, and in terms of gearing everything else, it improves too. So how - what kind of metrics are you looking at there, where you would do, say another one? Is it kind of more opportunistic driven by share price or certain metrics, cash balances - target cash balances that you're looking for at year-end? What kind of dividend guidance in gearing ratio should we expect?

There are many restrictions regulatory-wise in terms of monetizing this investment, I think in the Asia market. Therefore, we are looking for suitable timing and also suitable methods to continue these efforts. I think the bottom line is, we will keep our controlling interest of the company, but in terms of when and how we are going to monetize this and in what speed I think or what pace, everything depends on the market situation and also our own funding situation.

Is there a payout ratio, kind of guidance that you could give us on the dividend that ASE may think about going forward on the dividend?

We've already announced that -- for the last year, our payout ratio was about 70% and we did all in cash. So I think without going into next year, I think the - at this point, that's really the benchmark that we have.

Okay. Excellent. Okay. Thank you, Joseph.

Thank you. Our next question comes from Randy Abrams from Credit Suisse in Taiwan. Thank you.

Okay, yes. Thank you. I wanted to ask a couple of follow-ups on SiP. Given some of the supply chain issues, I'm wondering - I think last conference, you had a stretch goal to approach 30% of sales by fourth quarter. If you could give an update on second half, what potential and full-year contribution from the SiP? And if you could also talk if you expect much from outside of your top customer where if most of this revenue will be projects existing?

Percentage-wise, we will continue to grow throughout the year, while the second, third and – actually second quarter - yes, second quarter we’ll also grow. I think we really said that in fourth quarter or end of the year, we should be seeing roughly -- closing to 30% of the overall. I think by the way it is going, because of a lot of uncertainties involved, we are now even more confident to say that this year, the SiP revenue will at least double what we have achieved last year.

Okay. At least double on the full-year, and that's all – were virtually all with your large customers, or do you expect some diversification where there would be anything meaningful outside your top customer?

Well, I think there will be – there’s been a lot of engagement at this point. And for this year, we will probably add one or two in the smaller scale. But by and large, I think the main business is still with this principal customer of ours.

Could you talk a little more about the types of additional projects that you would be doing, where there has been talk on camera module or pressure sensor? Could you talk about some other projects, and for SiP packaging, where EMCORE and SPIL are talking about that, how do feel your position on more of the traditional assembly SiP packaging or contribution? I think you still gave a number about 1% to 2% of revenue in the third quarter, but how much you’re seeing from traditional SiP packaging?

I’m not sure I got the second part of the question.

Yes, the SiP packaging in the way SPIL would talk about it, more when you’re taking assembly of modules for IOT like projects, so microcontrollers, connectivity, antenna power management, like those type, traditionally more in the package side. Like if that’s - how meaningful that business is for you more on the traditional packaging?

Well, I think the definition of SiP can be very broad-based. I think, we can all have our own definitions. But by and large, I think the way we define it is first of all its EMS business because of its EMS business model, and it requires all the expertise or technology from EMS and also assembly tests, and a lot of it from substrate as well. So, to be effective or efficient, we need to have a very good infrastructure to entertain such a kind of demand. There could be something that's small and easy to build using the existing technology, even EMS technology would be sufficient. Some needs do have a combination of two. So it really varies.

Okay. And then I wanted to ask one more just on the back-end business. Your first quarter was down, I'd say at the lower end, like low-teens, and then seems to be rebounding maybe in line with the group. But it’s your mix - I guess if we take the whole first half, it looks a little bit weaker. Is it a subject of certain customer mix that you have or certain areas you're seeing additional weakness, more on restricted to the com side, or how broad this weakness is for your business?

I think the communication sector is relatively weaker. I think the end-market sell through is not as far as expected, although some of the new products that's being launched remains to be seen how eventually the - how the sell-through will look like. But I think what happened in fourth and in the first quarter - fourth quarter of last year and this first quarter, there seems to be quite a bit of pull-in when people were expecting a stronger performance than our end demand, therefore they created some inventory correction and hopefully that could be corrected going into the third quarter.

Have you changed your full-year CapEx?

No. I think we don't have a CapEx – announced CapEx budget. What we mentioned last time was that it shouldn't be lower than our depreciation for the whole year, which is about NT$800 million.

Okay, great. Thank you.

Next, Roland from Citigroup. Roland?

Yes, thank you for taking my questions. First question, talking about your second quarter outlook for IC ATM, although capacity increase of about 2%, and the utilization increased about zero to 2%. So Joseph, can you just break-down the utilization for wirebonder, flip chip, and the testing, please?

The utilization?

Yes.

Hold on a second. In terms of wirebonders, I think it will remain at about mid-70s. Advanced packaging, I’m talking about the organic flip chip bumping on its own with a level, it should remain at about low-80s in the quarter. Tests will be doing a little bit better. It should improve from around mid-70s to mid-to-high 70s in this quarter. The same with substrate, it also improved a bit from mid-70 to high-70s.

Okay. So how about the overall ASP?

I think we've done the - pretty much done the price negotiation in the first quarter as we always, and going into second quarter I think the ASP should be stable.

Okay. Stable means you’re probably flat quarter-on-quarter?

Yes.

Okay. So just when you’re doing sort of the rough calculations, your IC ATM business revenue probably increased slightly quarter-on-quarter in second quarter. That actually compared to year-on-year basis lead to a big decline, but then when I look at your competitor like SPIL, EMCORE actually, they are all guiding the second quarter revenue to increase year-on-year. So does that mean, that we are losing shares up to our competitors on IC ATM side?

Well, I think first of all, we came out with a much higher base. Second is that different players have different customer mix? I think some of their particular customers may have a more stable outlook than ours and so on and so forth or vice-versa. So it really depends on different situations and different customer mix.

Okay. So how about your outlook view for the IC ATM overall growth in 2015, the whole year growth?

As I said, without giving out precise numbers, I think we said that we will continue to see quarter-on-quarter growth for the year.

This includes IC ATM?

Yes.

Okay, thank you. And further -- switch gear to your EMS or SiP business, how much you made SiP or how much was the SiP account total in dollar amount you made last year? I think that you said that SiP revenue this year is expected to more than double, so I thought I would like to know how much we made on SiP last year?

Can you repeat the question one more time?

The revenue of the SiP last year.

I think we gave percentages, which is roughly around 11%.

11% of the total revenue last year, okay. And also for this year with the current CapEx spending plan you have, what's the maximum EMS and the SiP revenue per quarter will be this year? So last year, I do know your peak quarter was in 4Q last year. It was about NT$37 billion and how about the peak season this quarter – this year, sorry?

You’re looking for total capacity?

Yes, probably the run rate in terms of the dollar amount, yes.

We don't have. We don't release it or talk about that.

Okay. So but how about the – still for the year-on-year EMS and also SiP business growth? Is the growth at a similar magnitude as last year?

So, for this year, we definitely believe…

We're not giving out the full-year numbers.

Yes, but SiP will outpace our other revenues.

Okay, understood. Okay. And then last question is, I think EMCORE and I think last - yesterday I think SPIL also was talking about some SiP business. EMCORE also said its recently new installed wafer-level mesh and even SiP capacities were well utilized. And just trying to understand how big overlap of your SiP business with EMCORE’s SiP business? Are you doing a similar project with the same customer, or this is a total different typical of [indiscernible]?

Well, they didn’t tell us.

So what's your guess on what are those…

I don't know how to guess.

Okay. I think this is all my questions. Thank you very much.

Thank you.

Hi Joseph.

Name and company.

Yes, my name is Rick Hsu from Daiwa Securities. So, a few questions. On your USI holding right, can you share with us what’s your minimum stake in order to justify your controlling stake?

Well, I think minimum, it should be 51% and above.

Then second question, if you look at your advanced packaging revenue contribution, I think it dropped last quarter. Would that be due to the seasonal dip? The long-term trend is still going up or…?

Yes.

Any target number by the end of this year?

No, I don't have a target number, but I think when we’re counting advanced packaging, first of all the -- in terms of bumping and flip chip and also wafer level packaging, also SiP, those are all being categorized as advanced. And I'm pretty sure that the percentage will continue to rise by the quarter.

Last question is, I think on the [indiscernible] new wafer orders for the 15-nanometer, I'm talking about the big chunk of their new 15-nanometer orders that is going to deliver in second half. How do you see the possibility that you will do the packaging business for that chunk of the new 15-nanometer wafers?

Well, I think that’s just one of the businesses that we would be doing. It really depends on how the business eventually will be out, I don't really have a number now.

Thank you.

We'll go back online. We are going to Gokul of JP Morgan.

Hi, this is Gokul Hariharan from JPMorgan. Thanks for taking my question. Just on the IC ATM side. On the gross margins, should we see the similar kind of gross margin trend this year where second half gross margins are substantially higher than the first half ones? Just wanted to know how we should think about gross margins as we go through the year? And I have a follow-up on SiP as well.

Well, IC ATM is, I think the margin should trend up on a quarterly basis as we grow the business.

Okay. And on SiP, could you talk a little bit about how much CapEx fee would we be spending on the SiP projects this year, as well as with the visibility that you have in terms of future projects, are pretty much all of the projects that you have, EMS heavy ones, or do you have some of them like the fingerprint sensor which was more IC ATM heavy coming up in the pipeline that you’ve got?

In terms of the - if we take the NT$800 million CapEx for the organic, if we call the maintenance CapEx, it should be anywhere from NT$500 million to NT$600 million and the remaining of that will be for additional projects for some of the organic growth as well.

Okay. And how about the mix of the projects in terms of whether they are IC ATM heavy or EMS heavy as you look into your pipeline right now?

For this year, I think the upcoming projects are mostly EMS type of projects.

Okay. Got it. Thanks.

We're going with Szeho from BNP.

Hi, good afternoon, gentlemen. First question is housekeeping. Could you first comment on wirebonding revenue for Q1?

Szeho, we’re roughly two-thirds. So we believe that it should stay around there.

I think the line is breaking up, what’s the revenue amount?

Two-thirds.

Two-thirds of the SiP revenue you mean?

Of the wirebond revenue.

Okay, all right. Okay, thank you. And then for second one. Is it possible to give us some sort of sensitivity of your ECB and mark-to-market relative to the share price because there has been a bit of figures [ph] I think non-op applies in the last two quarters?

Didn't really get your question.

Sensitivity of the ECB mark-to-market through share price.

It's about - it depends on different models [ph], I guess. The model is changing verbal [ph]. But for reference, I think for each dollar movement, it is roughly NT$100 million.

Okay last one for Q2 again. For the tax rate, what will be the number for modeling purpose, because for Q2, you also have to account for the undistributed earnings related tax and also their capital gain taxes. So any ballpark number you can share with us?

Well, I think for a model building purpose I think as the whole year, the effective tax rate should still be maintained about 17% to 18%. But for the second quarter, because of this tax on undistributed earnings -- I'm not sure the tax that we need to pay on the transaction is counted as income tax. So excluding that, I think we should be about 30%.

Transactions shouldn’t flow to the P&L.

Sorry. You mentioned 30%, right for Q2?

Yes.

Okay. All right. Okay yes. Anyway thanks for the answers.

I think we have David Duley, Steelhead.

Yes, thanks for taking my question. First question comes just as a clarification. Did you guide your CapEx for Q2 flat with Q1 level?

By the way it's going, I think it will be pretty much at the same level, if not, a bit higher.

That just seems substantially lower than you’ve spent in the June quarter over the last three years. It’s usually NT$250 to NT$375 million. So I'm wondering - it sounds like you have cut your CapEx back. So I’m just kind of trying to figure what you think that number is going to be?

No, that's not what we are saying. I think the CapEx is really a dynamic number that we need to look at the market situation at this point. So it's really not a guidance in terms of CapEx for second quarter. It's really just - it's a rough estimate that we’re looking at this situation.

Okay. And whatever money you do spend this year, I just like to know as far as the advanced packaging area, how move much do you think is going to be allocated towards that in total? And then inside advanced packaging, where is ASE going to make its big bets? Are you going to be betting on let's say, fan-out processes or copper pillars. What are some of the big spending buckets that you would anticipate spending money on?

I think most of the CapEx will be spent on advancement, and so including the projects I will be undertaking. There is very limited CapEx for the wirebond.

And would you be making a big investment in fan-outs?

Excuse me.

Will you be making a big investment going forward in fan-out, however, you want to describe that, but that type of package types of application processors for some of the high-end processors?

Well, that’s certainly being discussed. And so far, I don't have a number for that. But this is something we will be making some investment, yes.

Okay.

And that's included in our advanced packaging. So we may have invested some previously also.

Great. And then just final clarification from me. There was some audio problems. Did you answer the question of what your SiP revenue would be as a percentage in Q2?

No, I said in this - I think in terms of Q1, the SiP of about 15% down from 18% a quarter ago.

There is a lot of variable that play for Q2 at this point, especially for SiP.

And the biggest variable would be the ramp-up of your project which has some supply constrains in its ramp?

Yes, it will be higher...

Okay. Thank you.

We’ll circle back with Dan. Dan has a follow-up question from BofA.

Thanks. Hi guys can you hear me?

Yes.

Okay, great. So when we think about the yield curve, I just was wondering is this - project of this scale and volume, is there kind of a steady curve of controllable yield or are we still kind of somewhat more in the random yield progress. I'm just wondering obviously within -- packaging, this kind of progression that you can see a variance versus yield. I'm wondering if you could give us a sense of where we are. Is it just too early or are we still in the random yield base of production, or are we moving more into the controlled yield base?

We are in the controlled mode of yield already.

Okay. And then - go ahead.

What we mentioned there is customer value chain issues, we’re referring to some other component shortages.

I understand that, yes. So it sounds like is you’re very comfortable with the projections as you calculate future yields. The progression is doing pretty well there and that’s what it sounds like and as we get more into the sweet spot of the yield in the second half on current progress.

It is progressive --.

Okay, got it. And then the allocation you had mentioned about allocation of 16 between the three suppliers hasn't really been decided yet. Are there any new suppliers enter the 16 project relative to say the 20-nanometer or is it still the same supplier?

I don't know the answer to that. I can't answer it.

Okay, got it. And then on the mobile phone SiP project. Is there - has there been any change there in terms of supplier or is it still pretty much the same guys as you move into new projects in second half of this year?

You mean customer or you mean…

Well the - specifically with your fingerprint right, there were a couple of suppliers there into your major customer there. So we’re moving into a new generation of mobile phones. I'm just wondering if the fingerprint business kind of remains with the same supplier base or there is going to be more diversification of the supplier base for this?

Well I see eventually there is going to be new players coming in as well, but when and how, I don't know.

Okay, eventually but not second half?

I can't answer that.

You’ve got to ask somebody.

Sorry about that.

Thank you.

It is the customer’s decision. I can't answer for them.

Got it.

I think we can conclude it here. Thank you for attending.

Okay. I think we had, as expected, first quarter, and a little bit weaker-than-expected second quarter. But I think the growth momentum is pretty much pushed out to the second half of the year, and we're still confident that we will have a very fruitful end to the year and we'll see quality growth continuously. We are very excited about the new block trade that we did. I think if I have to make a complaint, I think complaint is whatever we’re still holding today is worth almost half of our market cap, so the other half must be very cheap. Thank you very much.

Thank you for participation. This concludes the conference. Goodbye.