Hello. I am Ken Hsiang, the Head of Investor Relations for ASE. Welcome to the ASE Group 2015 Fourth Quarter Earnings Release. All participants consent to having their voice-in questions broadcast via participation of this event. If you do not consent, please hang up at this time. 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 high degree of risks and our actual results may differ materially from these forward-looking statements. For the purpose of this presentation, dollar figures are generally stated in New Taiwan Dollars unless otherwise indicated. For this earnings release, our COO, Tien Wu, will have some opening remarks. I will be going over the financial results, and then Joseph Tung, our CFO, and Tien Wu will have a Q&A session. Following the event, our VP In-Charge of Public Relations, Eddie Chang, will be addressing the media in Chinese. Our Operating Officer, Tien Wu.

Good afternoon. Happy New Year. Thank you for joining the earnings announcement for 2015 Q4 and for the whole year. We have gone through a very challenging 2015. There has been market fluctuations, as well as very aggressive inventory control. Here, I would like to give you some market highlights for 2016 and also some of the focus the ASE will engage in 2016. I will leave the earnings details to Ken Hsiang and later on, Joseph and myself will answer you via Q&A. To begin with, I would like to give you some highlight for our outlook this 2016. We believe the inventory control is over. Right now, because there is two economic uncertainties in the marketplace, we're not exactly sure about the end market sell-through. However, even with our conservative estimate, ASE Group this year will go through mild growth. We believe we'll go through the seasonality in Q1, resumed by quarter-on-quarter growth for the remainder of the year. Second, our growth engine remains to be SiP. In the past three years, we have gone through very rapid expansions. Right now, at a group level, the SiP revenue is close to $2 billion. In the last three years, we have acquired and learned valuable lessons by working with multiple customers in multiple market segments. Some of the findings are very useful for us in terms of resize, and we balance our portfolio going forward. For example, the first thing we learn is SiP is very good. We are very convinced that in the next 5 to 10 years, SiP will remain to be one of our focus for our growth engine. The market demand is tremendous. The pipeline is tremendous. Number two, not all SiP will be profitable. We learn this by the hard way. Some of the…

So, we have here an update on the SPIL transaction. I can read them to you. Key facts relating to the still current tender offer, ASE plans to acquire up to 770 million commons shares of SPIL including common shares represented by ADSs, representing approximately 24.71% of the issued and outstanding share capital of SPIL. Closing conditions to the tender offer; one, a 5% minimum thresholds, at least, you can view that number; two, Taiwan FTC's approval. The tender offer commenced on December 29, 2015 and will expire on February 16, 2016. If the FTC requires additional time to review this case, the tender offer period may be extended to March 17, 2016. ASE is working on all regulatory approvals for the tender offer. ASE plans to use its cash on hand and loans to fund the tender offer. ASE currently holds 24.99% of SPIL. If the current tender offer is fully subscribed, ASE will become the owner of approximately 49.71% SPIL. The transaction is a two-step acquisition with an ultimate goal of 100%. ASE intends to ultimately proceed with a 100% all cash acquisition of SPIL pursuant to the Taiwan Business Mergers and Acquisitions Act at TWD 55 per common share and TWD 275 per ADS. But subject to the condition that either SPIL shareholders do not approve if third-party transaction announced by SPIL on December 11, 2015 at any shareholders meeting or SPIL terminates or cancels the third-party deal in accordance with its terms. If the above conditions are met and the tender offer is consummated successfully, ASE would seek to discharge the SPIL board and elect new nominees to the board to implement the 100% cash acquisition. ASE remains open to a friendly resolution with SPIL. ASE believes the SPIL transaction is EPS accretive and the combination…

We will now begin the question-and-answer session. [Operator Instructions]

Randy? Name and company, please.

Okay. It's Randy Abrams from Credit Suisse. First question, I'm sure you'd figured you'd be asked, the guidance where you talked about moderate declines, if you could kind of characterize what the range of that as moderate, it kind of implies like a double-digit year-over-year decline. And for that business, is that more from just the seasonality we already saw with that product versus going through below seasonal, or does it imply any shift in terms of market share or project change, like it was all just from demand of the product or market share? And then how - what is moderate?

There is no - I'm not exactly sure which one you were referring to. Are you referring to the SiP products or...

The guidance for EMS is down moderately. Does that imply the SiP products, anything on market share, just the seasonality...

Seasonality in product, yes. Seasonality, product cycles.

Okay.

I think it's a combination of seasonality as well as product transition. There also as a result of some the rebalancing that we're trying to do, in terms of our overall business mix, I think this year's focus is really to realign our - the business, both on the IC ATM perspective as we well as EMS perspective. There will be some they can choose. There will be selective business that we want to extend or to actually reduce. So, it will be a combination of things.

To follow-up to that, your remarks Tien, at the beginning, you mentioned some investments in firmware capabilities to rebalance the business and then some interest how much OpEx you're thinking about, like if we're going to start to see faster increase in expense to kind of reinvest or transform the business, and then the revenue implication if you start picking and choosing, if you have any projection for SiP for 2016, like the type of growth would come up to a very strong year?

All right. Our current outlook right now will be conservative due to the power cycle and also the market uncertainty. So, we're looking forward to a flattish effect to revenue or to a mild growth. At this point in time, it's very, very difficult to project to the year-end. In terms of the other SiP in the pipeline, we have been engaging with multiple customers in multiple market segments for quite a few years, and we are slowly bring all of these revenue and the product into the market. The characteristic of the SiP is the - we don't get huge revenue, huge volumes in any given time, unless it's very, very specific, tied to a particular customer segment. And we believe that, in 2016 and 2017, we will start seeing the revenue become more meaningful. In terms of the OpEx, they'll be lifting the normal range. They're not looking at any type of extreme expenditure in terms of building up that. But right now, we have a few selected segments such as the embedded [indiscernible], such as the fan-out, such as the sensors, such as the optic area. We have a clear gap that we need to backfill in order to entertain the broader market to a much, much more meaningful stage. That was the comment that I made.

Have you thought - CapEx was down a lot this past year - it looks like about TWD 600 million, but if you could give a view of 2016, it sounds like it's another lower investment year, so you'll generate free cash flow again. Could you give a feel for CapEx?

Yeah. I think from the - although the visibility is not that great right now, but I think from the overall perspective, I think we'll be a notch higher than where we spent last year given some of the new projects that we're going to put in and some of the new technologies that we need to acquire.

And the last question on gross margin. The EMS actually held up. It looks a little better. I think, based on the guidance, it was implied to come back to 6% - 6% or 6.5% and held above 7%. As you pick and choose projects, what do you think the outlook for the EMS gross margins, perhaps, that holds better where middle of the year can be done at 6.5%. How do you see that margin?

I think, for this year, I think it would be - I think we already see - we saw some results as we continue to streamline some of our business particularly the SiP area. I think, you all know that there's one particular product that we are actually now making money but some losing some money. On that, I think we've done a lot of - we've put a lot of efforts in terms of streamlining the operation itself, bringing up the yield, improving our process and also better alignment capacity. And also, I think, one of the major [indiscernible], I think, over the past few years, we've gathered a lot more data points to come out with a more accurate cost estimation. So with all that, we can have a better base in terms of renegotiating the business terms that we should have. So with all that, I think we already see some improvement in the EMS margin in the fourth quarter. And I expect that we will continue to see more improvement in that area going into 2016.

Thank you.

Yeah. Okay. Citigroup, Roland Shu. Good afternoon. For your guidance for IC ATM, you guided that the utilization rate will be flat and also gross margin should be approaching our [indiscernible] how fast the ASP for IC ATM business.

I think we've gone through quite a bit of price negotiation already at the latter part of the year. So, right now, we're looking at 2016, a pretty stable ASP environment.

Okay. This is for the whole year or for the first quarter?

It's for the first quarter for now. And I think remaining year, I think Ken is in a better position, but I think, overall, we should see a pretty stable year.

Okay. Yeah. For IC ATM, last year, the overall revenue declined last year. How about the revenue for this year? Are you going to see [indiscernible] as last year or you think it will be better this year?

Well, I think Ken has already mentioned that we're going through all the seasonality in first quarter and maybe the first half as we go through the product transition in terms of SiP, which is normally down two quarters. So, we will start to see some rebound in the traditional IC ATM business. And for the whole year, we are constantly...

Optimistic.

We should see some growth for the year.

Yeah. It's more closures, more optimistic, both.

It's a very balanced statement.

Okay. Thank you. Yeah. And also, Ken, you said about the first quarter OpEx that will be higher. So, what's your guidelines? How much would you [indiscernible] the OpEx in the first quarter?

We have percentage on that.

I think we will be back to close to 10%.

10%? Close to 10%.

On a group basis.

Okay. Thanks. And last question, Ken, you mentioned about a gap to fill of a certain segment. I think that you mentioned about the second half and also the info. So, is the difference that’s going to [indiscernible] this year. So, how are you going to fill the gap with this info and what's the impact to ASE for this gap of the info? Thank you.

Okay. I think the fan-out is a technology that - I believe what TSMC has made a strong statement is the - that's one of the technology in terms of the - between wafer, between chip and packaging that will become or is becoming one of the important standard or benchmark for the industry. So, ASE also has fan-out. What we need to do is in line with what TSMC is working on, we have to identify the market segments, the cost model, and the technology statement. And I believe in the coming years, you will see more aggressive investments of ASE also in fan-out arena. Now, there are many customers and there are many different type of technology requirements. I believe the market is large enough to accommodate multiple type of cost model, multiple type of technology resolutions in the fan-out space.

Yeah. Good afternoon, guys. Yeah. My name is Rick Hsu from Daiwa Securities. I got a few questions. The first one is the - more a housekeeping question. Can you run through your utilizing rate for Q4 across the packaging, testing and bumping?

In terms of packaging, [indiscernible] wise, we're at mid-70s, advanced packaging at high-70s, testing at mid-70s. Substrate at low-70s. Going into quarter one, wirebond will be at the low-70s. Advanced packaging at mid-70s or to high-70s. Testing will be at low-70s and substrate will be mid-70s.

Thank you so much. That's very clear. What about your depreciation for this year.

This year, I think, the overall depreciation is close to a quarter about TWD 7 billion including the cost of goods sold and also at the operating levels. And I don't think - I think it's going to be a very little increase in 2016.

You said TWD 7 billion a quarter?

TWD 7 billion a quarter.

A quarter. Okay. Thanks.

TWD 6.8 billion to be exact.

Yes. All right. TWD 6.8 billion. Okay. Great. If you look at this, the pricing outlook for Q1, right? I think GSMP reported [indiscernible] reported as well, and [indiscernible] reported as well, I think. If you roughly look at the picture, the strong end looks to be enjoying a pretty good quarter in Q1, at least it's above seasonality. What's the gap between you and [indiscernible]? Any indication of market share loss?

Normally, there's a time lapse. In other words, when the wafer is small, two to three months later [indiscernible]. Is that the question you were asking? I'm not exactly sure about the market share loss. I certainly don't believe so. What we have seen starting December last year to January of this year, we have many short orders. If you would just jump in, and they ask you to ship, it's a clear indicator that the inventory control has come to an end and people are basically - there's a shift to order. We believe that this is early indicator of people start coming back. And with the indication that TSMC, UMC, our founding partners, are getting full. And we do believe that in Q2, if the market condition continues to improve and we do believe that the wafer will be coming our way. Now, let me make another statement. Even there are many economic uncertainties, which is really beyond the realm of our comprehension, we are taking more of a conservative approach in terms of estimating. I think all of the guidance that Joseph and I have been talking about it, mild growth in industry, mild growth for IC assembly intact. We balance our product portfolio. We are taking more of a conservative approach.

Right. Well, I think another point I'd like to make is that the changes in our numbers has been exaggerated because of the larger movement in the volumes. If you take the fourth quarter, you will see that the local traditional [indiscernible] test, the decline was actually it's only 1.4%. If you look at testing, that's 1.1%. So pretty much big deal overall moment of the volatility is fairly exaggerated because of it.

Thank you so much.

Thank you.

We're done. We're going to take a call.

All right.

Jean-Louis from Haitong.

The next question comes from Mr. Jean-Louis from Haitong. Mr. Louis, you may proceed.

Hi. Good afternoon.

Hi.

Thanks for taking my question. The SPIL call, just about an hour ago, the company talked about the expected loss of customers due to the merger between or the prospective merger between or due to a prospective merger between ASE and SPIL. And on the call, they were suggesting that something like 12 out of the 15 biggest customers wouldn't want a concentration equating to approximately 50% of their allocation to one enlarged company, and, therefore, they thought they were commenting on the call that perhaps, this might drop from 50 to somewhere like 30 or 30 to 40. Just wondering if you have any comment on this? How do you think about potential losses, customer base due to this kind of activity? Thank you.

Well, I think the best way to look at this is taking a rational approach. You look in the past 15 years, all of the merger acquisition deal around the world and quite often, there are large companies with very, very high concentration market share in all regional segments. After the merger acquisition, have they really lost market share? More recently, specific example, we talked about the JCET acquiring the STATS ChipPAC. If you go back to 2015 and this is the actual reason that you can get, ASE was down, IC ATM, 8%. EMCORE is down 7%. SPIL was down 5%. JCET after acquisition was down 5%. In other words, the claim that after JCET lost STATS ChipPAC, there has been a market share loss. At least the number didn't show. I'm pretty sure that one customer, one product segment closed around which happens daily. Now, in terms of the Taiwan regional, there has been high concentration of market share held by companies in different market segments. You go to the foundry, you go ESAT, you go to the EMS, it has occurred. In the ICT design, we also have clear examples of high concentration market share optimize acquisition, and there's no apparent market loss. So, all I can say is I have not found one example to basically substantiate the claim which is why we issued a statement. I really do not know how to answer this claim. Thank you.

No. That's very clear. That's kind of also the way I look at it. But thank you. Thank you very much for that. That's it from me. Thank you.

Thank you.

And did you tell a 3.7% growth in the revenue, right?

Yeah. It's very difficult to counter all of those claims. We have to go one by one. Every time, we have to really go back to all of the statistics. But I believe all of us has been in this industry for a long time. Just make your own call, make your own judgment.

Our next caller Patrick Liao from Macquarie. Patrick.

Next question comes from Mr. Patrick Liao from Macquarie. Mr. Macquarie (sic) [Mr. Liao] (45:18), your line is now open.

Okay. Thanks for taking my question. My first question is about the incremental gain for your earnings once your companies merge SPIL. So, I'm wondering that is there any agenda if we can expect it, that could be likely this year or last year that could be factored in, in our model or expectation for all investors. Thank you.

Well, I think the transaction will be done with cash. So, it will definitely be an EPS-accretive transaction for the year. But how much the accretion will be, it really depends on the respective performances of the two companies.

Right. Then, the follow-up things is about the - is there any intangible [indiscernible] amortization, which are impacted after the transactions?

Well, we will go through the normal PPA announcements to decide what eventually the goodwill number will be. And we'll go through the normal accounting treatment and do a valuation of such goodwill on annual basis, decide whether there will be any amortization that's needed. If you look at SPIL's track record, it has always been a very, very stable and also a very well-run operation, and that's actually one of the very reason that we've decided to become investor of the company. So, I think we are pretty confident that the so-called intangibles would not have too much of an effect on the overall.

Right. Thank you. So, to give a kind of likely modeling, can I ask, is there any - say how many years EBITDA amortization to happen five years, six years or whatever? Is there a sense of direction? It will be appreciated for that.

You mean the goodwill?

Yes. Yes. How the modeling - I know it's difficult to tell right now, but if you could give us some kind of color on that on how many years likely or whatever, I think, I would appreciate for that.

Well, as I mentioned, the goodwill will be evaluated on an annual basis and there is no fixed time period for us to amortize them. As long as the business or the operation remains stable, then there's no write-down or there's no scheduled amortization period.

Okay. Fair enough. Last question is about the 2016 or even longer terms. If you can give us a kind of feeling, but saying the longer term or 2016's growth perspective, saying that semiconductor worldwide, TSM saying 2% growth. How's ASE's [indiscernible] view? And in terms of that, how much growth we'll be looking at for your EMS and IC ATM this year or the following years?

If you look at the semiconductor from 2000 all the way to 2015, the long-term growth rate that came out a growth rate of 5%. We don't believe there's any reason why that 5% assumption should be altered. In other words, it might go through a negative growth in one year. But in the subsequent years, you will have more positive growth, go back to the long-term growth rate of 5%. If you believe in that thesis, then we have just gone through a minus 2% growth. Therefore, in 2016 or 2017, 2018, 2019, 2020, in the next five years, we ought to have 25% of earning come from growth rate. How do you distribute that 25% down to the five years to become [indiscernible]? Right now, because there are mainly economic uncertainties, we do not understand, we try to take a conservative view. Therefore, we believe the 2% for this year. So, for the longer term, we still believe that the industry continues to march on a 5% annual growth rate curve.

Okay. Got it. Can I ask another way around that? If we look at phases of bucket shares growth all the way from 1998, I believe, [indiscernible] ASE increasing market share all the way. So, can we assume that ASE will continue to grow better than their peers? So, can we assume that will be more than 2% or 5% growth? Another number is [indiscernible] by the direction kind of confidence. Can we have some color on that? Thank you.

All right. If you are looking at 1998 long-term average of ASE, we are growing at more than two acts of the market. In other words, the long term is like between 5% to 5.3%, ASE is growing between 11% to 12%. That is the long term. Can we make that assumption? I believe, directionalized, yes, I believe ASE will outgrow the overall market due to a number of reasons. In terms of the absolute digitized number, I cannot give a comment.

Fair enough. Thank you, sir. That's all I have.

Do we have any additional question?

Thank you. This is Sebastian Hou from CLSA. So, my first question is on the SiP, just a follow-on on some details. So, earlier, Tien Wu and Joseph talked about the rebalancing for this year due to this product line. So, remember, earlier last year - earlier last year, you mentioned about the customer diversification in SiP this year. So, we wonder - we know that last year, you have like four projects, probably, and this year, how many projects you are looking at? And also in terms of the customers, are we going to see new customer coming in? And yeah.

We do have new customers coming in. And we have quite a few number of projects, more than the four that you just referred to. The issues right now is the - some of the projects are taking very, very high revenue and percentage. We're not exactly sure how to clearly model, make a statement of what the number is going to be for this year. However, in terms of number of customers on SiP, variety, we absolutely broadened the portfolio, which is a great news. And you will see in 2016 and particularly in 2017, we have more meaningful percentage of the SiP revenue being accounted for by those multiple projects

Okay. Thank you. So, in terms of - can I get a little bit more details? In terms of the numbers of the customers, is it more than one finger, five or...

You mean one hand.

Yeah. One hand. That's right.

Now, we do have more than 10 customers, if that's what you're referring to when you said projects, but it takes a long time and we realized that. There are critical gaps and they are value, their market segment readiness. We are going through all of these right now, but we do have many customers in the said projects.

Okay. Thank you.

And some of them, we will start reporting meaningful revenue, hopefully soon. This year or latest next year.

Okay. Thank you. And considering your earlier comments on the rebalancing and be more selective on this SiP business, can we assume that the margin trend of this business is going to trend up for the second half of this year into next year?

I want to think there'll be changes between different projects. But, I think, all in all, I think the overall direction that we're trying very hard to maintain or to improve our margin as well as return the SiP business. Like I said in the past, we do have some of the projects that are very profitable, some are losing money. So, we want to make it a more - and also all these projects, there might be some consumes a lot of resources, which are becoming limited today. So, that's why we believe that we need to focus or better utilize such limited resources on some of the projects that can produce better return on profitability. So, I think it's the overall direction, yes. We will continue to improve the margin of the return of the business. And that's what this local rebalancing is all about.

Okay. Thank you. My second and final question is fan-out. So, when do you see revenue contribution from here?

Okay. As I already stated, right now, the fan-out revenue we'll start reporting this year in 2016. The fan-out has been invested by ASE for the last two-and-a-half years, and we will report either one or two customers' revenue in the fan-out or the so-called high-resolution fan-out. What we're referring to the SiP includes the high and mid and low resolutions of the different cost models. And somewhere in the middle of this year, we'll start deploying the other type of fan-out and I will hold the announcements until later days, right? But the fan-out revenue we'll start reporting this year.

You mean reporting so that you can recognize or are you going to report on the - when...

We're going to report revenue. We're actually in production. No.

Okay.

Yeah. The meaningful ramp-up will be some time this year.

Okay. And my third and final question is on the acquisition of SPIL. So, I wonder, do you have any - since the ultimate goal is 200% buyout SPIL, did you have any model in mind that the target model in mind that the combined revenue or combined profit by, say, 2018 or 2020?

No, we haven't gone this far. We're going to take one step at a time.

Okay. But in terms of the cost synergies, how much can we see from that?

Well, I think we can only say that there will be synergies that can be created. I think one or the thing that's lacking in the Taiwan OSAT industry is really the integration of better utilization of resources. And we believe that for the overall OSAT industry, the next big wave of growth is really SiP. And as I said, the resources is very consuming. Therefore, I think the combined effort with a lot of the players [indiscernible] in Taiwan put in together will give us a better utilization of our resource for us to bring down cost and to better secure this upcoming business. So, that's the overall goal that we're aiming at.

And the last question for me is, so after the tender offer, assuming this is going through and the rest of the 50%, if you're going to acquire SPIL's stake, how are you going to finance that? Are you going to use old debt and internal cash, or are you considering any new shares issuance?

Well, it depends on the timing and also the fundings availability in the market. But I think in a nutshell, it will be very similar to this round of tender offers, maybe one-third of our internal cash flow, the other two-thirds from bank borrowings and some other debt borrowings.

Thank you.

That's all we have time for today. Thank you very much for coming. Hope to see you next time.

Thank you.