Hello. I am Ken Hsiang, the Head of Investor Relations for ASE. Welcome to ASE Group's Third Quarter 2016 Earnings Release. All participants consent to having their voice and questions broadcast via participation of this event. Please refer to Page 1 of our presentation which contains our Safe Harbor notice. I would like to remind everyone on this call that the presentation that follows may contain forward-looking statements. These forward-looking statements are subject to a high degree of risk and our actual results may differ materially from these forward-looking statements. For the purposes of this presentation, dollar figures are generally stated in new Taiwan dollars unless otherwise indicated. For the earnings release, I will be going over the financial results. Joseph Tung, our CFO, will be answering questions during our Q&A session. Following the event, our VP in charge of Public Relations, Eddie Chang will be addressing the media in Mandarin Chinese. Before we get into the numbers, I would like to give you a quick update on our transaction with the SPIL. As of September 19, our case was accepted as registered with the TFTC. TFTC indicated they would be holding a hearing on the transaction before its decision on the proposed transaction. As reported in our last earnings release, we have also filed our case with China's antitrust authority and are awaiting the official registration of our filing. ASE has determined that the proposed transaction does not trigger a U.S. HSR filing, but notes that even without such HSR filing, the U.S. FTC retains the ability to review such transaction. The U.S. FTC is investigating the said transaction and ASE is fully cooperating. We have also completed our purchase price allocation assessment as required by IFRS in which the purchase price is allocated into the various assets and…

Okay, yes. I'm Randy Abrams from Credit Suisse. First question on the CapEx. Year to date, it's about $550 million. Just want to see your full-year CapEx now. It looks like it's tracking a little bit below depreciation, but just want to get a sense on fourth quarter. And if you could give an initial view on 2017 priorities.

I think the overall CapEx for the year remains the same as we earlier reported. I think it will still be between the total D&A and our CapEx last year. As far as fourth quarter is concerned, I think it will be a notch lower than $184 million we spent in quarter three. For next year, we're still in the reviewing stage and after we have come out with the annual plan for next year, we will have a better picture on what kind of CapEx budget we're going to make.

Okay. I wanted to ask a question on the materials business. The internal substrate declined from 37% to 27% and the gross margin by a few points. If you could talk about the trends in that business, anything going on to drive those changes?

Well, I think what happened in Q3 is a bit unique. Because in the period we experienced a bit of a hiccup on our yield. That is already resolved and I think we are back on track. I think the normalized self-supply ratio should be around 33% and above.

Okay. And the last question just on the gross margin guidance. The EMS margin, it seems like it held up again at about 10%. Were there more of these engineering project fees in there to keep the margin holding up? Like I think in the second quarter at 10% there was engineering to drive the better margin. But just what drove the better EMS margin.

I think by and large the better than expected margin at EMS is really due to product mix change. But there is some engineering fees that we've collected in the quarter. But I think aside from product mix change, I think another very important factor is really the - as we see results from our rebalancing the SiP business at the EMS level.

Okay. And the follow-up to that, could you give a view then, the SiP business, how it's looking now for projects? If you see any new ones? Just whether your core customer or diversification into additional customers, how that's playing out now?

Well, for the existing four projects, what used to be existing four projects we had, we're maintaining two of them, discontinuing one and another one we just kind of exited because we don't feel we have that much value add into it. But we did add one more project and that is starting mass production starting from quarter three. Going forward, I think the rebalancing effort is continuing. We are positive on the increasing trend of modularization so we believe that there's going - it's going to lead to quite a bit of SiP opportunities going forward. And we do have multiple engagement with multiple customers at this point in different phases. But I think right now the focus will still be on - we want to stay selective in choosing these projects. We want to focus on the ones that has a healthy financial profile as well as we do have a technology advantage on it.

One follow up. For the two that you're maintaining, do you have confidence for your expectation to continue those through the next generation? Are those the type you want to keep with, or when you say rebalance continue, there could be changes with the first two?

Yes. Well I think we will continue to stay very, very closely engaged with the new products coming in. But like I said, unless the product is financially justifiable and also we do have a technology advantage in it, we want to be cautious in putting in additional investment into it.

Thank you.

I think we'll go with - name and company please, sir.

Yes thanks. Bill Lu from UBS. Could I start with a clarification? Ken talked about the purchase price allocation. Was it TWD281 million for 4Q and 1Q of next year? Is that what you said?

4Q and 1Q; 4Q last year, 1Q this year.

And then TWD351 million for the subsequent quarters?

Correct.

How long does that last?

That number will probably last until the combination is completed.

Well, let me elaborate a little bit. I think TWD281 million is because at that point we hold 25% of the - of SPIL. And the number increased to TWD351 million because we raised our ownership to 33% and above. And that number we should maintain as we continue to hold 32%. Upon closing of the deal, when we will be holding 100% of the company, then there will be a revaluation. We will redo the PPA and the final results will depend on the then SPIL's financial condition.

Okay, I understand. We're now a few months into the two sides going into this deal. I think I asked you this last quarter as well, but in the last several months, as you've talked to the customers, can you let us know what feedback you're getting as far as people looking at your combined market share? Do you think the pricing environment has got a little bit better because of this potential move and what other feedback are you getting from customers?

No, I don't think it has any - the pricing has anything to do with this transaction itself. I think with or without the transaction, customer does have options. And there's plenty of alternative capacity around. So everybody is still on the same page and competing on, not just pricing, but also on technology, quality and so on and so forth. So I don't think that's - in terms of customers' reaction to it, I think there's a mix of different customers. And some of them are very, very supportive to it. Some of them may have some hesitations. But all in all I think this - the end game is that we will continue to have a healthy dose of competition among the two companies, although there will be collaborations on resources, and therefore improving our overall efficiency, which is to the benefit of our customers, eventually.

Great. On the SiP business, going into next year there are some talks of leading handset makers going to substrate like PCB, which I understand is kind of a modularization of the HDI board. Do you consider that to be an opportunity for SiP? And, if so, what is your advantage over the other competitors?

Actually yes. When the substrate gets more complicated like that, I believe that actually is a trend towards SiP, right? It gives system houses more of a capability to put multiple devices together. And substrate is just one of the tools, so to say, in part of the SiP-ization of electronics.

I think that's the very reason why we have this TDK venture with - which we want to develop, what we call the embedded substrate. Which is going to be a very essential part of the overall SiP effort.

Yes, that was my follow-up question is, to capture that business, do you have all the necessary pieces now in terms of the substrate, the EMS; what else do you need?

What else do we need? I think the whole technology is evolving, right? We just need to keep up with the technology development and really have a very, very close engagement with our potential customers. We need to put the technology roadmap in sync with them. We also need to have a better feel of what the going trend is. The whole SiP business is a new effort actually, so we are still on a learning curve. And some of the projects we did pay some prices on it. So I think one of the efforts that we need to continue is really to find the right business model for it. And that's what the rebalancing, what we call the rebalancing of SiP business is all about.

One last question, on the wearable SiP, you said that the margin has improved from last year but I think that was a pretty low bar. Is it close to the division average now, or can you just give me a sense for where it is?

Well I can't give you a direct comment on it. I'm saying - what we're saying is through different efforts, including the change of business terms, our capacity, so on and so forth, I think we are seeing very, very positive results from the effort. And that's really showing in the overall EMS margin in the third quarter.

Thank you.

Rick over there. Name and company, sir.

Yes, hi. This is Rick Hsu from Daiwa Securities. I've got a few questions here. Again a housekeeping question. Regarding your bumping capacity, I think Ken talked about that number; I missed that part. Can you remind me, the bumping capacity for Q3?

At the end of fourth quarter last year we had 12-inch bump of 82,500 pieces.

So 8-inch -

That's now grown to 111,000. I think by end of the year it will grow to 116,000, 12-inch. 8-inch I think will remain the same.

8-inch is at 95,000.

95,000 as of Q3, right?

Correct for 8-inch. 12-inch is 111,000.

And 8-inch will remain the same toward the end of this year, am I right?

One more time?

8-inch will remain the same toward the end of this year?

Yes. I don't believe we have plans to increase 8-inch right at this time.

Okay, cool. What about the UT, utilization rates for Q3 across the board of the –?

Q3 packaging is around 85%, which is pretty much at capacity. And for tests we are at about 80%. I think going into Q4 it will be a little bit lower, as we have guided.

Okay. So that will lead to my third question. If I recall the guidance from TSMC and UMC, I think roughly across the board for the foundries who have already reported, about a flattish Q4. How come there's a gap between your IC ATM guidance and the front-end foundries?

Well they are not the only business source that we have. So we'll have a - there's a diversified customer base and each has different situation or condition. But all in all I think we're just experiencing a normal seasonality. In our business we typically peak at third quarter. I would say from the - from what we're seeing for fourth quarter, it's actually a quite healthy fourth quarter for us.

Right. One last question. Can you give us some more color about your - so like InFO development.

I think the overall fan-out, I think that's what you're referring to?

Right, yes.

I think our strategy is still to focus on what we call mass-market type of solutions and lower-cost solutions. So from that, I think, right now we do have some capacity and some mass production on fan-out, but not yet at a meaningful level. But going into next year the investment - both investment and revenue growth will be very, very substantial. I think we do see quite a bit of - quite good opportunity in that area. I think the difference between us and TSMC or InFO also is like what I just said, our focus is really on multiple customer and mass market, with lower-cost solutions, which includes maybe today the 12-inch bumping capacity that we're installing and increasing. And also going forward there will be - the Deca effort will also start to play out. That will be a panel-based solution which is - we believe it will give a much better cost structure to our customers as well.

Okay, thank you so much.

Thank you.

Our next question will come from Steven Pelayo who is online.

Yes hi. I guess I get three primary long-term questions from investors on ASE and their threats. So people are nervous about the China threat, nervous about the turnkey threat from the foundries consuming more, keeping more packaging internally. And they're nervous about the combination and then second-sourcing risk. In fact I think Amkor has suggested they've been gaining share on the second sourcing. So I'm wondering if you could talk a little bit about each one of those potential headwinds and hold our hands a bit here just to suggest if this is actually something we should be worried about.

Well I think the - first of all, the China threat I think China threat is no different from any other threats. This is a competitive industry and we're in it. And so far I think we've done pretty good in competing with all the major competitors in the industry. I think the name of the game going forward is really economy of scale, the technology investment that we will continue to make. And I think also one particular strength, or competitiveness, that we have is really the - our footprint in the SiP business. I think although we're in a rebalancing phase, but we still are very, very confident and positive about the going trend in this business. We do have the unique and also the most advanced foundation for - to capture that business opportunity. China; they have been aggressive. They have - funding is certainly not a problem for them. But I think we have 30 years, 30-some years' experience behind us. And the technology, or the work experience and so on and so forth, the overall management know-how, we still have the leading position. And we will continue to leverage on that to expand our competitiveness going forward. In terms of foundries going into back-end, I think what TSMC is doing - or I shouldn't even say the name - but what the foundry is doing is really to offer a total solution as they go down the mass of their wafer. All the chips that are made needs to be packaged and tested. And if the most advanced technology in terms of packaging is toward more wafer-level type of processes, I think it's only natural for the foundries to take the lead on that. So once the technology is well defined and matured, I think same thing happened like the wafer probe, or bumping, I think there's eventually going to be eventual - natural division of works among the OSATs and the foundries. So I don't think we are in such a pure competition mode with the foundries. It's more like a collaboration among the two. I'm not sure I understand your third question about second-sourcing?

I guess there are some concerns or fears that the combination of ASE and SPIL creates an even larger player out there and takes out maybe somebody's second source and so then they have to go looking elsewhere.

Well I think with or without the transaction, or with or without the combination, I think the competition is always there. As I said, the customer always has options to go somewhere else and there's always plenty of capacity to go about. And besides, the two of us put together, it's not going to be - size-wise we're not going to be a monster. So I don't think that's going to change the competition landscape that much. So we will just continue to do whatever we do. We will continue to stay competitive. And in the short run, some of the customers may have some concerns that they want to diversify it a bit more. Eventually the real swing factor is really how well a job you can do for your customers; cost-wise, quality-wise, technology-wise. And that's something we will be focusing on. And eventually, as long as we create value to our customers, I don't think that will be a that big of a concern going forward.

I have a little to add -

Right, and just one follow up, if I could.

Steven?

On China, could you help me understand what percentage of revenues it is for you today? Maybe more importantly, specific to Chinese fabless and system houses, what percentage of revenues is that for ASE today?

Right now I think our business from Chinese customers is about 4% of our overall IC ATM business. And in terms of production, our China sites has about 15% of our overall.

Steven just a follow-up on -

That 4% number; can it double or what do you think it can do?

Steven hello? Are you there? I wanted to -

Yes. I was asking -

Yes. I wanted to reply to one of your previous questions. We are actually capacity constrained at this time. So that could be a rationale for the comment that you're getting from a competitor of ours.

Fair point. I've dropped off guys. They cut me off.

No, you're still on. We can hear you.

Oh, sorry guys. I had a follow up there. China's 4% of IC ATM, your thoughts for a year from today; second half of next year, do you think that this could grow significantly to maybe even approach 10% of revenues?

I don't want to comment on that.

And that's it from me. Okay, fair enough. Thanks guys.

Thank you. Do we have any more questions in the room?

Thank you. Sebastian Hou from CLSA. First question is, Joseph, you mentioned about in your EMS - or Joseph or Ken, you mentioned about your EMS business didn't perform as you expected because some product didn't materialize as you had earlier expected. So can you give us some - give me more colors on what happened exactly and what type of products or application was that?

I think what we said is our third quarter EMS revenue came a little bit short from expected. The main reason for that is one particular - or certain products, the order volume was less than expected.

Okay. So that is also the reason leading to your better-than-expected gross margin in EMS segment?

Partially, yes.

Okay.

Although more so on the existing - aside from the SiP business, the so-called higher margin product mix that's getting higher.

So is that product SiP related?

No, like I said, outside of SiP.

Okay. And do you expect that - because you said that it came shorter than expected in 3Q - is that because of the production timing impacts, or just because of the total, lump-sum volume of the order is smaller? So do you expect that to pick up in 4Q, or no, it's just total order is smaller?

I can only say for Q3, yes, the order volume is less than expected. I'm not going to speculate on quarter four.

Okay. And can you give us more idea or colors about your SiP business outlook for next year? Earlier you mentioned about you dropped one project because the profit doesn't make sense, but you add a new project. And how do you see this new project will materialize in next year in terms of how that will progress, or progress in the next generation of the - yes, in next generation of phone or et cetera?

I'm leaving this to Ken.

Can you repeat your question?

Yes. In terms of your SiP outlook for next year, you're adding one project, as you mentioned, this year. So can you give us more colors on how this project will go into next year?

This project?

Yes.

I don't think we're going to comment on specific projects at this time, especially in this context here.

Well, I think so far this particular project is - meets our criteria. And so I think it's going to be maintained.

And how about the other ongoing projects that haven't really contributed to your revenue right now. Do you see more of the SiP product or projects that will contribute to your revenue next year, total?

I think the effort is continuing in terms of engaging with multiple customers and multiple devices. Really we need to see how things go. Right now I don't think we can make a prediction on that. I think the effort will continue.

Okay. But not much visibility, can I say that?

Like I said, we have multiple customers, multiple projects in different phases. Some are nearer mass production, some are still at the design stage. But having said that, it really depends on how the market will go and to see how that business will grow to be like.

Thank you.

Any additional questions? No questions online also, so thank you very much for coming to the third quarter.

Thank you.

See you next quarter.