Hello. I’m Ken Hsiang, the Head of Investor Relations for ASE. Welcome to ASE Group’s First Quarter 2017 Earnings Release. All participants consent to having their voices and questions broadcast via participation of this event. Please refer to Page 1 of our presentation which contains our Safe Harbor notice. I would like to remind everyone on this call that the presentation that follows may contain forward-looking statements. These forward-looking statements are subject to a high degree of risk and our actual results may differ materially from these forward-looking statements. For the purposes of this presentation, dollar figures are generally stated in new Taiwan dollars unless otherwise indicated. For this earnings release, 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. The spill update. ASE and SPIL submitted the required materials to the Taiwan Fair Trade Commission on July 29, 2016, and the TFTC issued a no objection letter in respect of the transaction. ASE and SPIL submitted the required materials to the Ministry of Commerce of the People’s Republic of China on August 25, 2016. MOFCOM formally accepted the parties’ notification materials on December 14, 2016. On April 12, 2017, ASE received MOFCOM’s notice extending its review to Phase III review. The parties are continuing to cooperate with the U.S. Federal Trade Commission’s investigation, and are working toward a goal of successfully completing the investigation as soon as possible. The first quarter of each year is typically our seasonally down quarter. The first quarter 2017 was not an exception. As we believe, our results would indicate most of the business lined up well with our expectations. However, there was a…

Hi, there. Bill Lu, UBS. Just a clarification on the guidance on what Ken said. It sounds like 2Q visibility maybe is a little bit weaker than it’s been historically. I wouldn’t chew what Ken said about the third quarter, is it also cloudy, or it’s different from 2Q?

The third quarter stands in remarkable contrast to the second quarter. There should be a very brisk uptick, we just not exactly sure, which month that uptick happens. But we’re pretty optimistic on the third quarter. There’s no exact number at this point.

Okay. But the timing versus your previous quarters is a little bit uncertain right now, is that the point?

I think the third quarter should be – the third quarter number should be pretty reasonable. It’s the second quarter that we’re not exactly sure about. It could – things could in all potential likelihood pickup in June, but we don’t know.

I see. Okay, thanks. Question on gross margin. In the first quarter, I mean, I realized there’s a currency impact. But it seems like margin is a little bit weaker. What are the factors here, obviously, loading is one factor, anything else?

Well, I think in terms of IC ATM gross profit margin, of course, the softer demand and also the loading, of course, will have an impact – a negative impact on the margin itself. But on top of that, we’re also experiencing anti-dollar appreciation, which has a – about a 0.6% impact on margin. Also in the quarter we do – we did have some one-off expenses that we need to book, including the conversation expenses that we need to incur for the right offering with a portion of the employee subscription. And also we have a – we went through a early retirement plan in Korea site and that incur some additional costs as well. There’s also a one-off expense base the – because of the, I don’t know what’s this translation is initial, a lot of the unpaid annual leads that we need to incur in expenses. So all of those add up the additional expenses for the quarter, such as the one-off items is 1.5% of total. And the additional over time expenses that we need to pay for the initial as well, that’s another 0.3%. So these are the items that had some negative impact on the margin as well on top of the lower loading.

Yes. Continuing on gross margins, we’ve seen the improvements in EMS gross margins as you’ve rebalanced the portfolio, but last couple of quarters have been the low season. So as we go into the second-half of the year into the strength of the EMS business, can you talk about how do you think about margins in terms of maybe in absolute level that you want to achieve for incremental margins going forward?

Well, I think there’s no set target on the – let’s say, a 11%, 12%, I’m not saying that. We’re saying that the main focus for this year is, we need to continue our rebalancing on this material on the same business. And the main focus is really to continue to improve our margin on the EMS side. And as we – as the business progresses, I think there’s still further room for improvement. Although the NT, because the movement does not have that much of an impact on the EMSs, because most of the business is really made in China. But we still have a small portion of the business in Taiwan as well. So they may have some impact. But overall, I think, the – there’s still room for improvement and we’re optimistic that we’ll continue to make some improvement on the gross margin for you in this business.

Okay. Just thinking one last one, the clarification on the MOFCOM process. So we move to a Phase 3 April 12. Is my understanding correct that Phase 3 is one month and…?

Well, Phase 1 is 30 days and then the Phase 2 is 90, and then Phase 3 is 60 days.

60 days. At the end of the 60 days, it’s either yes or no, or they are the options?

We’re actually quite comfortable with the progress that we’re making now. And hopefully, we can get everything cleared away before the expiry, which is June 11.

Okay. But the government – the MOFCOM has to make a ruling by June 11, is that correct?

They can do – they can give a ruling, or they can ask you to withdraw all of the application and then we file it. There are different ways that we can handle it.

Yes. Great. Thank you.

Name and company.

Yes, excuse me, Rick Hsu from Daiwa Securities. So good afternoon.

Hi.

I guess two questions from me here. The first one as usual some housekeeping numbers, including your – I know, Ken talk about the – you told us and I just, I was too busy to copy everything. So can you run through that you see for your…?

Okay, for assembly, it’s around mid-70s for both wirebond and non-wirebond. For test, it’s low-70s. For material, it’s low to mid-70s.

Right. And…

And the – for the second quarter, it should remain very similar.

Second quarter should be similar across the Board, right?

Right.

All right. And can you talk a little bit about your capacity bill for second quarter, is going to be similar again quarter-on-quarter, or is going to be increasing on preparation for Q3?

You mean, CapEx?

Your capacity across the Board for second quarter?

Well, in terms of CapEx, I think the first quarter we have TWD155 million. I think the – in the second quarter, it will be higher – it will be a higher number for that. And that’s, as you said, is in preparation for the third quarters onwards ramp up.

Okay. The second question is, if I – there’s still any exchange fluctuation for your second quarter then I assume your IC ATM will likely grow by, maybe, as Ken said, about 3% quarter-on-quarter. But if I look at your – one of your competitors import, they also reduced number today, I think, they are looking at above to 5% to 13% quarter-on-quarter gross, but don’t if I remember that correct. So can you explain why is the difference is? Are you losing any market share, or even story?

Well, I can’t exactly speak for Amkor. But I think, the bulk of it is really because of different customer mix. I think they have a larger exposure in the Galaxy phone.

Okay. All right. Thank you so much.

Do we have more questions locally? Yes, Randy Abrams, are you on the line?

Yes. I’m on the line. Hey, I wanted to as a follow-up clarification on the – you mentioned uncertainly our potential product push-outs. Were you referring more just to the Android over second quarter? It sounded like you’re confidence on third quarter ramping, but is there still uncertainty on timeline, or is it more locked in for the second-half, I guess, we have the apples normally ramp, but for those component builds, is that still moving around in uncertain, or is that more locked in that drive the confidence on third quarter?

I don’t think we can be very specific about customers, per se. But I think all in all what we’re looking at is, we are going through a bit softer typical second quarter because of the – there’s some inventory that needs to be worked off and also because of some delays in some of the product launch. All these we expected to be worked out by third quarter. And that’s the reason why we’re having a much more optimistic third quarter thinking that the things will start to rebound from third quarter. Although the product launch still have some [indiscernible] involved. So, we are not exactly sure when exactly in third quarter, which month exactly things will start to look up. I think that’s what we’re trying to say here.

Okay. Okay, that’s helpful. The second question I wanted to ask about the P&L packaging. More for the mobile market if you’re seeing some of those developments carry-forward for next year for still two years away. But if you could talk about your opportunities for that market?

We continue to see fan-out as a growth driver for us going forward. I think the application of it will be expanding. So we’ll continue to make our investment into fan-out and also we’re expecting quite substantial growth in our revenue – from fan-out revenue this year.

Okay. And then the last on SiP, it’s been a I think a little while for you to disclose. But I’m curious the level, like if you did percent of the EMS business now and percent of IC ATM maybe for how it is now? And if you still with the rebalancing and also moving out the loadings, if we should still expect that normal sharp second-half for the SiP business?

Let’s say, I think the overall rebalancing involves a lot of things in our SiP business, including we’re trying very hard to linearize whatever business flow that we’re getting from the – from our customers. And that seems to be what you know better for us now. So are you –is your question about the percentage of this is from SiP?

Yes. If you can the percent of, like on the EMS, ATM and consolidated levels, like where rough area where it is now?

I think in the first quarter in terms of IC ATM, it’s about 4%.

Okay.

Are you looking for EMS?

Oh, yes, and if you have an EMS and consolidated, like how that performs?

Yes, IC ATM is actually 3%. From the EMS perspective, it’s about 40-some-odd-percent.

Okay. Okay, great. Thanks a lot.

Next caller, Charlie Chan, Morgan Stanley.

Hi, Ken. Hi, Joseph, good afternoon. So I actually want to follow-up the question regarding fan-out with all level of package. So can you elaborate what kind of income balance sheet were moved to fan-out as you still continue to see strong demand, especially I’m curious about that crossover versus software-based packaging? Thanks.

So in general, fan-out is more expensive than traditional packaging. You choose fan-out when your I/O densities are denser than what can be provided by traditional forms of packaging. So most products at this point in time are able to be serviced by bumping or copper pillar. There is an extra potential factor and fan-out. It provides a slightly thinner profile. I think it’s about maybe 10% thinner, or 15% thinner. But that’s it. But going forward, we believe that we can probably drive fan-out costs down. And when fan-out costs can actually be lower than their corresponding substrate costs, we can – fan-out should actually grow significantly at that point in time.

Okay. And my follow would be because of competition invest on foundry player. So can you I think your key depreciation, or advantage against the foundry competitor?

We – we’re a back-end player. Fan-out is a back-end service. So we’re basically running sewer pipes to and from the chip. So you don’t need to spend a lot of money on packaging, you go for the lowest-cost. So we believe we can deliver the lowest-cost. We can – we believe we have the path to deliver the lowest-cost fan-out going forward.

Okay. So just to put into perspective, if we time which quarter or which year do you think fan-out can contribute your revenue significantly and maybe you can give us some CapEx even by schedule, that would be great?

That’s not really up to us. The demand in fan-out is exactly correlated to the devices that need it. So maybe, potentially 10, 7 even sub-7 nanometer is on the foundry front. When the I/O densities get beyond what traditional packaging needs, that’s when – that’s the foreshore point at which fan-out is needed as packaging. But at this point in time, there really isn’t a lot of direct obvious need for fan-out. I mean, traditionally speaking, fan-out is used for keeping a footprint of a particular die when die shrink. So I mean, those are different types of purposes. But we don’t have a long-term time horizon in terms of exact fan-out extension. We will expand as the market needs it.

Okay. Okay, got it. Thank you very much.

Next caller, Steven Pelayo, HSBC.

Great. I wonder if you could talk a little bit about the second quarter. I understand, you’re guiding, I guess, up a little bit, but flattish for the currency affected Amkor did talk about half of their growth coming from the communications side and the other half coming from automotive, industrial, consumer. So I guess, as you look into this segment in the second-half, is comp kind of down and other things offsetting it or?

Can you repeat that question?

I’m just looking at what is your outlook for the second quarter revenues by segment? Does it equal across communications, consumer, computing, because Amkor had actually said, it was fairly half the growth for them was going to come from communications, the other half was going to come from all the other things. I’m curious if you see a similar flattish environment for all end markets?

Well, as we – as I mentioned earlier on, I think Amkor has a different customer exposure than ours, where they have more exposure in the Samsung Galaxy. So there’s a bit of a difference in there. In terms of our own coverage, I think the – in the second quarter aside from a computer – computing we – other segments are kind of stable. Computer – computing for us is going to be a bit soft than the other segments. So the distribution will be slightly changed in the second quarter.

Okay. And then when you look, last year, for example, you had kind of a flattish quarter-on-quarter second quarter, which is somewhat similar. And then you ultimately had a 16% quarter-on-quarter, third quarter. So if things are pushing out and other things are lining up, I mean, as you look to the third quarter, do you think it’ll be even better than what you saw a year ago on a sequential growth?

Joseph, lots been answered. So, yes, I’m actually really bullish on the third quarter. But we don’t really have a number at this point, right. It’s tied to products. You have a number of products that are delaying at this point. That that could actually also impact or flow into the third quarter, as well as traditional products that normally launched that timeframe.

Having – I think, having said, that I think there’s a little bit difference between this year and last is that, in the last second quarter, or I should say, last first quarter and second quarter, the – our SiP business really decreased very, very significantly both in terms of our unit volume, as well as pricing for those services. As I mentioned early on – this year on, which we are making progress in terms of linearizing that part of the business. So I think the changes between the quarters second and third quarter this year and last year in terms of magnitude would be up a little bit different because of that factor.

Okay, linearity looks a little bit, understand. Do you think it also been – it could mean very well that fourth quarter is seasonally stronger as well. I mean, I guess, I’m trying to ask maybe more of a full-year type outlook from you?

Well, as I said, we don’t have any numbers right now. But we try to explain that the way we look at it is, because in the second quarter the – most of the inventory, particularly in China market should be worked out. And there will be multiple product launches coming into third quarter and that give us a bit more confidence on the second quarters performance.

Okay. And just one more question, I was reading the 20-F today for last year. And I was surprised to see your largest customer, I think, decreased by about 24% year-on-year, your expectations for that this year, do you see that that can relatively outperform the total company and?

Yes, we generally can’t comment on customers, they sue us. So, thank you.

I’m not giving a name here, I’m just saying your largest customer? Okay, fair enough. Thank you very much.

All of them will sue us.

Thank you, guys.

Thank you.

Any other questions? Name and company please.

Hello. I’m Sebastian from CLSA. So my first question is to follow on the product delay launch for your customers, which you just mentioned. Does that impact more of your IC ATM business, or EMS business in the second quarter?

Product launches. The product launches are impacting our IC ATM business at this point.

Okay. And this the product launch delay is from several customers, or from your top five customers?

The product launches that that are delaying are more end product launches…

Yes.

…not necessarily our customer product launches. So their particular manufacturing cycles are pushing out right? I mean, some of those numbers come in, some go out, right? So that’s what makes the quarter particularly difficult to analyze at this point.

Okay, got it. And on your system packaging business, in last quarter you talk about that the business pipeline is pretty strong with many customer approaching they see. But it’s hard to forecast the interest of the timeline when these projects would take off involve them. And how about now too much right now/ I mean, is there – do you get any clear visibility, or still the same?

I think the situation remains the same. At this point we still have multiple customers engaging us in their different faces in different devices. And exactly when and how these products will get into the market really depends on the customer’s – their whole game play.

Okay. Remember that your SiP product, as you use another way to describe then used to be like a security, wearable, project, interface, and subsystem-related, I remember, there are four, and how many – are you still having this for this year, or how many you have?

We generally don’t discuss customer-related information for the reason I mentioned to Steve.

Okay. How about like from the very top down perspective? How do you see your SiP business in terms of the revenue, is going to be similar to last year, or up or down?

There will be some growth.

There’s some growth?

Yes, in terms of revenue.

Okay. And can you talk about your strategy on the very advanced packaging like 2.5D and 3D packaging, particularly for the high-performance computing these processors. How I think two years ago, you announced the – you have this projects with AMD and on GPU side, and any new progress and new design and pipeline projects you’re working on right now?

Our product service packaging portfolio is always expanding, the one that you mentioned with AMD. Unfortunately, it seems that there wasn’t a lot of volume there, right? But I do understand that there will be more similar type products, that’s a very interesting product. You have stacked memory with it – with a CPU with an interpose on it. Those are the next generation of packaging. So from our perspective, exciting, very interesting, not a lot of revenue yet.

When you say exciting and interesting, are you saying from there you see this market is interesting and exciting, but you haven’t gotten there, or you already have been – that’s already in your design and pipeline?

That was our product that was our co-work product with AMD.

Okay. I mean a top of AMD besides AMD?

We offer our package tech to all our customers, or most of our customers, or most of our tech unless it’s exclusive.

Okay. Can I ask where do you get your interposer. Do you manufacture yourself, or you have partners? Remember, you have announced a partnership with Inotera when Inotera was still listed by two years ago, or four – three years ago?

Yes, we have them as a potential provider of interposers. There are others that can provide interposers.

So basically, you’re getting interposer from your partners, but not doing that yourself?

Correct.

And last one just to clarify on Randy’s questions, I didn’t hear it clearly, because you sum all the SiP account for 3% revenue for IC ATM in the first quarter? And how much percent for EMS?

We have 40%…

42%…

Yes, around 40%s in the 40%s.

40%s, okay. And in terms of the total company then that’s low…

26%?

26%.

I’m sorry hold on 18…

18%.

18%, I’m sorry. We have a lot of numbers, sorry, 18%.

Okay. Yes. Thank you.

Any other questions? Bill, another one.

Yes. Just a quick one. I think a month ago, there was an announcement about some sort of JV between you guys, Qualcomm, and the preceding government. Can you talk a little bit more about that in terms of – is that more in the IC ATM realm, or CPMS [ph] and also what is the financial arrangement?

Well, we just signed an MOU. I think, there’s still a lot of details that needs to be worked out. And there’s still a lot of preconditions that needs to be met before the whole team puts into play. I think the – this will be a 2018 and beyond event at this point. There’s really no set parameters around it in terms of financial arrangements and so on. It depends on how things progresses in the next 6 to 12 months. And I think the purpose of that JV is really to develop a SiP product for the region. And it will be a combination of IC ATM, as well as the EMS, and we will make the decision when – which unit – business unit to take the lead on that.

Yes.

We – any more questions on the floor? I have Steven Pelayo in the queue for question. I’m not sure if it’s – Steven, do you have another question?

Yes, can you hear me?

Yes.

Okay, great. In talking to some of your customers here, it seems like that there may be already viewing ASE and Siliconware kind of as one. So I’m curious if that’s true, or if it’s competitive between you two has ever, or pricing more stable, any thoughts on kind of now that we’re into this, I don’t even know a year now. What’s actual behavior and how it’s changed?

I don’t think the customers are taking us as one. I think we’re two – still two separate companies running our own businesses. There’s no any source of collaborations so far until the whole thing is cleared and approved, and we finally make the combination.

And I guess there were some concerns that by combining you two that opened up second sourcing opportunities for other players out there. As far as you’re aware, you don’t think that that’s negatively impacted you at this point?

So far we don’t sense any major significant changes in our business.

Okay. Just a couple more quick ones here. Fingerprint sensors were very active of late. I’m wondering if you could just maybe give us some color in 2016? How big of a business was that for you? And maybe just some qualitative comments on your outlook for 2017?

We can’t comment on customer devices, sorry.

What about just directionally then, is it a growth market for you this year?

We don’t – we can’t comment on that, sorry.

All right. One more quick one here, Kingboard is out there talking a lot about rising copper foil laminate costs. I’m just curious on the material side. Are you seeing any potential impacts? We’re seeing in the foundry side, for example, in raw wafers, are you seeing anywhere in the back inside?

That hasn’t crossed my desk yet. But I would, I guess, I will look into that.

Okay. Actually I’m going to sneak in a couple more. Companies like Paradigm and Be Semiconductor were guiding the revenues up 50% quarter-on-quarter. Is that kind of what we should expect in your capital spending, as well as the kind of growth that you’re thinking, how lumpy, I guess, is the linearity of your annual CapEx plan?

I mentioned that our capital spending, it should be above last year’s capital spending, but below our depreciation and amortization.

In terms of quarterly linearity, you mentioned that the second quarter should go up, I’m trying to understand the magnitude. Is it a very large lump of the annual budget that you spent in 2Q, or is it a fairly steady number?

Well, second quarter will be the highest in the quarter we’re spending for the year.

Okay. And then lastly, maybe you could talk a little bit about China customers, your China operations. I know Chinese smartphones are going through that these excess inventories correction. But I’m just curious about your thoughts on your positioning the competitive landscape, demand there, pricing, technology roadmaps, even Amkor has a lot of dense capacity in China. So can you talk just a little bit more about the market in China and your own operations and strategy?

Well, I think from a high-level point of view is that, China is becoming a rapidly expanding market. I think going forward, I think, it’s almost necessary for us to maybe expand our operation in China, so as to meet the demand there. And there’s also a lot of new fab investments into China that will eventually need more back-end support. And so we’re seeing China market as a very good – as a very good potential. And we will be putting more efforts in the investment into China, along with the overall market growth in that area.

Can you remind me the percentage of revenues from China headquartered companies?

It’s about 6%.

6%, okay. And then last question just from a financial perspective. I’m curious what – exiting 2017, what’s the balance sheet going to look like? I’m a little unclear about kind of capital structure eventually here?

Well, if the transaction goes through then there will be additional borrowing up to about TWD$3.5 billion. And at that point, I think, the overall net debt-to-equity ratio will be closing down about 90%, 95%, up from above 30% something at this point. So we – there’s going to be quite a large funding needs and also our leverage will be significantly increased. That’s part of the reason why this time around, our dividend, it’s a payout, it’s a bit lower than previous year. So reserve some more cash for funding these.

Great. Thanks for patiently answering all my questions.

You’re welcome.

Thanks. We have one more from Sebastian, just one right?

Sorry, I need to come back to the product again. So, ken, are you very positive on the third quarter? You say, you’re very bullish. And you talk about the that end product the way impacts your IC ATM business mainly in the second quarter? So and you see – so which means that these will translate into third quarter revenue, and also you need it – you also have EMS, so which means that both IC ATM delay from 2Q to 3Q plus EMS in the quarter together will give you a very strong third quarter revenue. And does that imply your expectation for that end product delay, won’t postpone your EMS growth from third quarter to fourth quarter?

The product delays are in general, they’re not referring to any particular customer. But if you just look at various products at this point in time, there were products that were launched now this time last year, but aren’t launched now this time this year. So I don’t think, I think you may be stretching that particular comment out a little bit too much there. But in terms of what we see, the timing of end products are definitely impacting overall manufacturing cycles.

All right. Second follow-up is to – how do you see the pricing environment for this year? Remember the first quarter last year, there’s a pricing reset and that impact your margin and also SPIL’s margins. How about the pricing enrollment for this year? Do we also have to come to pricing reset for this year, or the magnitudes compared to last year’s milder, smaller or bigger?

I think we’re – this year we’re going through to a normal price talks typically on the quality basis. So I think the – in terms of overall pricing environment, I think this year is quite stable and normal.

So better than last year relatively, okay. Last one, and Joseph you mentioned that the computing in the second quarter would be slower than the others, which means the other applications are actually still growing?

That’s really based on our own portfolio – our forecast and this – it’s sometimes customer specific, because the customer give us a forecast in the each – selective customers up and does have an impact on our overall portfolio performance. So what we’re saying is, we’re looking at our own forecast and looking at those customers forecast, there is ups and downs. And it seems that even though customers in the computing area, the forecast seems to be weaker than the others.

All right. Thank you.

Any other questions? Now, thank you for attending the first quarter 2017 earnings release.

Thank you very much.