Hello, I am Ken Hsiang, the Head of Investor Relations for ASE. Welcome to ASE Group's Fourth 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 today's event, Dr. Tien Wu, our COO will be making a brief presentation. I will then be going over the financial results. Afterwards, we will have a Q&A session with Dr. Wu and Joseph Tung, our CFO. Following the event, our VP in-charge of Public Relations, Eddie Chang, will be available to address the media in Mandarin, Chinese. And now Dr. Wu, our Chief Operating Officer.

Good afternoon, everyone. 2017 has been a very challenging and rewarding year for ASE. I would like to take this opportunity to thank all of you for all of your support to the company over the very challenging but rewarding year. I would like you to give you a brief presentation. What I'll do is I'll start with the ASE and SPIL transaction update. Here is a list of all the approvals we have received from government, namely Taiwan, November 16, 2016; United States, May 16, 2017; and finally, China on November 24, 2017. We have received the MOFCOM conditional approval and with a two-year restricted behavior. For more details, please visit the MOFCOM website. The key days which will follow will be January 27 to February 9, we will go through the electronic voting period. 2018 February 12 both ASE and SPIL will have the EGMs. April 17, tentative schedule. It will be the last trading day of ASE and SPIL. April 30, that will be the effective day of the new co, which will be named ASE Industrial Holding Company Limited. In 2019, November 24, if we comply with all of the regulations, the MOFCOM conditional approval restriction will be expired. Two years. I would like to give you a brief recap of 2017. We have achieved record high revenue at the group level, as well as the business level. In 2017, the group revenue came in at US$9.6 billion, up 12% year-on-year. In Q4 of 2017, the group revenue was US$2.8 billion, up 14% quarter-on-quarter. The EMS revenue came in at $1.4 billion, up 31% quarter-on-quarter. We have seen clear momentum in growing markets. 2017 ASE Group SiP business grew 42% year-on-year. We do expect to see the SiP growth continue in 2018, which we will elaborate…

So thank you Dr. Wu. With that, let's start the financial overview. I think we will take a slightly different approach for the numbers, at least for this presentation. Outside the group results, we will try to focus less on reciting at the displayed results, which you call all read. Instead focus on whether we can add any color to their information presented. So second page. So I have here the foreign exchange implication. Before we get further into the results, I want to spend just a bit of time to highlight the impact of the NT dollar-US dollar foreign exchange rate on our 2017 results. Here you can see our group and IC ATM revenues for the year on a US dollar versus NT dollar basis. Given our purchase orders are predominantly received on a US dollar basis, we believe the 12% group and the 6% IC ATM revenue figures more accurately reflect our true business performance. The chart next to the revenue chart shows the NT dollar fluctuation impact on group and IC ATM margins. Through internal analysis, we approximate that every 1 percentage point, the NT dollar appreciates, there is a corresponding 0.4 percentage point impact to IC ATM gross profit margins. And similarly, we approximate for every percentage point, the NT dollar appreciates, there is a corresponding 0.3 percentage point impact to group gross profit margins. So here, given the 5.6% NT dollar appreciation, IC ATM gross margins received a 2.3 percentage point impact, while group gross margins received a 1.5 percentage point impact. Thus in a flat NT dollar environment, we approximate group and IC ATM gross margins would have been 19.7% and 26.6%, respectively. This represents increases of 0.8 and 1.7 percentage points increases to 2016 group and IC ATM gross margins. As we…

Hi. Bill Lu, UBS. Happy New Year. So it's been a year, and TSM and UMC have both said that this year they expect semi industry to grow mid-single digit, foundry slightly outgrowing that. Can you give us your outlook for the assembly and testing industry?

I think we are pretty optimistic about the year and from the forecast that we are getting from our customers, it seems to be that we will start off with above seasonal first quarter. And going into second and third, we will see pretty strong uptick, both on the top line. I think the momentum that we are seeing is, aside from communication, I think all the other sectors seems to be going pretty strong. If we typically offset grows 2x the industry average growth, and we are pretty confident that we will be staying ahead on that front.

So you're saying better than 5% then, right, for the industry?

I'm not saying, I'm implying.

Okay. I guess what is a little bit confusing to me is TSMC saying in the smartphone is flat but HPC, bitcoin, these other drivers are taking off. I'm not really sure how that impacts the assembly and test industry because these businesses are smaller volume but very high ASP. So you will thing that that's not so good for the packaging sector. That's more unit-driven. At the same time, these businesses are not as price sensitive as for example smartphones. How do you think about that change for your business?

I think in - Q4 of '16, also Q1 of '17, we have seen some clear buildup at inventory for the cell phone. I think in 2017, we are actually working out of the inventory level. So entering into 2018, relatively speaking, we are much more comfortable about inventory level comparing to last year. So that comment was specific for the cell phone. So let me address on the others. You cannot just think about a packaging as a stand-alone component business. What we are implying here over and over again, and we've been saying this to all investors and I believe this is one of the reason why we really like to invite SPIL to join hand with ASE. If you only focus on the legacy, which is within the current framework, then you can debate about a mobile phone application. You can debate about the chipset. You can debate the number, reduction principle, three becomes two, two becomes one. And then you'll have a different picture about semiconductor. But if you really look back to semiconductor over the last 50 years, it's always about innovation. The application that will be dominating in the next 10 years, we simply cannot see. What we are seeing today is we have more OEM, ODM. We have IDMs and the system house. They are designing numerous new type applications, and those application are real, robust, AI, automation, electrical vehicle. We are seeing uptick on the standard MC to empower management chips that we already understand and we pretty much know what their value but we are seeing uptick on even the most traditional volume, and memory, MEMS sensors. Not only we are seeing the new devices. We are seeing a new combination of different kind of devices for new application and that really get us very excited. So move forward we understand. Now we are not going to comment about the mobile phone, the smartphone, the 5G. I think too many people understand that already but what we are seeing is from the packaging universe, if you only focus your attention on the legacy, you'll have one set of resolution. But the world, the government regulation and us, we have absolutely zero restriction on creativity and innovation, and that should be the area we should all embark and engage. In 2018, I think you will see a strong uptick of the ASE - well, I have to use the packaging but the packaging with a flash nuances of new business application, new model and so we're very exciting.

Thanks very much, Dr. Wu. Just thinking on one last question. So margin, if you look at in terms of US dollar basis was quite good. Can you talk about the drivers behind that maybe in terms of cost cut in terms of pricing environment, in terms of volume, what are some of the major factors?

The pricing environment has always been as competitive as ever. The cost of goods sold, we all understand some raw materials prices gone up. So the market environment has always been friendly or unfriendly as always the stayed. It's always like that. What we are seeing today is because of the scale, because of the automation, because of the factory processing efficiency improvement, you will see a continued drive for output, mainly the efficiency. And we are pretty confident that we have seen good results starting from the rebalancing effort in 2016. I think that rebalance effort move into 2017, even with the very, very adverse NT dollar environment. I think 2018, if there is no major shift in changes, we should see another incremental improvement on our efficiency.

Happy New Year, Dr. Wu, Joseph and Ken. This is Rick from Daiwa Securities. My first question just to follow-up Bill's question about your optimistic outlook for this year. I think apart from the application you mentioned earlier, do you foresee any market share gain or market share recovery for this year to drive your momentum?

The market share gain is a very dangerous word. What we are confident is the business demand from our end customer and also our confidence in the pipeline because the technology content and the cost model that we have provided. Now, right now if you really look at the assembly and test world, you have a new emergence of subsystem or SiPs, and how do we really group that under the traditional component business, or is that EMS type of business? It's neither. So in terms of market share gain, we really have to further quantify that as new application, new devices that did not exist before. And those opportunities are in very, very large scale if you can find the end customer that can drive the market and have consume willing to buy it. So market share gain from that aspect, yes, but in terms of traditional business it becomes very, very convoluted.

Okay. Second question is, I think, we also talk about the new businesses, especially like HPC type of leading-edge product. But as far as I know, right now most of these products, leading-edge when it comes to back-end, it's still quite calculated foundry space including for example like Info or even Korres [ph]. So I'm just wondering how you guys get a piece of business from this.

I will not comment on specific technology because it's too sensitive. But if you look at a segment, there is always reason why end customer will likely to turnkey at the beginning because the yield, the cycle time, the time to market, we understand that. However what I would like to advise is to look at the real business you have to look at business as saturation at maturity. If you always look at the leading edge, I do understand we are making a certain comment and maybe the business rationale are completely correct for the new business. So what I would like to advise you is to look at the broader based foundry, a broader based business requirement from much broader based customer, then you ask the question what will be the technology that can serve the mature market when you scale it. I think those are the - in terms of roles and responsibility, there is always overlap between IC, between OEM, ODM, between foundry and packaging. The overlap on NPI [ph] on the initial yield improvement, and technology development, that's rightly so. We have to have that, otherwise there is no handshake from the whole ecosystem. But my comment has always been, you have to look at a business at the scale and maturity what would be the right business model and who should be and what responsibility. By that aspect, even the high performance computing on the fan-out, on the 2.5D, I believe there is a broader base demand by different customer, different price point and different requirement and different ownership about a sourcing and also about all of the business, the decision because I think there is a place for all sectors.

Okay, thank you so much. One last question, just a housekeeping. I think Ken have mentioned some answer but I still want the whole picture. So your utilization rates for Q4 amounted three, packaging, testing and bumping. So how many wire-bonders you added in Q4 and how many you dropped - you disposed in Q4, and also the guidance, utilization guidance for Q1? Thanks.

I actually misspoke on the testing utilization. It's actually in the mid-to high 70s. Wirebonding was in the low 80s. Non-wire bond was in the mid-80s and then substrate was mid-70s.

Sorry, the substrates how much?

Mid-70s.

Mid 70s and wirebonds in low 80s, right?

Low 80s, yes.

Okay, thank you.

We didn't add any bonders.

Q4, how many bonders we added?

I think we added three bonders in Q4.

That's a lot.

Thank you. Sebastian from CLSA. My first question is TSMC talk about the semiconductor industry grew 9% in 2017. If I calculate ASE, the IC ATM business in US dollar terms probably around 6% to 7%. SPIL even lower than that. Does that mean that - so what was your numbers estimate for the OLSA [ph] industry growth in 2017, and why ASE and both ASE - well, probably you cannot comment on SPIL now, but just ASE lower - why is that a case, lower than that?

If you look at our business model, we rely largely upon our end customer. So if the 9% in 2017 logic semiconductor growth is correct, then obviously we undergo comparing to the industry, which means that some of our end customer, they basically under grow comparing to the industry in 2017 and that will be the logical explanation. And we cannot comment on specific customer. But beginning of 2017, we have seen some slower demand pickup by some of our customer, mainly the communication area. However, if I followed the same logic, I will say that in 2018, we are cautiously optimistic that trend will be reversed. In this industry, we don't always go by year-on-year, but if you look at over three to four, five years or 10 years period, I think that relative comparison is pretty accurate.

Okay. So is that more because you expect your customers will have - will get more share this year, so indirectly you benefit, or is it because a lot of the IDM, they are so tight right now, so the excessive demand they have to outsource, so you benefit, which one?

I think both.

And in terms - second question is that earlier you mentioned about you have the high confidence for demand pickup in the second quarter and third quarter. I guess, smartphone is still weak this year presumably. So which application especially do you expect, and also to give you this high visibility for the pickup in 3 to 6 months from now?

Just a clarification, we did not say smartphone is weak.

Okay so…

I did not say that and I don't want to comment on whether a smartphone is weak or not. I can only comment on my end customer, the forecast and the solid forecast demand they gave to us and it actually includes the smartphone. So I actually cannot comment on that. I have seen strong in electrical vehicle, power devices, and of course the high performance computing or the crypto-currency. We are seeing very broader base and also optical sensors and also memory. I will not comment - I will not give you a comment yes or no, up or down, on the smartphone. That question is just too sensitive and I do not have enough information to make that comment.

Okay, so you mentioned about memory. So is it the discrete memory packaging or the memory goes with other logic?

Both.

Okay. So is DRAM, NAND or smaller density?

It will be in the generate memory terms in a hybrid, in the more advanced packaging type format. It will not be the component level as we knew before.

Okay. Third question is on the capacity and do you experience or do you see any tightness in the capacity or a certain type of the packaging technology?

Yes, we do. That's why the - I think Ken commented in this year, we do expect the CapEx number to pick up. I'm not exactly sure how specific can we be. But this year we do expect to spend more CapEx. And as a matter of fact, I'm not even sure we can talk about the CapEx number. The CapEx number will be - in Q1 and Q2, we will spend the good amount of CapEx to ramp up the capacity, so it's real.

So can I ask more details about the tight capacity is mainly in wire-bonding or bumping or which packaging technology?

I think you have to assume it's everything.

Last question from me is that I'm not sure with your early comment about the crypto-currency mining impacts or demand. I wonder how does that impact your above seasonal first quarter. How much is driven by that?

How much? Well, it's part of the demand that we have. I'm not sure I have the freedom to give you what percentage of our revenue. And I'm not even have knowledge to explain what the key to crypto-currency in terms of next 10 years outlook. But I only know the demand is very strong now. And the question is do we have the supply chain, do we have the capacity and do we have the right margin structure to support that demand today, and how much confidence do we have about the requirement, the demand for the next two quarters or the next four quarters, and those are the judgment based on the capacity allocation, based on the capacity utilization, the margin structure, then we'll make a decision who do we support.

Okay, so do you - so help out, I think no one can predict that in 10 years but the help out just for this year.

I don't think you can predict that even for the year. Where do you think the bitcoin price is going to be tomorrow?

I think what Sebastian is asking is maybe if I know is do we think the demand at least for the packaging is real for 2018. The answer is yes. The demand is real.

So if I tie this with your capacity expansion, are you adding capacity or spending money for this incremental demand or no?

We are expanding capacity for all customers and they are part of it. I am not in the - I don't think I can give you a comment are we spending CapEx specifically only for a particular customer in a particular sector about two quarters. I will not make that comment. But when we make a capacity expansion, we will look at the risk profile as well as the overall demand profile, are we buying the general capacity that we are confident one year, two years and five years out throughout the depreciation period. Do we have a good probability and confidence, we can utilize in the right investment and return and the answer is yes.

Thank you.

Do we have - okay, Bill?

Just a couple of follow-ups. Can you talk a little bit more about this SiP-id platform, as far as how many customers you have working with you on this platform right now?

So I can tell you that in the last five years, you understand ASE thesis has been SiP is brand-new. It's fantastic. We are in the right position, so I don't need to repeat that. Part of the issue we have dealt with is whenever we start working with the customers, they love this technology and they love the projected performance form factor, yield, integrated design and also time to market. The difficulty has been largely they do not have the right design tool. Now if you were an ODM, OEM assist guys, you really do want IC chip design. If you're IC design guys, you really don't do the PCB design. Now both sector, even if you know of both, adding the exposed window for optical sensor, adding the conformance shielding, adding the build-in antenna, adding the RF power, low power, high power, latency, MEMS, memory. Most of the people got lost. They don't understand the boundary, the ground rule. What if I do this 10 components in A format, in B format? What is the yield projection? Just start doing something random. And we have the calibrated explain then you cannot do this, you cannot do that. Eventually you start building prototyping and you realize you have a problem, especially in the RF in certain new form factor that no one has experienced before. So people stop playing with all kinds of DOE [ph]. So in the last five years, we have gone through hundreds of new product NPI with everybody. The demand is there but the cycle time has been laborious. And also in the chip layoff file, you send it to PCBA. You send it to SiP. They are not compatible. You got to do manual check. So we finally get together with Cadence. We talked…

If I take that one step further, if you look at the SiP growth this year, would it be fair to say that you've got some new customers that's layering into the growth, or is that going to be later in this year still going to be your traditional customers?

I think both answers are true. We will have multiple customer. The question really now is what application, what volume. And those are the area that we have struggled for the last five years. We will try and get this jump started. We know this technology is good. It's good for the industry. It will be embraced by everybody. But the question now is, how do we really do this? You really have to understand that. For any kind of emerging market, somebody has to take leadership. Infrastructure, design platform is part of the leadership. What areas would like to different this time is we want to just put a flag there. SiP is ASE, and this is the way we will work with everybody in the world to create the building block. Cadence on the design flow. TDK on the embedded system, and work with the other key players which we announced over time in terms of different geography, different business model, and this is really the campaign that we will do for next 10 years.

Is this exclusive? Can Cadence use the same platform and give it to somebody else?

Okay, now the way we do that is there will be a 12-month period where ASE exclusively use this with all of our customers. However, with the agreement of ASE, Cadence can sell the same tool. We are not trying to be parochial, so that only ASE can use it. That was not the intent. However, I do need to have 12 months lead time for all of my customer to start enjoying this, and after 12 month, with the agreement of ASE, anybody can use it. That was the whole concept.

Sorry, I'm going to ask you a question on the ASE-SPIL merger. I know you are limited by what you can say. But the MOFCOM approval was with conditions. Can you just talk a little bit more about within the next two years, what you can and cannot do just in terms of synergies or engineering cost and all the good stuff?

Well, I think to put it simply, I think the restriction is really just put on us, so that we remain as an independent operations between the two of us for two years. And we don't particularly feel very, very strenuous about complying to that because even now ASE itself, we have different profit centers in the different sites, so we are very used to that kind of a model and adding SPIL into the picture doesn't really change the fundamentals of how we work. However with internal competition, of course still exist. There is certain collaborations as well. And mainly will be in the R&D area, as well as to some degree in terms of capacity alignment that sort of arrangement. So the restriction or the plan that the MOFCOM gave us, does provide some flexibilities in these two areas. So I think given time, I can't tell you exactly when and how much or how we can achieve whatever synergies that can be created during this specific period. However there is room for us to collaborate, and I think we are not in a hurry. I think we will let things progress naturally, and it will take some time for us to get used to each other and work together gradually and eventually we see good potential of synergies coming out of this combination. But saving a dollar here or a penny there, it doesn't really make a stretch. I don't think that is really the main purpose for us to have this combination. I think it's really for the longer term. I think eventually we need to have the scale to meet the challenges coming in the next 5 to 10 years. We are seeing consolidation happening in our customers. They are getting much bigger, getting much more leverage over us. We are even in our own segment. We are seeing - our competitors are consolidating with each other as well, like JCET, STATS ChipPAC, Amkor buying J-Device, Nantong bought AMD facilities and so on and so forth. So a lot of upcoming challenges in front of us and scale is really the way for us to meet those challenges. I think that's the ultimate goal for us.

Sorry, one last question. This is the follow-up on the Sebastian's question. But if you look at HPC, and you didn't want to define bitcoin. But if you look at HPC overall, what is that as a percentage of sales?

One follow-up on the - if I can, on the issue with - the upcoming merger with SPIL. Just want to - yes, okay. Just want to clarify. So Joseph you mentioned that MOFCOM allows some flexibility in R&D in the capacity alignment.

Yes.

Okay. So if I read through - I've read through the official documents from MOFCOM. I'm sorry, I want to read this in Chinese to make sure that I don't misinterpret what is said because it allows on some rights between you and SPIL during this restriction period. One of that is say that [Foreign Language - Chinese]. So my question is on the first on really the R&D, second related to non-packaging business - non-IC packaging business. So I think Joseph, you already talk about this, some flexibility on R&D integration. The second is that I want to wonder the non-IC packaging business collaboration. Does that mean that SPIL can work with something with USI?

I think both of us can work with USI. There is no restriction particularly on that. It's just if SPIL wants to work with USI, it has to work on its own, without all three of us teaming to together. I think that's what the restriction is about. But for that really is that at the reason why we have that clause in there is because at the holding level, we want both companies to kind of focus on its core businesses. So if once I wants to do something that's considered first one non-core or now even strategic, the holding companies need to have a say on that. I think that's basically why we have the clause there.

Okay, so how about the material? ASE have the internal material substrate. So does that mean that SPIL can also…

This is under our normal business transaction, our substrate, our material we can sell to whoever, including SPIL.

So go back to the first flexibility that MOFCOM offers on the R&D integration. So does that mean that before November 2019, we could also see some R&D efficiency improvements reflecting on your numbers?

It will certainly help so, yes.

Okay, thank you.

Hi there. It's Rick again. Just a little - one little question. So when you say the holding company was start effective on 3 April and the new share will be also listed on same date, right?

Yes.

Okay. Thank you.

I think timing-wise after the each year on February 12, we will start the process of both delisting and listing. Delisting of ASE Inc. and SPIL, and the listing of the holding company eventually, and all will happen at the same date on April 30 tentatively. On April 30, ACE Inc. and SPIL will be de-listed, while the holding company will be listed.

Just wanted a little clarification, so it's the dual list, both come in Taiwan and US, right?

Yes.

Do we have any more questions? I have a caller online. Steven Pelayo. Steven?

Yes, Steve is on.

Okay, great. Thank you. I don't know if you're aware but the audio was not working for the first 35 minutes of the call, so I apologize if this has been addressed. And I'd also appreciate if there is any way management can maybe release transcripts or something like that. But I'm curious on the CapEx. You're talking about increasing in 2018. Can you just provide some qualitative comments on that? ATM versus EMS, investing more in Taiwan versus China, particular package technologies. Can you give us a little bit of color on where you want to direct that increasing CapEx in 2018?

I think CapEx-wise for the year, as we said, it will be higher than last year but now over the depreciation and amortization put together. I think this time around because of some push out of CapEx from last year, I think the total number will be much closer to depreciation and amortization number. I think the bulk of it will still impact in Taiwan and as well as in packaging. Although I think for test, it will be similar to last year's level. And there will be some spending on some of the new projects that will be taken on.

Given all the plans for increased front end in capacity in China over the next year or so, I think there is 5 to 10 different projects in various stages. Are you going to be directing more CapEx into the mainland as well?

Yes.

Can you quantify maybe a little bit relative to this year versus next year?

Well, I think right now the output from our China factories is about 16% of our overall and we will just make the necessary CapEx as we see the business grow in China.

All right, maybe if I can just sneak one more question in. I'm curious about the new customers. You guys talked about ODM, OEM, system houses. How do we quantify that? Is there some way you can help us understand? I don't know if I heard an answer to Bill's question on what percentage was total HPC business. But if I'm looking at companies like Google and Microsoft taking their own chip, how do I try to quantify that? Can you help us provide maybe color on what these newer customers might represent for you guys?

Well, we typically grew customer in the - we have system customers. The two examples that you just referred to, I think they will be quantified as a system customers. Then you also have some ODM, OEM customer that are typically like the EMS or the ODM with their own brand. That will be the second category. Then we also have the IC design house that could be the IDM and it could be fab-less and they sometimes will also like to design their own module for whatever reasons. And by the way, we did not offer the percentage of the HPC.

You did not. Okay. Can you for how much revenues for the system houses and how much you think that could grow this year?

That we don't. No. right, we do?

From a group perspective, I think it's over 20%.

Over 20%, okay.

Any additional questions? I guess that's it. Thank you very much for attending the ASE fourth quarter 2017 conference call and earnings release. See you next quarter.