Greetings and welcome to the ChipMOS Second Quarter 2017 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, David Pasquale with Global IR Partners. Thank you. You may begin.

Thank you, operator. Welcome, everyone, to ChipMOS' Second Quarter 2017 Results Conference Call. Joining us today from the company are Mr. S.J. Cheng, Chairman and President; and Mr. S.K. Chen, Chief Financial Officer. S.J. will review business highlights from Q2 2017 and then provide color on the operating environment. S.K. will then review the company's key financial results. We are also pleased to be joined on the call today by Vice President Mr. David Wang; Deputy Director Mr. G.S. Chen [ph]; Director, Ms. Silvia Su; and Mr. Lafair Cho, Senior Executive Vice President and COO. All of the company's executives will participate in Q&A after the prepared comments. If you have not yet received a copy of today's financial results release, please e-mail Global IR Partners at imos@globalirpartners.com or you can get a copy of the release off of ChipMOS' website at www.chipmos.com. As with prior quarters, Management has already hosted a call in Mandarin after the close of the Taiwan Stock Market a few hours ago. This is part of the company's ongoing efforts to broaden investor and analyst following in the domestic Asia market, given the full Taiwanese listing. The prepared comments Management will cover here are the same as those covered on the earlier call. The second call is intended to give the company's English-speaking investors the same opportunity to both hear directly from Management and ask questions pertaining to the results and the operating environment. With that said, we must make a disclaimer regarding forward-looking statements. During today's call, Management may make forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended; and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operation of the company to be materially different from any future performance, financial conditions or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the company's most recent annual report on Form 20-F filed with the U.S. Securities and Exchange Commission and in the company's other filings with the SEC. At this time, I would like to now turn the call over to the company's Chairman and President, Mr. S.J. Cheng. Please go ahead, sir.

Thank you, David. Welcome, everyone, to our Second Quarter of 2017 Conference Call. Hopefully, you all have time to review our earnings release. We are recently on the road to July and met with many investors, we appreciate everyone taking the time during the summer to talk to us. The meeting were very positive and gives us a chance to talk about the future of ChipMOS and the while we are positioned for continued success. Our April although the passing periods have put us in a strong competitive position. We had several catalyst for revenue and profit growth and we are expected to be outgrowth the progress and the inventory as the auto industry has done in the past. The key things for ChipMOS over the near term are first, our Q2 revenue was impacted by a lower allocation for one of our larger customer. We do commodities DRAM assembly for this customer. Our commodity DRAM revenue has decreased due to the lower allocation trend in other market regions from about 18% of our revenue in 2014 through about 14% in 2016. We expect this challenge will continue in the second half of 2017. Of note, this was a strategic procedure for us. We could have made a major investment in quantity, capacity with the shared facility with the customer. However, the assembly owning operation will not accommodate our another need to build up the IC capacity on time, which require a safety environmental evaluation work for the co-founding line. Thus, these are my sense to us given the lower margin revenue and first it would be limiting us from investing in the growth area. On the positive side, we had a good position interest with our partner. We expect this will allow us to maintain the relationship in the…

Thank you, S.J. and thank you for your kind words. This was a difficult decision for me to make, but the right one for my family. There is never a good time for these things, but now makes sense given my age and a great position I'm leaving to Mosain [ph]. We have been working around the clock the past few years as we compress our ownership structure and consolidated molecule subsidiaries. The successful merger of ChipMOS Taiwan and Bermuda was another major effort in the start of promising new chapters for the company. The last steps was securing the company's future growth path in China with the close and funding of our China JV, we have successfully completed the efforts as well. I took great personal satisfaction, they know we've have accomplished we have accomplished and I'm confident that after a very long and successful career at ChipMOS, I will be leaving the company in the strong position and in good hands with some very capable financial teams to led by Ms. Silvia Su. Then we move now to the second quarter results. All dollar amounts said in our presentation are in U.S. Dollars. We have provided both the U.S. Dollars and NT Dollars in our press release. The foreign numbers are based on the exchange rate of TWN 30.37 against $1 as of June 30, 2017. Net earnings for the second quarter of 2017 was $0.25 per diluted ADS compared to $1.82 per diluted ADS in Q1. This represents net incomes of $10.6 million and $0.01 per basic and $0.01 per diluted common share compared to the net income of $78.3 million at $0.09 per basic and $0.09 per diluted common shares in first quarter of 2017. Please note, net income for the first quarter of 2017 included…

Thank you. [Operator Instructions] Our first question comes from the line of Chris Rolland with Susquehanna Financial Group. Please proceed with your question.

Hey, guys. This is David [ph] on behalf of Chris Rolland. Thanks for taking our questions and congratulations, S.K. on your retirement. First one, is the start off with the gross margins. I think you guys typically, given them by segment, could you provide those if you have them?

Okay. This is SK. Thank you very much, David.

All right. Definitely will do. Go ahead.

Okay. In general, the margin for our testing's operations in general are higher than 30% including product testing and other testing's. The assembly operations, the margin is around 11% and the margin for LCDs driver IC is about 24% and the margin for the bumping operations is negative, since the lower [ph] capacity. So the margin is slightly below zero as of today.

Right. And then to get to the 20% gross margin second quarter, can you talk about some of the moving parts there? I realized that the bumping revenue is lower, but can you just give some color on how you got to the 20% this quarter?

David, this is S.J. To answer your question, starting end of this July, we see the strong recovery in both PDIC, which contribute significantly in our pumping toleration. Thus, the management are very optimistic from second half for PDIC and pumping business; were continue to strong contribute the revenue growth in the second half.

Great. Thanks. And then to shift gears a little bit. You talked a lot about your largest DRAM customers in your prepared remarks. I believe that you mentioned lower allocation through 2017, but should we expect that revenue headwind to be cleared up as we enter 2018?

Actually since we work in with this large customers for more than 15 years and we will try to maintain the minimal business relationship with them. But since this is a strategic decision division which we made four years ago, we are now turning the CI campus program. Once the CI was stable, we already know this issue and this potential challenge for us. I think we will try our best to maintain other [indiscernible], I mentioned our higher single-digit percentages, with this customer. They also provide other 10-Q position to sell the new product portfolio with these customers.

Great. Thanks a lot, guys.

Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of David Steinberg [ph], Private Investor. Please proceed with your question.

Hi, guys. S.K., I wish you all the best and you've done an absolute spectacular job. Good luck to you and your family and I'm disappointed that we're not going to be having you around. Question is your revenues look flat, but they're not really because of what's going on in China. Could you repeat what the quarterly increase was in revenue? I know you can't [indiscernible], you don't want to or you're just trying to want regulators from quarter one to quarter two. From the first quarter when you had the company come together to now. So I'd like to know what that number is because that's a big part of where all your money is going and it's tough dealing with Taiwanese regulators. In fact, I'd suggest that you try to get a waiver of dispensation as your lawyers talk to Taiwanese regulators because it's such a big part of the growth. Anyway, the question is what is that number for the second quarter from Shanghai in sales?

The revenue from China from Tsinghua Shanghai was $9 million in second quarter and which revenue grew roughly 19.8%. Compared to Q1, there was $7.5 million and we're expecting that this revenue will ramp in twice in second half of the year.

Okay. I did hear that number. I'm sorry, I didn't quite get them. The next question is, is Shanghai going to cannibalize some of the sales from Taiwan over time? And what [indiscernible].

Not really.

No?

I'm sorry. I will say that not really cannibalize, that since that China were focused on local market and on the other hand, that unit growth uses too much live capacity and part of the business will throw back to Taiwan. So I think that for [indiscernible] will benefit from this trend and arrangements. Shanghai joint venture is not really taking the business from us in Taiwan.

Okay. Two more questions. One question is how many quarters do you think it's going to take you to reach capacity utilization that's good in Shanghai? Is it one, two, three or four quarters? What is it? Given its estimate without holding to the fire.

[Indiscernible].

I guess.

Here in Q4 this year, we can see the high mentioned [ph]. The reason there is delays because the funding are delayed. So final timeframe and basically, we will take a very conservative measure across regarding investor for the CapEx before we kind of funding. So finally in June 29, we already completed the funding. Right now we had enough financial results to do the investment and qualification. So I think we can see the good results Q4 this year.

12 months? A year from now maybe we'll see full capacity a little bit? 18 months?

Actually, I think that we already are funded. So we were based on the market deliberation to edging the capacity in China [indiscernible] which we got from saving.

Okay. And then the last guess, your investors are very interested in what is going on in China. Has your legal counsel gone to the Taiwan regulators and cut them for waivers so you can provide more disclosure at all? Have you asked petitions for that at all?

David, this is S.K. I think that we have been trying many times. I'm afraid that we couldn't get this lift, this recession lift. On the other hand, we would release - I think we will disclose some of the financial information to the investors by a different way. I think that's what we can do as of today.

Okay. All right, well, good job and once again, S.K., good luck to you and thank you so much for bearing with us or the investors. Over the last few years you've been throughout the United States and kind of have been the face for ChipMOS out here. We really appreciate your candidness and your hard work. Again, thank you very much.

Thank you. I appreciate your support.

Thank you. [Operator Instructions] Our next question comes from the line of Charles Loving-DeCoster with Craig Hallum. Please proceed with your question.

Hello. Thanks for taking my questions. Hello?

Hello, Charles.

Good morning.

Yes. I'm in for Richard Shannon who normally calls in on these. But again, separate engagements. So thanks for taking the questions again. My first question has to do with the Chinese joint venture. You already explained quite a bit in your answer to a previous question, but can I ask what do you feel the sales growth will be going forward after the next couple of quarters?

You mean for Tsinghua Shanghai, right? The China Joint Venture?

Yes.

We have seen the revenue growth close to 20% in Q2, compared to Q1 and we're expecting that this trend will go on up and expecting that we may see the Shanghai [indiscernible] by the end of Q4 or early next year. Right now, I'm afraid that I couldn't share with you the revenues information for Tsinghua Shanghai.

Okay. Thank you. That is helpful. Next question regarding the joint venture in Shanghai. What are the gross margins for that and when do you expect those to be going forward also?

This is S.J., Charles, to answer your question. I think that once we've reached the high [ph], the gross margin between Taiwan and China will be almost in the same rate. Yes.

Okay, thank you. And your second quarter gross margins were up materially in a multi-quarter high. Do you expect those to remain and do you expect them to do so lower DRAM allocations?

I think the biggest answer that they will be tiered allocation. This is a headwind we are going to place and which we are already addressing for this issue. On the other hand as I mentioned, we see an uptake for both [indiscernible]. That will be offset by the allocation for us. The other one is as I just mentioned, it's that we see a strong recovery in PDIC and bumping area, which will help us for this rate, both volume and utilization rate. We hope that we can offset this allocation impact from a commodity customer. We also try to provide other product portfolio with this customer since we had a long-term [indiscernible] with that. That's the challenges we are going to face and this also a strategic decision which we made a couple of years ago and we're already prepared for that.

Okay. Thank you, that is helpful. And my last question is regarding your CapEx outlook. So you did $46 million this quarter versus $37 million last quarter. What is your outlook going forward with that?

The CapEx for the 2017 full year will be around $150 million and we're expecting that we will spend approximately $15 million in Q3 and around $20 million in Q4.

All right. Thank you very much. I appreciate you taking my questions and that's all for me.

Yes, thank you.

Thank you. [Operator Instructions] Gentlemen, it seems there are no further questions at this time. I will turn the floor back to management for any final remarks.

Thank you everyone for joining our Q2 conference call. Thank you and I would like to take this time to appreciate S.K.'s effort to help the company almost 20 years and also we would like to spending with us until retirement until the end of this year as a Consultant in order to ensure the smooth transition and also the new succession [ph]. So, thank you again, S.K.

Yes.

Also, thank you, everybody that joined us. Thank you. Bye, bye.

Thank you. Bye, bye. Have a nice day.

Thank you. This conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.