ASX

Business Context and Reporting Period

Company: Advanced Semiconductor Engineering, Inc. (ASE)

Filing Type: Form 6-K (Report of Foreign Private Issuer)

Reporting Period: Fourth Quarter and Full Year ended December 31, 2015

Date of Filing: January 29, 2016

Business Overview: ASE is the world's largest independent provider of semiconductor packaging and testing services. The company operates through two primary segments: IC Assembly, Testing, and Material (IC ATM) and Electronic Manufacturing Services (EMS). This filing includes unaudited consolidated financial results amended to reflect updated data from equity method investee Siliconware Precision Industries Co., Ltd. (SPIL).

Key Financial Metrics

Consolidated Results (4Q15 vs. 4Q14)

Full Year 2015 Results

• Net Revenues: NT$283,302 million (Up 10% YoY).
• Net Income (Parent): NT$19,051 million (Down 19% YoY).
• Gross Margin: 17.7% (Down 3.2 percentage points YoY).
• Operating Margin: 8.8% (Down from 11.6% in 2014).
• Diluted EPS: NT$2.39 (US$0.378/ADS).

Liquidity and Capital Resources

• Cash and Current Financial Assets: NT$59,115 million (as of Dec 31, 2015).
• Total Debt: NT$120,361 million (Down from NT$124,546 million in 3Q15).
• Unused Credit Lines: NT$159,253 million.
• Current Ratio: 1.30.
• Net Debt to Equity: 0.36.
• Capital Expenditures (Full Year 2015): US$583 million.

Material Changes vs. Prior Period

Segment Performance

• IC ATM Segment:
  • 4Q15 Revenue: NT$38,406 million (Down 12% YoY, Down 4% QoQ).
  • Gross Margin: 26.0% (Down 0.7 pts QoQ).
  • Driven by declines in packaging operations (-14% YoY) and testing operations (-5% YoY).
• EMS Segment:
  • 4Q15 Revenue: NT$39,347 million (Up 6% YoY, Up 9% QoQ).
  • Gross Margin: 7.3% (Down 1.0 pts QoQ).
  • Revenue growth driven by communications products (64% of EMS revenue).

Cost Structure and Non-Operating Items

• Cost of Revenue: Increased 3% YoY to NT$62,265 million. Raw material costs rose to 52% of revenue.
• Non-Operating Expenses: Total non-operating expenses were NT$693 million in 4Q15, a significant shift from NT$1,428 million in non-operating income in 3Q15. This was primarily due to a NT$722 million loss on valuation of financial assets and liabilities, partially offset by a NT$428 million foreign exchange gain.

Guidance, Outlook, and Risks

Management Outlook (1Q16)

• IC ATM Capacity: Expected to stay flat; blended utilization rate projected to decline by high single digits sequentially.
• IC ATM Gross Margin: Expected to approach 1Q14 levels.
• EMS Business: Projected to decline moderately on a year-over-year basis.
• EMS Gross Margin: Expected to decline slightly quarter-over-quarter.

Risks and Contingencies

• Market Cyclicality: Exposure to semiconductor and electronic industry cycles.
• Customer Concentration: Top 5 customers accounted for 37% of IC ATM revenue and 85% of EMS revenue in 4Q15.
• Geopolitical Factors: Risks associated with the relationship between the Republic of China and the People's Republic of China.
• Currency Fluctuations: Significant impact from USD/NTD exchange rates on financial results.

Investor Verification Checklist

• Restatement Impact: Verify the specific adjustments made to reflect SPIL's updated financial results, as the entire prior announcement was restated.
• Non-Operating Volatility: Analyze the sustainability of the NT$722 million loss on valuation of financial assets and liabilities and its impact on future earnings.
• Margin Compression: Assess the drivers behind the 3.2 percentage point decline in full-year gross margin and the outlook for 1Q16 margins.
• Customer Concentration: Review the dependency on the top 5 EMS customers (85% of revenue) and potential risks of demand shifts.
• Cash Flow vs. CapEx: Evaluate the company's ability to fund US$583 million in annual capital expenditures while maintaining a net debt-to-equity ratio of 0.36.