ASX

Business Context and Reporting Period

Company: Advanced Semiconductor Engineering, Inc. (ASE)

Reporting Period: First Quarter 2006 (ended March 31, 2006)

Filing Date: April 27, 2006

Business Overview: ASE is the world's largest independent provider of IC packaging and testing services. The company operates globally with facilities in Taiwan, Korea, Japan, Singapore, Malaysia, and the United States. Financial results are presented in accordance with ROC GAAP and reflect continuing operations only, following the disposal of camera module assembly operations in October 2005.

Key Financial Metrics

Material Changes vs. Prior Periods

• Revenue Growth: Net revenues increased 39% year-over-year (YoY) but declined 6% sequentially due to fewer working days and unfavorable product mix changes in packaging.
• Profitability Turnaround: The company returned to profitability with a net income of NT$3,182 million, compared to a net loss of NT$128 million in 1Q05. This improvement is driven by a significant gross margin expansion from 10.2% in 1Q05 to 26.7% in 1Q06.
• Cost Management: Cost of revenues as a percentage of net revenues decreased to 73% in 1Q06 from 90% in 1Q05. Operating expenses as a percentage of revenue dropped to 8% from 11% in 1Q05.
• Accounting Changes: A cumulative effect of change in accounting principle (ROC SFAS No. 34) resulted in a one-time loss of NT$457 million. Additionally, goodwill amortization for minority-owned affiliates ceased as of January 1, 2006, under revised ROC SFAS No. 25.
• Debt Reduction: Total bank debts decreased by approximately NT$3.2 billion sequentially to NT$50,199 million.

Guidance, Outlook, and Risks

Management Commentary:

• IC Packaging: Gross margin improved to 24% (up 14 percentage points YoY) due to increased utilization and favorable product mix. Advanced substrate and leadframe-based packaging accounted for 89% of packaging revenues.
• Testing: Gross margin was 39%, down 1 percentage point sequentially due to fewer working days and increased overtime charges, but up 29 percentage points YoY.
• Module Assembly: Revenues declined 28% sequentially due to volume decreases, though gross margin remained stable at 18%.
• Capital Expenditures: Total CapEx for 1Q06 was US$67 million, allocated primarily to IC packaging (US$25 million) and interconnect materials (US$25 million).

Risks and Contingencies:

• Market Cyclicality: Results are subject to the highly competitive and cyclical nature of the semiconductor industry.
• Geopolitical Risks: Risks include the strained relationship between the Republic of China and the People's Republic of China.
• Operational Risks: Potential disruptions from natural or human-induced disasters, including terrorist activity and armed conflict.
• Currency Fluctuations: Exposure to foreign currency exchange rate fluctuations, particularly regarding US dollar and Korean Won-based loans.

Forward-Looking Statements: The filing includes standard safe harbor language noting that actual results may differ materially from expectations due to the factors listed above.

Investor Verification Checklist

• Verify the impact of the new ROC SFAS No. 34 accounting standard on future financial instrument valuations and earnings volatility.
• Monitor the sequential decline in IC packaging and testing revenues to assess if the trend is due to seasonal factors or weakening demand.
• Review the concentration of revenue among the top 10 customers (46% of total revenue) and the top 5 customers (29% of total revenue).
• Assess the sustainability of gross margin improvements in the packaging segment given the sequential decline in revenue.
• Confirm the company's ability to maintain liquidity with a current ratio of 1.63 and NT$23,141 million in unused banking facilities.