ASX

Business Context and Reporting Period

Company: Advanced Semiconductor Engineering, Inc. (ASE)

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

Reporting Period: Third Quarter 2012 (ended September 30, 2012)

Business Overview: ASE is the world's largest independent provider of semiconductor packaging and testing services. The company operates through three primary segments: IC Assembly, Testing, and Material (IC ATM); Electronic Manufacturing Services (EMS); and Substrate operations.

Key Financial Metrics

Material Changes vs. Prior Periods

• Revenue Growth: Consolidated net revenue increased 5% year-over-year (YoY) and 7% sequentially. The EMS segment drove sequential growth with a 13% increase, while IC ATM grew 4% sequentially.
• Profitability: Net income rose 8% sequentially but remained flat YoY (down slightly from 3Q11). Operating income improved significantly to NT$4,798 million, up 15% sequentially.
• Margin Expansion: Gross margin improved to 19.6% (up 0.3 percentage points sequentially). Operating margin expanded to 9.8% (up 0.7 percentage points sequentially) due to better cost control and revenue mix.
• Debt Levels: Total bank debt increased by NT$8.7 billion (12%) sequentially to NT$84.4 billion, primarily due to increased revolving working capital loans.
• Non-Operating Items: The quarter included a net foreign exchange gain of NT$243 million, contrasting with a loss in the prior quarter. However, a loss on valuation of financial assets of NT$223 million impacted results.

Guidance, Outlook, and Risks

Management Commentary: Chairman Jason Chang highlighted "solid results" despite a "tepid economic environment," attributing performance to strategic focus on copper wirebond, advanced packaging, and low pin count portfolios.

Capital Expenditures: CapEx for 3Q12 totaled US$342 million. Significant investments were made in packaging (US$229 million) and testing (US$92 million) to expand capacity.

Risks and Contingencies:

• Market Cyclicality: Results are subject to the highly competitive and cyclical nature of the semiconductor industry.
• Customer Concentration: The top 5 customers accounted for 33% of total revenue (IC ATM basis) and 61% of EMS revenue. Two EMS customers individually accounted for over 10% of revenue.
• Geopolitical & Economic: Risks include the strained relationship between the Republic of China and the People's Republic of China, global economic conditions, and foreign currency exchange rate fluctuations.
• Forward-Looking Statements: The filing includes a Safe Harbor notice stating that actual results may differ materially from expectations due to the factors listed above.

Investor Verification Checklist

• Debt Utilization: Verify the sustainability of the increased bank debt (up to NT$84.4 billion) and the impact of rising interest expenses (NT$409 million) on future cash flows.
• Customer Concentration: Assess the risk exposure to the top 5 customers, particularly in the EMS segment where concentration is high (61%).
• Margin Sustainability: Confirm if the sequential gross margin expansion (19.3% to 19.6%) is driven by permanent mix shifts or temporary cost reductions.
• CapEx Efficiency: Monitor the return on the US$342 million quarterly capital expenditure, specifically regarding the addition of 1,131 wirebonders and 216 testers.
• Non-Operating Volatility: Review the volatility in "Gain (loss) on valuation of financial assets and liabilities," which swung from a gain in 2Q12 to a loss in 3Q12.