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Executives

Tien Wu - Chief Operating Officer, Director and Chief Executive Officer of ISE Labs

Joseph Tung - Chief Financial Officer, Vice President, Director, Director of ASE Test and Supervisor of Universal Scientific

Analysts

David Duley

Szeho Ng - BNP Paribas, Research Division

Steven C. Pelayo - HSBC, Research Division

Advanced Semiconductor Engineering (ASX) Q4 2012 Earnings Call January 30, 2013 8:00 AM ET

Operator

We are pleased to have our Chief Operations Officer, Dr. Tien Wu, to speak to you about the latest business update. And afterwards, our Chief Financial Officer, Joseph Tung, will talk about the latest financial results in the article for Q1 2013. And afterwards -- and then we will have Q&A session in the end. So now, please welcome our Chief Operations Officer, Dr. Tien Wu.

Tien Wu

Good morning, everyone. I'm pleased to give you an update in terms of our overall 2012 performance, so if you can turn to Page 3. I would like to give you a summary of our Q4 results, as well as the full year summary. As you can see, in Q4, we achieved USD 1.1 billion in sales. In terms of U.S. dollars, we're up 4%. In terms of NT dollar, we're up 1.5%. This is slightly below our original guidance. U.S. is right in the middle. NT dollar, however, was slightly below the 3% to 5% range that we guided in Q4, mainly due to the currency. For the overall 2012, 2012 has been a challenging year. Overall, ASE has managed 1% year-on-year growth by U.S. dollar, or 2% year-on-year growth by NT dollars. So it was an okay year.

The highlight here is we have achieved both Q4 a record revenue, as well as for the whole year, a record-high revenue, with the improved profitability.

Our Chief Financial Officer later on will give you a more detailed number on our financial performance.

For the CapEx, we spent USD 182 million in Q4. That was also slightly ahead of the guidance. We were guiding for about USD 100 million. I will give you some justification for why we need to spend the additional dollar in Q4. Our overall Q4 CapEx -- our overall 2012 CapEx was over USD 1 billion, USD 1.007 billion. Once again, ASE's -- our growth strategy in the advanced packaging, copper wirebond and low pin count discrete continue. We continue to observe the demand capacity in all 3 areas, as well as deliver the sequential revenue growth.

Now if you can turn to Page 4. Page 4, I would like to give you a highlight of summary for our advanced packaging update. As you can see from the top curve, our Q4, we have grown 25% quarter on quarter. The overall 2012 advanced technology, including flip-chip and wafer bumping service, we have come in USD 834 million, which represents 27% year-on-year growth. In terms of absolute dollar, we have gained USD 177 million, compared to our 2011 base. If you look at the bottom curve, in 2011, ASE invested about USD 100 million of CapEx in advanced technology. Now that translated to USD 177 million of growth in 2012. In 2012, ASE invested USD 282 million CapEx. If you look at our Q4 versus Q3, our advanced revenue grew from USD 197 million to USD 246 million, which means, in one quarter, our actual capacity and the revenue generated was increased by USD 50 million. In other words, the USD 282 million of CapEx growth will be translated to a capacity increase in 2013. Right now, we have a rough estimate. Our 2013 capacity will be USD 300 million more than the 2012 base. At this point, it's very difficult to estimate exactly how much of the USD 300 million extra capacity will be utilized throughout the year, but we have very high confidence the majority of that will be translated to revenue.

If you turn to next page, Page 5, I would like to give you an update on copper wirebond and wirebond in general. On the top curve, as you can see, ASE's copper wirebond revenue has grown 61% year-on-year. Our total wirebond dollar in 2012 was USD 2.3 billion, out of which $1 billion is gold, $1.3 billion is copper. For the first time, copper wirebond revenue base is greater than the gold wirebond revenue. If you look at the next curve, on the right-hand side, what I've provided here is a top-down, high-level summary on the total semiconductor assembly total available market, that is USD 38.6 billion. Out of the USD 38.6 billion, USD 17.1 billion is wirebond. That represents about 45% of the total TAM. The copper wirebond assembly TAM as of today is estimated to be USD 3.2 billion. That represents a 19% penetration. The point we're trying to illustrate here is really two-fold. The first fold is, copper wirebond revenue still represents a small percentage of the overall industry. The second point we're trying to demonstrate is, out of the USD 17.1 billion total wirebond TAM, 70% of the TAM belongs to IDM, while 30% belongs to fabless.

If you look at the next curve, the last curve on the bottom, you will see the copper wirebond conversion rate now for ASE in Q4 is 60%, out of which 87% conversion rate by Greater China. And others, at U.S., in Europe and Japan, is 44%. On the right-hand side, I'm also giving you the Greater China by dollar revenue is 56%, while U.S, Europe and Japan is 44%.

And this will take us to Page #6. If you look at Page #6, the Q4 '12 were 0.2% quarter-on-quarter growth in Q4. The 2012 overall is USD 1.3 billion, 61%. If you look at the bottom curve, you will see that from the fabless, in Q4, we have generated USD 305 million, while from the IDM we have only generated USD 47 million. The point we're trying to demonstrate is, it does take some time to create the IDM base, as well as the copper revenue. However, knowing that the 70% of the total wirebond TAM is controlled by the IDM, even though it will take longer to ramp up the IDM revenue, but we have a good confidence in long-term, IDM and copper wirebond revenue will be part of the main strategy for ASE growth.

Today, we have fabless for USD 305 million, and IDM we have USD 47 million. Over time, we should see the USD 47 million to be significantly increased.

Page 7. Our low pin count and then discrete continue. In Q4, we have generated USD 112 million, and this is another market share gain from some of the OSAT in the second tier and third tier, as well as some of the IDM partner, who basically has a high demand to all sorts of discrete revenue.

And that will take us to Page #8. On Page #8, we have given you an overall summary by the package type as well as the revenue potential. If you look at it from the bottom of the curve, discrete represent a total TAM of USD 3.6 billion with a outsourcing rate of 26%. The wirebond maintains to be the largest part portfolio of the assembly TAM. That is USD 17.1 billion, outsource, 59%. The advance technology represents a high potential growth area. Right now, it's USD 12.8 billion, with an outsourcing ratio of 42%. The ASE's three-pronged strategy continues to focus on the advanced copper wirebond, as well as low pin count and then discrete.

The last page is Page 9. In 2013, our focus is going to be chip packaging interaction in 28- and 20-nanometer, copper pillar, lead-free, flip-chip CSP, as well as substrate panel level fan-out, also in the system-in-package. On the traditional packaging side, we continue to focus on how do we capture the migration from 65- and 40-nanometer to 28-nanometer and 20-nanometer. And that represents the finer bond pad pitch, smaller bond pad opening, material vitality, as well as the other stacked dies and 3D wiring. With that brief update, I would like to turn the floor to our CFO for financial details. Thank you.

Joseph Tung

Thank you very much, Tien. Okay, let me get on with the presentation to give you an update on our financial results for quarter 4 of last year. So quarter 4, as anticipated, we saw strong pick up in the communications sector as industry capacity constrained being lifted. However, such ramp up quickly led to somewhat of an inventory adjustment starting December and should continue into Q1 of 2013. Other sectors remained flattish during the quarter. For the year, we have seen both accelerated copper conversion for cost reduction and expanding demand for advanced packaging for product mineralization and function integration. Consequently, we have made the R&D effort and CapEx investment necessary to meet such changing demand and poised to continue as the industry leader going forward.

Please turn to Page 5, where we look at our consolidated income statement. On a fully consolidated basis, the company delivered EPS for the quarter of TWD 0.58. Consolidated revenues reached TWD 56 billion, an increase of 14% from the previous quarter. In the quarter, we recognized real estate revenue of close to TWD 1.5 billion, which accounted for 2.7% of the revenue growth in the quarter. Profits from the real estate project had a positive impact on both gross margins and operating margins. We stayed flat at 19.6%, and operating margin grew from 9.8% to 10.6% in the quarter. If netting out such impact, respective margins should be at 18.4% and 9.4%, respectively. Although non-operating expenses decreased TWD 207 million to TWD 133 million due to increased FX gain and investment income, such increase partially offset by increased interest expense. Pretax profit was TWD 5.8 billion, up 30% from the TWD 4.5 billion reported in Q3. Income tax increased TWD 404 million due to additional tax paid for the RE project. Net income for the fourth quarter amounted to TWD 4.4 billion, which is 27% higher than Q3. When netting out the RE project, net income grew to TWD 4 billion, with net margin improved from 7% in previous quarter to 7.2%. EBITDA grew to TWD 12.4 billion, 15% higher than TWD 10.9 billion in the last quarter.

Please turn to the next page. When we look at our quarterly year-on-year comparison, revenue increased 21%, our gross profit grew 29% and operating profit grew 70%. Again, when netting out RE project, revenue grew 18% and gross profit and operating profit grew 18% and 42%, respectively. Gross margin will stay flat at 18.4%, and operating margin improved from 7.5% to currently 9.4%.

Looking at the full year comparison. It is worth noting that we were able to grow 5% during this challenging year, or 4% when taking out the real estate project. Post-gross [ph] margin and operating margin stayed flat at 18.9% and 9.2%, respectively. Net income, however, came down 5% to TWD 13.1 billion due to less FX gain in the year and less dividend income that we received in the year as well. Full year EPS was TWD 1.71 versus TWD 1.78 in 2011.

If you'll turn to the next page, let's look at the results of our IC ATM business. During Q4, our consolidated IC ATM revenue increased by 1.5% quarter-on-quarter to TWD 34.4 billion. In U.S. dollar terms, our revenue actually grew 4% Q-on-Q. Revenues from the IC packaging and testing business reached TWD 27.6 billion and TWD 6 billion, both up 2% Q-on-Q. Our Direct Material business declined 19% to TWD 650 million. For Q4, our gross profit increased to TWD 8 billion from TWD 7.7 billion a quarter ago, while our gross margin edged up from 22.8% to 23.2%, largely as a result of lower material costs, factory supplies and utility costs as a percentage of sales.

Material costs came down from 28.9% to 28.7% of sales due to copper conversion and higher flip-chip and bumping revenue growth. Depreciation and amortization expenses increased TWD 184 million, reaching a total of TWD 5.2 billion in Q4. And as a percentage of revenue, D&A went up from 15% to 15.3%.

Labor costs were TWD 5.9 billion, up TWD 158 million. As a percentage of revenue, labor edged up as well slightly to 17.3% from 17.1%.

Factory supply costs decreased slightly to TWD 2.8 billion, accounting for 8.3% of revenue.

Utility costs declined TWD 146 million to TWD 1.2 billion as a result of exiting the peak summer electricity rates. As a percentage of revenue, utility came down from 4.5% in the previous quarter to 3.6%.

Operating expenses came up slightly to TWD 3.8 billion, but as a percentage of sales, came down to 10.9% from 11% a quarter ago. Operating profit in Q4 rose 5% to TWD 4.2 billion from TWD 4 billion in the previous quarter.

Operating margin also rose from 11.8% to 12.3% in Q4. EBITDA in Q4 for the IC ATM business increased 5.9% Q-on-Q to TWD 10.1 billion, while EBITDA margin improved to 29.5% from 28.3%.

Next page. On the year-on-year comparison, our Q4 IC ATM consolidated revenue increased 8% versus the same quarter in the previous year. Gross profit increased 18% year-over-year to TWD 8 billion, with gross profit margin increasing by 1.9 percentage points to 23.2% from 21.3%.

Gross profit increased 18% year-on-year to TWD 8 billion, with gross -- I'm sorry, I'm repeating myself. Operating expenses as a percentage of sales decreased from 11.4% in Q4 2011 to 10.9% in Q4 this year.

Our operating margins increased 2.4 percentage points to 12.3% from 9.9% in the prior year. EBITDA also increased from TWD 8.9 billion in Q4 2011 to TWD 10.1 billion this quarter.

Looking at full year IC ATM performance, despite a challenging market environment, we still managed to grow our IC ATM revenue by 2% to reach TWD 130 billion.

Largely due to our favorable currency movements and rising gold prices, gross margin decreased slightly from 22.5% to 22%. However, shifting to copper has offset some of the negative impact. In fact, our copper conversion rate has turned from 30% in 2011 to mid-50% in 2012.

I've given higher R&D investment in the year -- incurred in the year, our OpEx went up to 11% of the operating margin to drop to 11% for the year.

Next page. If we look at our packaging operations, packaging revenue increased 2% Q-on-Q in Q4, with our packaging gross margin declining slightly to 19.6%, given the higher labor costs and depreciation and amortization.

Raw material costs declined from the 38.1% to 37.9% of packaging revenue, principally as a result of continued copper wire conversion and favorable product mix change.

Depreciation costs increased from 12.4% of packaging revenue to 12.8% in this quarter. CapEx for our packaging business amounted to USD 133 million in the quarter, of which USD 70 million was used for expanding or replacing our wirebonding capacity, while USD 63 million was for flip-chip and bumping.

During the quarter, we added 241 wirebonders and retired 304. We exited the quarter with a total of 15,549 wire bonders in operation.

Moving forward, we're seeing lower levels of ongoing capital expenditure as it relates to our wirebonding business. We believe copper wirebond conversion rates should continue to increase throughout 2013. However, during the year, we should have more focus on increasing our copper wirebond operational efficiency.

Next page, looking at our packaging revenue breakdown. Flip-chip and bumping revenue increased significantly, now representing 26% of total packaging revenue in Q4, as compared to 22% in Q3. Wirebond revenue as a percentage of total packaging decreased in Q4 to 61% of total packaging revenue.

Copper wirebond-related business, revenue was flat in fourth quarter at USD 252 million and represented 60% of total wirebonding business during the quarter, up from 57% a quarter ago.

Capacity within our advanced packaging business was roughly 85% utilized, mainly for smart device-related business ramp up. Our wirebond business capacity declined to 80% utilization.

ASP for both flip-chip and wirebond business remained stable during the quarter. Today, our copper wire bond capacity increased to 11,576 bonders at the end of Q4, which is 74% of our wirebonders.

Following, Page 11. You can see our testing operations. Our test operations grew during the quarter, with revenue from our test business increasing 2% sequentially to TWD 6 billion. Gross margin increased from 33.8% to 37.8%, primarily due to a shift of product mix to our more complicated devices and lower tooling charge. Our testing utilization rate was roughly in the mid-80s, and CapEx for the test business was USD 44 million in Q4, up from USD 92 million a quarter ago. In the quarter, we added 150 testers and retired 54. And at the end of Q4, our total of tester accounts stood at 2,905.

Next page, on to our Material business. In Q4, revenue from our Material business declined to TWD 2.1 billion, and out of which TWD 650 million was from sales to external customers. Our internal sales division rate declined from 31% to 29%, and such decline is a result of lowered wirebonding business.

We also had lower direct material sales to external customers and, as a combined result, our gross margin decreased from 16.7% in quarter 3 to 15.3% this quarter.

Page 13, we'll look at our EMS business. Revenue for our EMS business grew 33% during the quarter to over TWD 20 billion. This growth was primarily driven by substantially higher loading of our wireless module business. And sharing the same pattern with IC ATM, volume peaked in November and went into a certain degree of inventory adjustment in December and on to Q1 2013. As such, we are expecting larger than seasonal order reduction in next quarter. Because of the higher raw material content of the wi-fi module business, our overall EMS gross profit margin decreased to 10.8% from 13.3% a quarter ago.

Next page. If you look at EMS revenue breakdown, the current quarter's strength of our wi-fi module business can be seen in the growth of the communications segment from 30% to 44% in the quarter.

Please turn to next page to look at our balance sheet. For our balance sheet this quarter, our cash and cash equivalents including financial asset stayed flat at TWD 24 billion. In the quarter, our total interest-bearing debt outstanding increased slightly by TWD 0.3 billion to TWD 84.7 billion. At this point, we still have TWD 77.4 billion in unused credit lines. Both current ratio and leverage had little changes from previous quarter.

Next page, on to our CapEx. In Q4, our CapEx dropped to USD 200 million from USD 342 in the previous quarter. Out of this USD 200 million, USD 133 million was for assembly, USD 44 million for tests, USD 5 million for material and USD 18 million was for our EMS business. Roughly half of our packaging CapEx was used for the installation of advanced packaging equipment in the quarter.

EBITDA for the fourth quarter amounted to USD 427 million, an increase from USD 364 million in quarter 3.

In 2012, we aggressively placed into service the largest fleet of advanced copper wirebonders in the world, allowing ASE the best service of fabless and, more so, IDM customers, as they make the conversion. For 2013, our CapEx will be more focused on advanced packaging and bumping than wirebond. From a typical organic growth standpoint, we believe our CapEx to EBITDA ratio to return to previous lower levels.

Next page, look at our customer breakdown. In Q4, our top 5 IC ATM customers accounted for 37% of total IC ATM sales. Our top 10 accounted for 52%. One customer accounted for more than 10% of our total IC ATM revenue. Business from IDM customers stay roughly at 34% of overall business during Q4, same as previous quarter. For our EMS business, the top 5 customers represented 71% of total EMS sales, an increase of 10 percentage points. Our revenue from the top 10 customers increased to represent 84% of total EMS sales.

The following page shows the IC ATM market segment exposure. Looking at different end market segments for our IC ATM business in the fourth quarter, you can see the strength of the business related to mobile communications and smart devices. Communications for the quarter stood at 55% versus 50% in the previous quarter, growing at the expense of Automotive and Consumer devices.

With that, I've concluded the financial results, and I would like to give you some color of our Q1.

Our guidance for the first quarter remains somewhat difficult. On one hand, we see a soft market environment with fairly tight inventory control in place. However, we have reason to believe that after the lunar new year, we should begin to see signs of improvement. This appears to follow a fairly typical seasonal pattern. Our sales should most certainly be back-half loaded. In terms of IC ATM, we're expecting shipment to decline in low double digits. We do not see -- and for EMS, we will see a larger degree of inventory corrections. And therefore, we're expecting shipment to drop above 20% in the quarter. Margin wise, for IC ATM we're expecting gross profit margin to decline by 4% to 5%. For EMS, the margins should stay flat -- flattish through the fourth quarter at 10% to 11% level.

For the whole year -- for the first quarter of this year, we're seeing -- we're entering into a seasonal downturn as a typical first quarter. And on top of that, there's certain degree of inventory correction or inventory adjustment. And that's being shown in the forecast from our customers. As for CapEx for the whole year, we are now looking at USD 600 million to USD 700 million, with 2/3 of it being allocated to assembly and then USD 150 million allocated to tests and the remaining USD 50 million to USD 100 million to the material and EMS business.

For that, I conclude my presentation and open the floor for questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from the line of David Duley.

David Duley

Could you just talk a little bit about, when you look at your guidance for Q1, how the segments break out, the end market segments? And then how the assembly and test and advanced packaging revenue should act here in Q1?

Joseph Tung

We're seeing the -- all sectors will decline. Computing will drop less than the communications. The advanced packaging right now, we look at it, we will have about 5% drop, whereas the wirebond and the traditional packages will have about the low-double digit drop. And this is what we're seeing from the assembly side. I believe, from the test revenue side, the test revenue will go down about the 10 percentile.

David Duley

Now with lots of parts coming out at 28 nanometers, do you see parts that were traditionally wirebonded moving to advanced packaging? Or, I guess, why is the wirebonded business down more than the advanced packaging business?

Joseph Tung

It's very difficult to have a precise number on the 28 nanometer migration. We did an internal estimate. Our number shows that, out of 100 wafers in 28 nanometers, 80 will go to advanced packaging, while 20 will go to a wirebond. Now, please bear in mind, this is the initial off-the-gate number. In other words, as 28 nanometer become more mature, we believe more wirebond design will come into play. But off the gate, right now, we're seeing is 80% goes to advanced and 20% goes to the wirebond. And this is for the 28 nanometer.

David Duley

And as far as the end markets, I think what you said was the communications market will be down more than the other segments?

Joseph Tung

I think that's correct. I think the -- as we mentioned earlier on, in first quarter, we are seeing both seasonality factors coming, kicking in. And also on top of that, we're seeing some inventory adjustments, primarily in the communications sector. I think during the October, November timeframe, we're seeing substantial growth in this particular sector. So you can see that in the fourth quarter, the percentage of communication increased from 50% to 55% in the quarter. So with that potential buildup, we are seeing some inventory adjustments starting from December and on to Q1. So with that, I think the communications sector, when relatively compared to other sectors, showing you a softer momentum.

David Duley

Okay. And then could you talk a little bit about -- a little bit more detail about your CapEx for the upcoming year and just specifically how it breaks out amongst advanced packaging and test dollars that you plan to spend in each? I know you gave that breakdown, but I couldn't write -- I didn't write it down, so I was just hoping you could clarify it for me.

Joseph Tung

Okay, I think the -- we're projecting about USD 600 million to USD 700 million CapEx for the whole year. With that, we're allocating roughly 2/3 of it to assembly. And if we take the USD 600 million number, it would be USD 400 million in packaging, and then roughly USD 100 million to USD 150 million to test and the remaining for material as well as EMS.

David Duley

And as far as how the CapEx in assembly breaks out amongst advanced packaging and bonding, did you have a breakout there?

Joseph Tung

Well, it will be mostly in advanced packaging. I think there will be limited wirebonding capacity expansion.

David Duley

Okay. And I noticed, it seems like the big wafer foundry in Taiwan has been pretty positive about their growth rates for the calendar year. How do you look at this year in total shaping for ASE? Should you grow in the same ballpark as the big foundry? Or should there be a divergence between your growth rates?

Joseph Tung

If you look at the ASE track record for the past 12 years, between 2000 and 2012, the semiconductor grew 6%, and ASE compound annual growth rate, for the past 12 years, was 12%. So it is safe to say that ASE consistently outperformed the semiconductor market by 2x. And in the recent years, the Taiwan foundry has been growing strong, stronger than OSAT. And I think in 2013, as you can see in our Q1, is weaker than what TSMC has reported. And I believe there has been a foundry wafer buildup. So we do believe that in March, April, that time frame, those wafer basically will come over to the OSAT, including ASE. For the whole year, we do believe that we will have a healthy year. And we do believe we'll outgrow the semiconductor market. I will not be able to comment specific foundry partner, but we do have a high confidence, by March, we will see a good rebound. In Q2, our revenue as well as the margin, we're confident will go back to a healthy level. For the whole year, we remain to be optimistic, based on the pipeline, based on the customer forecast.

Tien Wu

I think first quarter is really a combination of seasonality as well as some inventory adjustment, particularly in the communications sector. And therefore, the -- and that there is a lagging effect between us and the upstream foundry. So we're seeing a weaker quarter if we compare ourselves with the foundries, particularly TSMC. However, I think, on a full year basis, we're seeing this softness quickly rebounded from March. And for the whole year, we're still seeing quite a healthy pattern. And we are very confident that we will continue to see substantial growth as -- sequential growth on a quarterly basis. And particularly in Q2, we are confident that we will have our margin improved to approaching Q4 level last year.

David Duley

And speaking of that topic, with the revenue decline that you are expecting in the first quarter, what gross margin should we be targeting for the March quarter?

Joseph Tung

For IC ATM, it will come down roughly our original, this about 4% to 5%. But I think it could be smaller given the fact that the NT dollar has been depreciating quite a bit. When we looked at our budget, we were budgeting the exchange rate at 28.9%. And right now, it's standing at 29.60%? 29.57%. So that will help us on the margin side as well.

David Duley

So that seems like an awful big decline in gross margins in the first quarter. Is there some other reason behind that besides the revenue decline?

Joseph Tung

I think the drop is really just purely volume-driven. We are not seeing any major price erosion in the quarter. In fact, I think it's not very meaningful if we drop prices to gain business because it's a seasonal downturn, and also, with some inventory adjustments, [indiscernible] lowering your prices, we're not keeping more business.

Operator

The next question comes from the line of Szeho Ng, BNP Paribas.

Szeho Ng - BNP Paribas, Research Division

Just want to ask about what percentage of revenue do you expect to achieve from flip chip actually by end of this year?

Joseph Tung

Well, as I have indicated, we have -- today, we have 300 million extra capacity planned for 2013. So if I recall, we closed 834 million in 2012. What I'm saying is that we do have 300 million extra capacity installed.

Szeho Ng - BNP Paribas, Research Division

But you expect all these capacity will be fully loaded?

Joseph Tung

No. That is something we are not capable of projecting right now. The capacity was requested, was demanded by customer with the pipeline and part number. However, how much of that will be fully utilized really depends on the market.

Szeho Ng - BNP Paribas, Research Division

And the other thing, your competitors talk about silver wirebonding. I just want to tap your brain, how you see that market going forward?

Joseph Tung

Can you repeat that question? Our competitor is talking about the silver?

Szeho Ng - BNP Paribas, Research Division

Silver wirebonding. Silver alloy.

Joseph Tung

Okay. I can only give you the feedback as well as the conversation we had. The silver alloy is not well accepted by the automotive industry. And there has been silver issues associated with the moisture and the biased [ph] and humidity environment. The ASE, until today, we stay focused on copper, as well as some copper wirebond, the improvements. So we will not be able to comment on the silver. The silver, I believe, is a niche market. It's not widely accepted by the industry, particularly by some of the IDM, particularly by IDM in the security, in the network, as well as the automotive market.

Szeho Ng - BNP Paribas, Research Division

And last question. Regarding the tax rate, what should we use for this year? Because most of the companies in Taiwan talk about an increase in effective tax rate? And it's going into...

Joseph Tung

Well, for model building purposes, I would suggest the 15% to 17% effective tax rate.

Szeho Ng - BNP Paribas, Research Division

Okay. That one is still intact all the way into 2014?

Joseph Tung

I will let the government change the tax policy again.

Operator

The next question comes from the line of Steven Pelayo.

Steven C. Pelayo - HSBC, Research Division

Just a couple of quick questions here. The first one is, Siliconware was just suggesting that they're going to retire more wirebonders than they'll effectively add this year. So when we're having this call 1 year from today, you have 15,500 or so bonders, do you think that number is actually down as well 1 year from today?

Tien Wu

Right now, we have about 15,000 wirebonders in total. We have about 11,500 or so of copper wirebonder. Yes, some of the older generation wirebonders will turn out to be obsolete when they have to deal with the 40-nanometer and the 28-nanometer. So we do have plan to retire some of the wirebonders. As a matter of fact, I think in Q4, we have retired some wirebonders, 200-something -- 304. Was that a question? I'm sorry.

Steven C. Pelayo - HSBC, Research Division

Yes, I guess I'm just thinking about the net number. I was quite surprised to hear Siliconware suggest they're rolling out 250 bonders this entire year and retire some -- even more, so their total net capacity would actually be down. I was asking, I guess, the same question to you, if your total wirebonder capacity would decline this year as you retire more than you add?

Joseph Tung

Well, let me give you the bonder counts. At the end of 2011, we had a total of 13,000 -- close to 14,000 bonders. And now we're at 15,500. So we are actually adding bonders. We're adding more than what we retired.

Steven C. Pelayo - HSBC, Research Division

I'm talking about for 2013.

Tien Wu

Yes, well, Joseph, the question is the -- well, I think what Joseph's number indicates is we have been adding about 3,000 wirebonders in 2011 and 2012. In the meantime, we have retired about 2,000 older generation wirebonders. That's why we have net increase of about 1,000 to 1,500. Now your question about 2013, I believe the plan is we will buy some new wirebonders. At the same time, we'll also retire some of the older generation. In terms of the net number, we do not have that right now. It really depends on the business.

Steven C. Pelayo - HSBC, Research Division

Okay. And then if you could just comment about your guidance for some of the sequential decline, even in advanced packaging? I guess a bit of a surprise for me. So I don't know where capacity is kind of moving there. So can you talk a little bit about utilization rates in Q1, for both the -- for primarily the advanced packaging, but also even on wirebonding and test utilization rates in Q1?

Tien Wu

In terms of utilization, for wirebonding, we're expecting at mid-70s. And for advanced packaging, close to 80%. Testing will be high-70s.

Steven C. Pelayo - HSBC, Research Division

I guess I'm still just surprised that there's no pricing pressures out there when we're talking about mid-70s utilization rates and a much more aggressive move to flip chip. It seems like maybe there's some leftover wirebonding out there. Is it really just because it's see-ho right now and nobody needs any demand and so there really is no negotiations going on? Or do you think that there may be more potential pricing pressures in wirebonding this year as you see [indiscernible]?

Tien Wu

Well, if I can give you my comparison for 2012 versus 2013. If you recall, in the first quarter of 2012, the market environment was very, very bad. As a result, the pricing pressure was tremendous. Now we have also given some price concession in 2012 first quarter. As a matter of fact, the -- part of the margin erosion in 2012 for the whole year had a lot to do with the price concessions that we have concurred in the Q1. What I'm telling you is, in 2013, the pricing pressure is not nearly as bad as the 2012 level. And the reason, we believe, is now the -- everybody understands that this inventory control is a short-term in nature, and people will be coming back in March and April in high demand. As a matter of fact, we do have customers today talking to us about a March upside as well as April upside. So I do believe that in January, we will likely to report the monthly revenue in a few days' time. I think January number is okay. February, because of the working days, as well as the inventory control factor, is going to be the trough. In March, we do believe that we will have a bounce back. In Q2, right now, we're quite confident. So I really believe this downturn is really, really temporary in nature. We don't see any kind of a precipitous downturn in the marketplace, nor our particular customer losing market share to the others that we don't serve. And that is part of the reason why we believe the pricing deal has been stable. For the advanced technology, we've put in a lot of the bumping, the flip chip, and tested capacity based on demand. And those demands are basically have agreement with customers, so the pricing pressure in those arena are less in general. But even the -- in the copper wirebond, the pricing pressure is not nearly as bad as 2012.

Steven C. Pelayo - HSBC, Research Division

Okay, just last quick question. You guys talked about wirebonders in Q1 being down low-double digit drop. I guess, is that equal? I would assume the gold portion probably drops significantly more. So could you talk a little bit about copper versus gold wirebonding in Q1 and the sequential decline?

Joseph Tung

Okay, the -- as a matter of fact, there are quite a few reasons. Let me just go down the -- without the -- the order of the priority, the importance. Now some of the wirebond packages are going through a migration to an advanced technology. You have seen some of the U.S. customer, as well as the Greater China customer, some of the volume package they have, they're actually migrating from copper wirebond to flip chip. That explains some additional downturn on the wirebond revenue migration to the advanced technology, which is why I stated advanced technology was down about 5%, low-double digits for the wirebond. So then the next question you ask is, now then what about all of the copper wirebond capacity you have installed? What we're saying is, when the fabless customers are migrating some device to the advanced packaging, we have to serve that. Our job is to enable the IDM customers to continue to migrate their gold wirebond, either from other sub con or from their internal factory, continue to migrate to ASE, which is why I've shown you these 2 curves, about fabless as well as IDM. And I believe, in 2013, you will see that the IDM part of the copper wirebond revenue continues to go up, but in terms of the Greater China or the fabless sector, the current conversion rate at about 80%, I believe that is quite close to the [indiscernible].

Steven C. Pelayo - HSBC, Research Division

Okay, so once again, the question was, do you think the copper portion declines the same as the gold portion in wirebonding because of this migration to flip chip? Or help me understand the guidance in Q1. That's my last question.

Joseph Tung

Okay. Now the copper will continue to grow. I think the Q1 drop has the seasonality, the inventory control, as well as some of the volume device are migrating from wirebond to flip chip. For the whole year, we remain to be optimistic about the copper wirebond revenue growth.

Operator

At this time, we have no further questions.

Tien Wu

Well, thank you, everyone, for dialing in. And we just wish you a happy Chinese Lunar New Year. Thank you very much.

Joseph Tung

Thank you. Operator?

Operator

Thank you for participating in today's conference call. You may now disconnect. Thank you.

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