Osat Sector Taiwan

Industry Report
6 November 2009 (No. of pages: 33)
OSAT Sector
Taiwan: Electronics
Neutral → Positive
Aaron Jeng, CFA
(886) 2 8780 1469
aaron.jeng@daiwasmbc.com.tw
Focus on the structural winner
Summary
We have upgraded our rating for the Taiwan Outsourced Semiconductor Assembly and Test
(OSAT) sector to Positive from Neutral as we believe that all the fundamental indicators point
to positive for 2010. Although there may be some share-price corrections in the 4Q09-1Q10
slow season, we would expect these to be moderate, as most of the key fundamental
parameters, including demand, supply and inventory levels, appear to be healthy at this time.
In addition, we have upgraded our rating for Advanced Semiconductor Engineering (ASE) to
2 (Outperform) from 4 (Underperform). We maintain our 3 (Hold) rating for Siliconware
Precision (SPIL) as we expect ASE to continue to outperform SPIL (in terms of share-price
performance) for several reasons, including: 1) ASE’s leading position in copper-wire
technology should help it to increase its market share from 4Q FY09 onward, 2) MediaTek’s
(2454 TT, NT$480, 3) transition to an RF-integrated single-chip solution for its mainstream
handset IC platform in 2010 would hurt SPIL more than ASE, 3) ASE enjoys higher operating
leverage than SPIL, 4) an increase in IDM outsourcing would benefit ASE more than SPIL,
and 5) a rising gold price would hurt SPIL more than ASE.
We have raised our six-month target price for ASE to NT$33.0 (based on a PBR of 2.4x on our
FY10 BVPS forecast) from NT$21.0 (based on a PBR of 1.4x on our FY09 BVPS forecast),
and lowered our six-month target price for SPIL to NT$47.0 (based on a PBR of 2.2x on our
FY10 BVPS forecast) from NT$48 (based on a PBR of 2.3x on our FY09 BVPS forecast).
Valuation comparison: ASE, SPIL, Powertech Technology (PTI) and peers

Six-month Mkt Share EPS (local EPS change
Bloomberg target price Upside/ cap price curr./share) (YoY %) PER (x) PBR (x) ROE (%)
code Company Curr. Rating (NT$) downside (%) (US$m) (loc.) 2008 2009E 2010E 2009E 2010E 2009E 2010E 2009E 2010E 2009E 2010E
Our coverage
2311 TT* ASE NT$ 4→2 33 20.7 4,605 27.35 1.14 1.08 2.00 (5.4) 85.2 25.3 13.7 2.2 2.0 8.8 15.4
2325 TT* SPIL NT$ 3 47 9.3 4,117 43.0 2.00 2.62 2.97 31.0 13.3 16.4 14.5 2.1 2.0 13.4 14.2
6239 TT* PTI NT$ 2 110 20.7 1,883 91.1 10.38 7.17 10.11 (30.9) 41.0 12.7 9.0 2.4 2.0 20.5 24.1
Logic IC
AMKR US** Amkor US$ NR 1,009 5.5 0.99 0.37 0.63 (62.8) 71.2 15.0 8.7 3.3 3.3 26.97 44.97
STAT SP** STATSChipPAC S$ NR 1,872 0.9 n.a. n.a. n.a. n.m. n.m. n.a. n.a. 0.9 0.9 n.a. n.a.
2449 TT* King Yuan NT$ NR 504 13.0 0.93 (0.91) 0.89 n.m. n.m. n.a. 14.6 0.8 0.8 n.a. 6.11
2441 TT* Greatek NT$ NR 520 31.4 3.11 2.58 3.36 (17.1) 30.2 12.1 9.3 1.7 1.7 13.06 15.88
Memory IC
IMOS US** ChipMOS US$ NR 63 0.8 n.a. n.a. n.a. n.m. n.m. n.a. n.a. 0.1 0.1 n.a. n.a.
8131 TT* FATC NT$ NR 532 40.3 2.32 0.07 3.16 (97.2) n.m. 601.5 12.4 2.2 2.2 0.34 15.80
Source: Companies, Bloomberg, Daiwa forecasts for ASE, SPIL and PTI only
Note: *share prices as at 5 November 2009, **share prices as at 4 November 2009
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH Global Equity Research

CERTIFICATIONS, ARE PROVIDED ON THE LAST TWO PAGES OF THIS REPORT.
Contents
Sector rating upgraded to Positive ....................................................................................3

Sector outlook ..................................................................................................................3
We prefer ASE to SPIL for 2010 .....................................................................................6
Key financial indicators..................................................................................................15
Valuation ........................................................................................................................16
Company section
Advanced Semiconductor Engineering (2311 TT)..................................................19
Siliconware Precision (2325 TT).............................................................................24
Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 2

Sector rating upgraded to Positive
We have upgraded our We have upgraded our rating for the OSAT sector to Positive from Neutral, and
rating for ASE to 2, but upgraded our rating for ASE to 2 from 4. However, we maintain our 3 rating for
maintain our 3 rating SPIL.
for SPIL
We have upgraded our sector rating as we believe all the fundamental indicators
point to positive for 2010. We expect some share-price corrections in the 4Q09-
1Q10 slow season. However, we would expect these to be moderate as most of the
key fundamental parameters, including demand, and supply and inventory levels,
appear to be healthy at this time. As long as there is not a sharp economic
correction in 2010, we would advise investors to use the seasonal weakness to
accumulate ASE, as we expect the company to undergo more positive structural
changes than SPIL in 2010.
We have raised our six-month target price for ASE to NT$33.0 (based on a PBR of
2.4x on our FY10 BVPS forecast) from NT$21.0 (based on a PBR of 1.4x on our
FY09 BVPS forecast) and lowered our six-month target price for SPIL to NT$47.0
(based on a PBR of 2.2x on our FY10 BVPS forecast) from NT$48.0 (based on a
PBR of 2.3x on our FY09 BVPS forecast).
Sector outlook
Demand is recovering
For 2010, we forecast Global demand for electronic products has continued to exceed our expectations
semiconductor sales to since early 2009. We think the upward revisions to forecasts for major electronic
rise by 8% YoY and product shipments by the market will continue over the near term. We forecast
foundry sales to semiconductor sales globally to increase by 8% YoY for 2010, and sales for
increase 18% YoY foundry companies to rise by 18% YoY for 2010 due to increased outsourcing
from IDM customers as economies continue to recover.
Daiwa revenue-growth forecasts by sector (YoY %)

Fabless customers Foundry Semiconductor PC (unit shipments) Handsets (unit shipments)
2008 2009E 2010E 2008 2009E 2010E 2008 2009E 2010E 2008 2009E 2010E 2008 2009E 2010E
Sep-08 12.9 9.4 9.8 13.0 9.8 11.5 4.0 7.0 6.5 12.2 10.8 10.0 9.7 9.3 7.5
Nov-08 15.3 (2.2) 10.1 4.9 (8.2) 19.4 2.0 (9.0) 7.0 12.5 (2.5) 5.2 6.8 (4.1) 6.3
Feb-09 10.5 (24.0) 9.1 3.7 (34.8) 41.2 (2.8) (23.0) 2.0 11.0 (11.0) 2.1 4.5 (13.1) 4.0
May-09 10.5 (17.9) 4.4 3.7 (27.0) 18.8 (2.8) (19.0) 2.0 10.4 (7.4) 5.6 6.0 (6.8) 6.9
Aug-09 10.5 (10.9) 7.4 3.7 (18.1) 17.7 (2.8) (18.0) 8.0 10.4 (1.0) 8.6 6.0 (4.2) 6.9
Source: Companies, Daiwa forecasts
Supply – capex discipline expected to continue into 2010

We expect the capex-to- According to ASE and SPIL, they will increase their FY10 capex by 70% YoY and
sales ratios of ASE and 100% YoY, respectively. ASE has indicated that its FY10 capex will increase to
SPIL to remain under US$400-500m from US$300m for FY09. SPIL has implied that its FY10 capex
control for 2010 could double to NT$10bn from NT$5bn for FY09.
However, even with these increases, the companies’ capex-to-sales ratios would
remain under control for FY10, in our view: ASE’s would increase to 16% from
12% for FY09, while SPIL’s would rise to 15% from 9% for FY09. Compared with
the very high levels of capex expansion for FY02 and FY04 (when capex-to-sales
ratios reached 20-30%), we regard the two companies’ FY10 capex plans as
disciplined. In addition, we believe the OSAT companies will adjust their capex
plans quickly to adapt to the changing macro demand situation, which means their
utilisation rates and gross-profit margins for FY10 should be sustained at the high
ends of their past-five-year ranges.

Capex and capex-to-sales ratio: ASE vs. SPIL
(NT$m) (%)
30,000 35
25,000 30
20,000 25
15,000 20
10,000 15
5,000 10
0 5
2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E
ASE capex (LHS) SPIL capex (LHS)
ASE capex-to-sales ratio (RHS) SPIL capex-to-sales ratio (RHS)
Gross-profit margin and utilisation rate: ASE vs. SPIL

(%) (%)
40 100
90
30 80
70
20 60
50
10 40
30
0 20
2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E
ASE GM (LHS) SPIL GM (LHS) ASE UTR (RHS) SPIL UTR (RHS)
Capacity and utilisation rates: ASE vs. SPIL

2006 2007 2008 2009E 2010E
ASE
Capacity
Wirebonders (units) 6,526 8,003 8,446 8,781 9,848
Testers (units) 1,305 1,534 1,567 1,571 1,758
Utilisation rate
Wirebonders (%) 87 83 75 76 84
Testers (%) 86 78 75 71 83
SPIL
Capacity
Wirebonders (units) 4,053 4,614 4,656 4,817 5,514
Testers (units) 317 353 374 381 412
Utilisation rate
Wirebonders (%) 96 97 84 84 90
Testers (%) 92 85 72 70 85

Inventory – both upstream and downstream are healthy now
The average days of As at the end of 3Q09, the average days of inventory (DOI) of both fabless and
inventory for both IDM customers were near post-2000-low levels. Among our sample of 34 fabless
fabless and IDM and IDM companies, the average DOI level for fabless companies (75% of sales to
customers declined to OSAT companies) at the end of 3Q09 was 52, down from 72 days at the end of
low levels in 3Q09 2008, while for IDM customers (25% of sales to OSAT companies) the end-3Q09
average inventory level was 72, a very low level and down from 87 days at the end
of 2008.
Based on the current sales-growth outlooks of foundry companies and IC-design

and IDM customers, we expect the average DOI for IC-design and IDM customers
to remain lean at the end of 2009. We expect the average DOI to increase in the
1Q10 slow season as history has shown that it can take only two-to-three quarters
for the DOI to peak from a low level.
However, inventory levels among downstream companies are possibly lean even
now, due to the strong sell-through of handsets, PCs and most electronic products
year-to-date. At the end of 3Q09, the average DOI levels were only 29, 14, 30 and
32 for the handset, PC, TFT-LCD and EMS sectors, respectively, while for
downstream companies the DOI hit a past-five-year low of 24, down from 28 days
one year earlier.
Our PC-sector analyst, Calvin Huang, believes that inventory levels in the PC
supply chain remain lean for now due to the strong sell-through. Our handset-
component sector analyst, Andrew Chang, believes the recent build-up of inventory
for the forthcoming peak season is normal and that inventory levels remain healthy
currently. Our surveys of both the China-handset supply chain and the global-panel
supply chain also point to inventory levels being healthy at this time. Indeed, there
is tight supply for some components currently, such as optical-storage ICs and
pick-up heads, DRAM, and flash memory. The low inventory levels across the
board indicate to us that even if there were seasonal adjustments in inventory
during the 1H10 slow season, the correction would not be sharp.
Key assumptions for Daiwa’s DOI forecasts

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09E
Foundry sales (US$m) 4,333 4,553 4,615 3,159 1,884 3,549 4,256 4,298
QoQ (%) (3) 5 1 (32) (40) 88 20 1
Fabless sales (US$m) 9,315 9,681 10,464 8,045 7,521 8,789 9,514 9,038
QoQ (%) (6) 4 8 (23) (7) 17 8 (5)
Gross-profit margin (%) 53 51 54 47 52 54 54 53
DOI (days) 73 71 69 72 65 57 52 59
IDM sales (US$m) 22,305 21,961 23,540 18,832 16,269 17,950 20,235 20,864
QoQ (%) (10) (2) 7 (20) (14) 10 13 3
Gross-profit margin (%) 52 53 57 51 49 51 51 51
DOI (days) 77 82 79 87 84 73 72 73
Source: Bloomberg, Daiwa forecasts

Global fabless companies’ average DOI Global IDMs’ average DOI
(days) (US$m) (days) (US$m)
100 4,000 120 12,000
3,500
90 110 10,000
3,000
100 8,000
80 2,500
2,000 90 6,000
70 1,500
80 4,000
1,000
60 70 2,000
500
50 0 60 0
1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09
inventory (RHS) DOI fabless (LHS) Inventory (RHS) DOI fabless (LHS)
Source: Bloomberg, Daiwa estimates Source: Bloomberg, Daiwa estimates
Downstream inventory and DOI Downstream DOI by sector

(US$bn) (days) (days)
45 35 50
40 30 45
35 40
25
30
35
25 20
30
20 15
25
15
10 20
10
5 5 15
0 0 10
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
Inventory (LHS) DOI (RHS) Handset PC TFT-LCD EMS
Source: Bloomberg Source: Bloomberg
We prefer ASE to SPIL for 2010

We prefer ASE As long as there is no repeat in 2010 of the sharp economic correction that took
to SPIL for 2010 place in 4Q08, we expect ASE to continue to outperform SPIL (in terms of share-
price performance) for a number of reasons, including: 1) ASE’s leading position
in copper-wire technology should help it to increase its market share from 4Q
FY09 onward, 2) MediaTek’s transition to an RF-integrated single-chip solution
for its mainstream handset IC platform in 2010 would hurt SPIL more than ASE, 3)
ASE enjoys higher operating leverage than SPIL, 4) an increase in IDM
outsourcing would benefit ASE more than SPIL, and 5) a rising gold price would
hurt SPIL more than ASE.
Summary – the factors we expect to affect ASE and SPIL in 2010

Factors ASE SPIL
Copper wire Benefits due to its leading position Suffers due to its lagging position
MediaTek's single-chip solution Suffers less than SPIL as it has less exposure Suffers more than ASE due to higher exposure
Operating leverage Benefits more than SPIL during an upcycle Benefits less than ASE during an upcycle
IDM outsourcing Benefits more than SPIL during an upturn due to its higher exposure to IDMs Benefits less than ASE
Suffers more than ASE due to its greater
A rise in the gold price Suffers less due to: 1) less gold exposure, and 2) increasing usage of copper
exposure to gold
Source: Daiwa estimates

Use of copper wire likely to benefit ASE, but hurt SPIL
ASE has been quite Given the rise in the price of gold over the past few years, OSAT companies started
aggressive about using to talk about replacing gold wire with copper wire. According to ASE, copper wire
copper wire, and we is 4-5x cheaper than gold wire. In addition, copper has superior electrical and
think this would help thermal conductivity, so it dissipates heat faster than gold wire.
the company to
gain market share However, the technological difficulties associated with using copper wire – copper
oxidises more easily, the hardness of copper wire makes the bonding process more
difficult than when using gold wire (gold is more ductile) – have troubled the
OSAT companies for a long time.
ASE has been quite aggressive about using copper wire in its wirebonding ICs and
started R&D on it quite some time ago. Since last year, the company has been
persuading customers to qualify its copper-wire technology. We estimate that ASE
will invest at least US$75m (25% of its FY09 capex) in copper wire (including
buying new copper wirebonders and upgrading its existing gold wirebonders). The
company aims to install 1,000 sets of copper wirebonders by the end of this year,
and will buy a further 2,000 sets of copper wirebonders in 2010.
Its efforts started to bear fruit from the middle of 2009. ASE offers a 15% price
discount to customers if they opt for copper wire rather than gold wire. By the end
of 3Q FY09, ASE had been qualified by about 100 customers for its copper-wire
process and more than 30 customers had started mass production, including some
of ASE’s top-10 customers by revenue. The company expects copper wire to
account for 8% of its 4Q FY09 wirebonding revenue, which would be a remarkable
feat, in our opinion.
Meanwhile, SPIL was relatively conservative in terms of its investment in copper

wire, as it believed the ROIC from copper wire was not attractive. The company’s
view was that the throughput (ie, the amount of wires a bonder can link from
fingers to chip pads per second – eight is the industry standard) and yield of copper
wire were too low, indicating that it would need more bonders to offset the loss in
throughput and yield. Along with the lower selling price (eg, 15% lower than for
gold wire at ASE), SPIL regarded such investment as unattractive. However, the
company has been forced to invest in copper wire (we believe by MediaTek) since
3Q FY09 and is aiming to increase the number of copper wirebonders it has to 200
sets by the end of FY09, compared with only 10-20 sets by the end of 3Q FY09. It
even plans to buy 200-300 wirebonder sets per quarter in FY10. SPIL’s current
aggressive focus on copper wire has underlined that ASE’s early adoption was
correct and implies that the cost-saving pressure from customers is rising.
According to our industry survey, SPIL’s copper-wire throughput rate currently is

about 75%, which compares with 95% for ASE. We believe this difference in
throughput will be reflected in the companies’ gross-profit margins from 4Q FY10
onward. If SPIL is unable to enhance its throughput, we believe the increasing
percentage of copper wire of its wirebonding IC products would erode its gross-
profit margin. More importantly, ASE’s has the leading position in copper-wire
technology – the company believes it has a more than six-month lead over its
competitors. We believe it is about right, eg, currently ASE can provide copper-
wire solutions for BGAs with more than 700 wires, while SPIL can only support no
more than 200 wires, and believe it will lead to former’s market share improving in
2010 before other companies’ copper-wire solutions become competitive.

Copper wire solution comparison: ASE vs. SPIL
Copper-wire Solutions to reduce Throughput of Technology
wirebonders (sets) costs Investment copper wire Customers capability Notes
ASE 1,000 sets by the end ASE offers a 15% price More than 25% of 95% compared More than 100 customers are ASE can provide ASE expects 9% of
of 2009 and plans to discount to customers 2009 capex should with gold wire undergoing qualification with copper-wire solutions wirebonding sales to
buy a further 2,000 adopting copper wire be spent on copper ASE and more than 30 for wirebonding type come from copper wire
sets in 2010 wire customers had entered into ICs up to 700-800 for 4Q09
mass production by the end of wires
3Q09
SPIL 200 sets by the end of 1. Reducing its use of Plans to ramp up 75% compared Some customers are SPIL can only provide Limited contribution
2009 and plans to buy gold wire its copper with gold wire undergoing qualification with copper-wire solutions from copper in 2009
200-300 sets a quarter 2. 15% price discount to investment from SPIL, but no mass production for wirebonding type IC
in 2010 customers using copper 4Q09 had been undertaken by the up to 200 wires.
wire end of 3Q09
Source: Companies, Daiwa estimates
How can throughput affect the gross margin of copper wire?

We think an increasing We have performed a gross-profit margin scenario simulation using different
copper-wire contribution throughput assumptions. For gold wirebonding, the gross-profit margin is about
would erode SPIL’s 22% if capacity is fully loaded. At the current gold price (about US$1,000 an
margin if SPIL cannot ounce), the difference between the gold cost and copper cost on the COGS is about
enhance its throughput 20%. However, the cost of copper wirebonders is about 1.2x the cost of gold
wirebonders. After taking throughput into consideration, we estimate that the
gross-profit margins are in the range of 9-21%, with throughput ranging from 75-
95%. We believe that if SPIL is unable to enhance its throughput, the increasing
percentage of copper wire would erode its gross-profit margin (based on our
estimated gross-profit margins for gold and copper of 22% and 9%, respectively,
given a throughput rate of 75% for copper wire).
From SPIL’s point of view, we believe the pressure is rising. The company cannot
turn down customers’ requests to provide copper-wire solutions even though its
solution is not yet ready. Before being able to catch up in terms of copper-wire
technology, we think SPIL will face the dilemma of maintaining its market share or
gross-profit margin/ROE.
Copper wirebonding gross-profit margin scenario under different throughput assumptions

Gold wirebonding Copper wirebonding
Throughput assumption (%) 100 75 80 85 90 95
Selling price (%) 100 85 85 85 85 85
COGS (%) 78 77 74 72 69 67
Material cost (%) 47 31 31 31 31 31
Depreciation (%) 16 25 23 22 21 20
Labour cost (%) 16 21 20 18 17 16
Gross margin (%) (selling price - COGS) 22 9 13 16 18 21

Note: 1. ASE has indicated that it provides a 15% price discount for customers that switch from gold wire to copper wire
2. The cost difference between gold and copper is about 20% of the total COGS, or 33% of material costs
3. We assume the cost of a copper wirebonder is 1.2x that of a gold wirebonder. In addition, more machines are needed to achieve
the same output if throughput is less than 100%. (Depreciation for a copper wirebonder = depreciation for goldwire bonder*1.2/
throughput).
4. We assume the labour cost per bonder is the same, irrespective of material. (Labour cost for copper = labour cost for
gold/throughput).

A rise in the gold price is likely to hurt SPIL more than ASE
We believe SPIL’s Gold costs accounted for 22% and 17% of the COGS for SPIL and ASE,
gross-profit margin respectively, for 3Q FY09. The price of gold has risen to more than US$1,000 an
would be more affected ounce currently from US$600 an ounce in early 2007, but OSAT companies have
than that of ASE from a not been able to pass on the increase to customers, and have had to watch as their
rise in the gold price, as gross-profit margins are squeezed. According to the chairman of SPIL, Bough Lin,
gold costs for 3Q FY09 every US$50 an ounce rise in the price of gold would erode the company’s gross-
accounted for 22% and profit margin by 1%.
17% of SPIL’s and
ASE’s COGS, Given SPIL’s higher sales exposure to the wirebonding business, the cost of gold
respectively accounts for a greater portion of the COGS for SPIL than for ASE. As a result,
SPIL’s gross-profit margin would suffer more from a rise in the gold price than that
of ASE. In addition, given ASE’s aggressive moves into using copper wire, the
company’s exposure to gold should fall gradually over time.
Revenue breakdown: ASE & SPIL

2005 2006 2007 2008 2009E 2010E 2011E
ASE
Wirebonding 72 66 70 68 67 64 64
Flip chips 7 11 8 9 12 16 17
Testing 20 21 20 20 19 18 18
Others 1 2 3 2 2 2 2
SPIL
Wirebonding 71 81 79 77 77 75 76
Flip chips 12 10 11 14 15 16 16
Testing 9 9 9 9 8 9 8
Others 8 0 0 1 0 0 0
Source: Company, Daiwa forecasts
Gold price
(US$ per ounce)
1,050
1,000
950
900
850
800
750
700
650
600
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Source: Bloomberg

Gold cost as a % of COGS for ASE and SPIL
(%) (US$ per ounce)
24 1,000
22 950
20
900
18
850
16
800
14
12 750
10 700
3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
SPIL (LHS) ASE (LHS) Spot market gold price (RHS)
Source: Bloomberg, Daiwa estimates
MediaTek’s RF-integrated single-chip solution expected to hurt

SPIL more than ASE
MediaTek’s first RF- MediaTek’s first RF-integrated single chip, the MT6253, is scheduled to start mass
integrated single chip, production from the end of 4Q09. The MT6253 is the company’s first RF-
the MT6253, would hurt integrated single chip. It integrates four of the chips used in the current MT6225
SPIL more than ASE, platform (the baseband MT6225, the RF MT6139, the MT6138 power-management
in our opinion IC, and the MT6302 dual SIM-card switch).
Our cost analysis indicates that there are no savings in wafer costs from adopting
the MT6253 (compared with the MT6225) due to the foundry companies’
aggressive price cuts on the MT6225 wafers. However, on the IC back-end side, we
expect the transition to result in a cost saving of about 40% for MediaTek. In other
words, all things being equal, we think the sales contribution from MediaTek to
back-end companies would decrease by 20% after the complete transition to the
MT6253 from the MT6225 (ie, currently, the MT6225 accounts for 60-70% of
MediaTek’s total handset shipments and the handset business unit accounts for 70-
80% of its total sales, which means the MT6225 accounts for almost 50% of
MediaTek’s sales).
Given that MediaTek is SPIL’s largest customer, accounting for about 10-15% of
sales (compared with only 5-10% of sales for ASE), we expect SPIL (2-3% of sales
would disappear once the transition to the MT6253 is completed) to suffer more
than ASE (1-2% of sales would disappear) due to this product transition.
MediaTek: chip-cost breakdown

Cost-breakdown analysis Part number Wafer cost per die (US$) Package type Back-end cost per die (US$) Total cost per die (US$)
6225 platform
BB MT6225 0.6 BGA 0.6 1.2
RF MT6139 0.3 QFN 0.2 0.5
PMIC MT6138 0.2 BGA 0.3 0.5
Dual SIM card switch MT6302 <0.1 QFN 0.1 0.1
Total 1.1 1.1 2.2
6253 platform
Four-in-one single chip MT6253 1.1 QFN 0.6 1.80
Cost saving (%) 0 40 20


ASE: customer breakdown (2Q09) SPIL: customer breakdown (2Q09)
Qualcomm
MediaTek
MediaTek
Broadcom Others
Marvell
NEC (IDM)
Others Intel (IDM) Atheros BRCM
Zoran Mstar
Marvell Freescale Xillinix Intel (IDM) AMD (IDM)
Sandisk nVidia
STM (IDM) (IDM) CSR
Source: Daiwa estimates Source: Daiwa estimates
Operating leverage expected to benefit ASE more than SPIL during

an upcycle
We believe operating ASE and SPIL have different cost structures, which result in different respective
leverage would benefit ROE performances during upcycles and downcycles. To avoid inconsistencies
ASE more than SPIL when comparing ASE and SPIL (eg, ASE books engineering costs under R&D
in an upcycle, as ASE expenses, while SPIL books them under COGS), we have combined the
has a higher proportion companies’ COGS, operating expenses and divided the total costs into variable
of fixed costs (material costs, labour costs and sales expenses) and fixed costs (depreciation costs,
administration expenses, and R&D expenses).
ASE has a higher proportion of fixed costs as a percentage of total costs than SPIL
(we estimate 31% for ASE and 22% for SPIL for FY09), indicating that: 1) during
an upturn, ASE would have greater operating leverage than SPIL, and 2) SPIL has
a higher proportion of material costs than ASE (we estimate 38% for ASE and 57%
for SPIL for FY09), indicating that SPIL would suffer more than ASE from high
gold prices.
In addition, ASE’s testing segment accounts for the higher proportion of its total
revenue than that of SPIL. No material cost is incurred for testing, and thus testing
generates a higher gross-profit margin. For 3Q FY09, ASE derived about 18% of
its revenue from testing, the gross-profit margin for which was 35.2%, much higher
than the company’s overall gross-profit margin of 25.2%. Once fully loaded, we
believe the gross-profit margin for testing could exceed 40%. Testing has
accounted for only about 10% of SPIL’s revenue over each of the past two years.
As a result, over the next six months, we see the potential for more upside surprises
for ASE’s gross-profit margin than for SPIL’s.

ASE: COGS breakdown SPIL: COGS breakdown
(%) (%)
100 100
90 90 25% 25% 25% 25%
26% 26%
80 38% 39% 39% 38% 39% 39% 80
70 70 16% 16%
17% 17% 19% 18%
60 60
50 21% 23% 23% 24% 21% 20% 50
40 40
30 30 57% 57% 55% 57% 59% 60%
20 41% 39% 38% 38% 40% 41% 20
10 10
0 0
2006 2007 2008 2009E 2010E 2011E 2006 2007 2008 2009E 2010E 2011E
Raw-material costs Depreciation costs Labour & other costs Raw-material costs Depreciation costs Labour & other costs
Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts
ASE: cost breakdown SPIL: cost breakdown

(%) (%)
100 100
90 90
80 80
70 70
73% 70% 69% 69% 72% 73%
60 60 79% 79% 77% 78% 80% 81%
50 50
40 40
30 30
20 20
27% 30% 31% 31% 28% 27% 21% 21% 23% 22%
10 10 20% 19%
0 0
2006 2007 2008 2009E 2010E 2011E 2006 2007 2008 2009E 2010E 2011E
Fixed costs Variable costs Fixed costs Variable costs
Depreciation costs to COGS: ASE vs. SPIL Operating expenses to sales: ASE vs. SPIL
(NT$bn) (%) (NT$bn) (%)
18 30 12 12
16
25 10 10
14
12 20 8 8
10
15 6 6
8
6 10 4 4
4
5 2 2
2
0 0 0 0
2006 2007 2008 2009E 2010E 2011E 2006 2007 2008 2009E 2010E 2011E
ASE depreciation cost (LHS) SPIL depreciation cost (LHS) ASE OP expense (LHS) SPIL OP expense (LHS)
SPIL (RHS) ASE (RHS) SPIL (RHS) ASE (RHS)
Source: Companies, Daiwa forecasts Source: Companies, Daiwa forecasts

IDM outsourcing to benefit ASE more than SPIL
IDM companies started When demand recovers and sales for the semiconductor industry bottom out, IDM
to increase outsourcing customers usually resume outsourcing, especially if they have closed down
in 3Q09 and we think factories during the downturn. For example, ASE’s sequential sales growth from
they would continue to IDM customers was stronger than that from IC-design customers during the 2Q
do so in 2010 FY04-3Q FY04 and 2H FY07 upcycles. During the current downturn, some IDM
companies have closed their factories or stopped IC back-end investment, which
we believe would lead to more opportunities in the future for ASE than SPIL. ASE
has benefited from Intel’s outsourcing of the Southbridge chipset packaging
process since early 2009 and Toshiba’s (6502 JP, ¥509, 3) outsourcing of NAND
flash since 2Q09.
We expect more outsourcing orders in the future from other IDMs, such as NEC
(Not rated), STM (Not rated), Fujitsu (Not rated) and Numonyx (Not rated). As for
SPIL, our supply-chain survey indicates that one of its main graphics customers is
likely to outsource its CPU packaging orders from the middle of 2010, but the
initial volume should be limited. We believe ASE’s IDM portion of sales bottomed
out in 2Q09 at 30%, and that its greater exposure to IDM sales will result in it
recording stronger revenue growth than its peers during the next upturn.
Sales to IDM customers for ASE and SPIL

(%)
50
40
30
ASE expects the IDM portion
20 to return to 40% in 2H FY10
10
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09E
1Q10E
2Q10E
3Q10E
4Q10E
ASE SPIL

IDM companies’ backend plants closure schedule
Date Company Closing back-end plant ASE's opportunity Notes
location
4Q06 NEC Ireland NEC is one of ASE's top-10 customers in To reduce operating costs and improve management
terms of revenue, and we expect it to efficiency, NEC Electronics will concentrate its test and
increase its outsourcing rate if it adopts a assembly services on US and Europe automotive Micro
fab-lite policy. Controller Unit (MCU) customers at NEC Semiconductors
Singapore.
3Q08 Seiko Epson Japan Seiko Epson will close its assembly and test plant in
Yamagata-ken, Japan, due to its inefficient cost structure.
The plant was established in 1987 and provided PQ, TQ
and BGA packaging products.
1H09 STMicroelectronics Morocco ASE Weihai may be able to earn discrete
orders from STMicroelectronics.
1H09 Intel Philippines/Malaysia After the closure of backend plants in the The company plans to close two existing assembly test
Philippines and Malaysia, Intel facilities in Penang, Malaysia, and one in Cavite, the
outsourced its Southbridge chips backend Philippines, and will halt production at Fab 20, an older
orders to ASE, SPIL and StatsChip. We 200mm wafer fabrication facility in Hillsboro, Oregon. In
estimate Intel's revenue contribution to addition, wafer-production operations will end at the D2
ASE increased by 120% QoQ for 2Q09. facility in Santa Clara, California. The closures will take
place before the end of 2009.
1H09 Qimonda Germany Qimonda will cease operating its test plant in Germany.
1H09 Numonyx Philippines/Malaysia Numonyx has increased orders to ASE
since 2Q09. However, as the base was
small previously we do not expect the
absolute contribution to be significant.
1H10 Fuji Japan We expect ASE to gain orders from
Fujitsu as Fujitsu is one of ASE's
customers.
1H10 National Semi China ASE's customer but the orders are small. As part of a cost-reduction plan, the company will close its
assembly and test plant in Suzhou, China. The plant
provides SOIC TO and other packaging products. The
closure will take place in phases over several quarters. The
volume currently being supported by this facility will be
transferred to other locations.
Source: Companies, Daiwa estimates
IDM and fabless customers’ portion of revenue for ASE and SPIL in the 2004 and 2007 upcycles
1Q04 2Q04 3Q04 4Q04 1Q07 2Q07 3Q07 4Q07
ASE
Total revenue (NT$m) 17,221 20,290 22,023 22,179 21,093 23,362 27,733 28,976
IDM 8,094 10,348 11,672 11,311 8,859 9,578 12,203 13,619
Fabless 9,127 9,942 10,351 10,868 12,234 13,784 15,530 15,357
QoQ change (%)

Total revenue (7) 18 9 1 (7) 11 19 4
IDM (9) 28 13 (3) (4) 8 27 12
Fabless (5) 9 4 5 (8) 13 13 (1)
SPIL
Total revenue (NT$m) 8,248 8,712 8,946 9,103 13,751 15,233 17,909 17,729
IDM 1,485 1,742 1,789 1,821 2,750 3,047 3,940 4,432
Fabless 6,763 6,970 7,157 7,282 11,000 12,186 13,969 13,296
QoQ change (%)

Total revenue 2 6 3 2 (6) 11 18 (1)
IDM (8) 17 3 2 (11) 11 29 12
Fabless 5 3 3 2 (5) 11 15 (5)

Key financial indicators
Operating margins
Operating margin and Operating margins appear to be a good indicator of ASE’s and SPIL’s relative
ROE are good indicators share-price performance. ASE’s operating margin started to improve faster than
for ASE’s and SPIL’s that of SPIL from 1Q09 due to its ability to achieve greater cost savings over the
relative share-price previous few quarters and better operating leverage during the sector upcycle.
performance Looking ahead, we forecast the operating-margin gap between ASE and SPIL to
narrow to zero in 2H FY10, despite a temporary expansion in 1Q FY10 (due to the
seasonally slow season), which might indicate that ASE’s share price should
continue to outperform that of SPIL throughout 2010 (despite a potential temporary
period of underperformance in 1Q10).
ROE
Given our view that ASE would outperform SPIL in terms of revenue growth in
FY10, we expect ASE’s ROE to catch up with that of SPIL in FY10.
Operating-margin difference vs. relative share-price performance

(SPIL over ASE)
(%)
400 15
350
10
300
5
250
200 0
150
(5)
100
(10)
50
0 (15)
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Operating-margin diff (SPIL-ASE) (RHS) SPIL relative share price (LHS)
Source: Bloomberg, Daiwa forecasts
ROE comparison for ASE and SPIL

(%)
30
25
20
15
10
5
0
(5)
(10)
(15)
2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E
ASE SPIL

ASE: PBR vs. ROE SPIL: PBR vs. ROE
(%) (x) (%) (x)
25 3.5 40 4.0
20 3.0 30 3.5
15 3.0
2.5 20
10
2.5
5 2.0 10
2.0
0 1.5 0
1.5
(5)
1.0 (10) 1.0
(10)
(15) 0.5 (20) 0.5
(20) 0.0 (30) 0.0
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
ROE (LHS) PBR (RHS) ROE (LHS) PBR (RHS)
Valuation
Based on our valuation Our foundry analyst, Pranab Kumar Sarmah, forecasts foundry-industry sales to
scenarios, we believe increase by 18% YoY for 2010. We expect sales for the OSAT industry to rise in
there is limited downside line with those for the foundry industry and expect ASE to outperform SPIL in
risk for ASE terms of revenue growth due to the structural changes mentioned earlier in this
report.
We have used different scenarios for 2010 to test the upside and downside risk for
ASE and SPIL. Given a 3% growth rate and an 8% cost of equity (risk-free rate of
3.6%, beta of 1.1 and risk premium of 4%), we arrive at a six-month target price of
NT$33.0 for ASE based on our FY10 sales-growth forecast of 21% YoY. Should
ASE’s FY10 sales increase by 16% YoY (equal to our forecast of SPIL’s annual
sales growth for FY10) and all other things being equal (growth rate of 3% and a
cost of equity of 8%), ASE’s fair value would drop to NT$27.0, similar to the 5
November closing share price of NT$27.35. Under the bear-case scenario (ASE’s
FY10 revenue increases by only 10% YoY), ASE’s fair value would fall to
NT$22.0, 19% lower than the 5 November closing share price.
However, after backward testing, we think the downside risk for ASE’s share price
is limited as investors usually assign a higher growth rate to ASE than to SPIL
when the cycle bottoms out (probably given ASE’s higher operating leverage and
higher exposure to IDM customers). For example, with an expectation of a 4%
long-term growth rate and a 16% YoY rise in sales for FY10 (in line with that for
SPIL), NT$30.0 would still be a reasonable price for ASE, in our view, implying
10% upside potential from the current share-price level.
On the other hand, based on our forecast of a 16% YoY rise in SPIL’s FY10
revenue, we have a six-month target price of NT$47.0, based on a 3% growth rate
and an 8% cost of equity. Under a bear-case scenario (SPIL’s FY10 revenue rises
by only 10% YoY), SPIL’s fair value would fall to NT$38.0, 12% lower than its
current share price if we keep the other parameters unchanged. However, its upside
potential is not as significant as that of ASE, given what we see as its less-positive
revenue-growth outlook and lower operating leverage.
The major risk to our target prices for ASE and SPIL is a worse-than-expected
2010 macro environment, which we believe would lead to a slowdown in order
outsourcing from IDM customers and make SPIL’s lower-operating-leverage
business model more attractive.

ASE target price: based on ROE-adjusted PBR under different scenarios
2010 sales YoY 10 16 21 26
ROE
11.3 13.1 15.4 18.2
g
2% 21 25 30 36
3% 22 27 33 41
4% 24 30 38 47
Source: Daiwa forecasts
SPIL target price: based on ROE-adjusted PBR under different scenarios

2010 sales YoY 10 16 20 25
ROE
12.1 14.2 15.8 18.9
g
2% 35 43 48 59
3% 38 47 54 67
4% 42 53 61 77
Backward testing indicates investors expect a higher earnings-growth rate for

ASE during an upcycle
Backward testing We can achieve a target PBR through an ROE-adjusted PBR valuation. By contrast,
indicates investors we can also achieve the implied earnings-growth rate for investors based on the
expect a higher quarterly average PBR, the quarterly ROE (annualised) and the cost of equity. (We
earnings-growth rate derive the cost of equity on the basis of the US Treasury bill rate [risk free rate],
for ASE in an upcycle beta, and a risk premium of 4%).
From 4Q03-3Q04 (the share prices of ASE and SPIL increased from 1Q03-1Q04,
but we could not determine the implied growth rate for 1Q03-3Q03 as the ROE
was lower than the required rate of return), ASE’s implied revenue-growth rate was
in the range of 5-8%, while SPIL’s implied revenue-growth rate was 2-3%. In the
4Q06-3Q07 upcycle, ASE’s implied revenue-growth rate was in the range of 2-8%,
while SPIL’s ranged only from 1-3%.
We conclude that in upcycle periods, investors assign a higher earnings-growth rate

to ASE than for SPIL.

The market’s implied growth rate in the past: ASE vs. SPIL
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q06 1Q07 2Q07 3Q07
ASE
ROE (annualised) (%) n.m. 2.8 4.3 15.6 11.4 13.6 13.1 14.2 8.7 13.6 20.5
Period PBR (x)

Max PBR (x) 1.8 1.8 2.2 2.8 3.2 3.0 2.5 2.3 2.6 3.0 3.4
Min PBR (x) 1.3 1.4 1.7 2.1 2.8 1.8 1.9 1.9 2.2 2.5 2.1
Average PBR (x) 1.6 1.6 2.0 2.5 3.0 2.4 2.2 2.1 2.4 2.7 2.7
Assumptions
Cost of equity (%) 9.2 8.9 9.5 9.4 9.1 9.8 9.2 10.8 10.5 9.6 8.9
Risk-free rate (%) 3.9 3.6 4.2 4.3 4.0 4.6 4.3 4.6 4.7 4.8 4.7
Beta (x) 1.3 1.3 1.3 1.3 1.3 1.3 1.2 1.5 1.5 1.2 1.0
Risk premium (%) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
Implied growth rate (%) n.m. n.m. n.m. 5 8 7 6 8 n.m. 7 2
SPIL
ROE (annualised) (%) (4.6) 9.5 15.7 18.6 17.8 18.1 13.1 24.6 22.2 24.0 30.3
Period PBR (x)

Max PBR (x) 1.2 1.4 1.9 2.3 2.6 2.3 1.6 2.3 3.0 3.6 3.8
Min PBR (x) 1.0 1.0 1.5 1.7 1.9 1.3 1.2 1.7 2.1 2.8 2.8
Average PBR (x) 1.1 1.2 1.7 2.0 2.3 1.8 1.4 2.0 2.6 3.2 3.3
Assumptions
Cost of equity (%) 8.1 8.6 10.5 9.4 8.5 9.4 10.5 9.8 9.9 9.8 9.9
Risk-free rate (%) 3.9 3.6 4.2 4.3 4.0 4.6 4.3 4.6 4.7 4.8 4.7
Beta (x) 1.0 1.2 1.6 1.3 1.1 1.2 1.5 1.3 1.3 1.3 1.3
Risk premium (%) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
Implied growth rate (%) n.a. 3 3 2 2 2 3 1 2 3 1
Source: Daiwa

Advanced 6-mth rating: 4 →2
Semiconductor Target price: NT$33.00 (+20.7)

Share price: NT$27.35 (5 Nov)
Engineering (2311 TT) Aaron Jeng, CFA

(886) 2 8780 1469
aaron.jeng@daiwasmbc-cathay.com.tw
Electronics: Taiwan
Structural improvement in 2010

Rating upgraded to 2 Reuters code 2311.TW
We have upgraded our rating for ASE to 2 (Outperform) from 4 Market data
TWSE Index 7,417.46
(Underperform), and raised our six-month target price from Market cap (US$bn) 4.61
EV (US$bn; 09E) 6.0
NT$21 to NT$33, now based on a target PBR of 2.4x on our 3-mth avg daily T/O (US$m) 21.43
Shares outstanding (m) 5,480
FY10 BVPS forecast, given our view that the company will see Free float (%) 70.0
structural improvements in 2010. Major shareholder ASE Enterprises (16.7%)
Exchange rate NT$/US$ 32.546
Performance (%)* 1M 3M 6M
Use of copper wire could lead to market-share gains Absolute 4.4 20.5 37.1
Relative 4.7 11.2 17.9
ASE’s focus on copper wire started to bear fruit from the middle Source: Daiwa
Note: *Relative to TWSE Index
of 2009. At the end of 3Q FY09, ASE’s copper-wire process had
been qualified by about 100 customers, and mass production has Investment indicators
2009E 2010E 2011E
started for more than 30 customers, including some of ASE’s PER (x) 25.3 13.7 12.6
PCFR (x) 9.1 4.9 4.9
top-10 customers in terms of revenue. ASE expects copper wire EV/EBITDA (x) 7.5 6.0 5.7
to account for 8% of its 4Q FY09 wirebonding revenue, which PBR (x) 2.2 2.0 1.8
Dividend yield (%) 2.3 2.8 5.1
would be a remarkable number, in our view. ROE (%) 8.8 15.4 15.0
ROA (%) 4.1 7.6 7.8
Net debt equity (%) 64.0 44.4 34.2
Operating leverage and IDM outsourcing in an upcycle
We believe ASE will outperform SPIL (in terms of share-price Price and relative performance
performance) during the upcycle, since ASE has higher
operating leverage. In addition, increased outsourcing by IDM
customers over the next few quarters would benefit the
company, in our opinion. We believe it would also be less
sensitive to gold-price hikes than SPIL, especially after its
aggressive investments in copper wire. Source: Bloomberg, Daiwa
Income summary
Revenue EBITDA Net profit EPS CFPS DPS
Year to 31 Dec (NT$m) (%) (NT$m) (%) (NT$m) (%) (NT$) (%) (NT$) (NT$)
2007 101,164 0.7 36,037 3.2 12,164 (33.5) 2.590 (5.4) 5.260 1.500
2008 94,431 (6.7) 29,044 (19.4) 6,331 (47.9) 1.141 (55.9) 5.571 1.700
2009E 85,027 (10.0) 26,004 (10.5) 6,203 (2.0) 1.079 (5.4) 2.993 0.628
2010E 102,595 20.7 32,459 24.8 11,486 85.2 1.998 85.2 5.558 0.777
2011E 109,711 6.9 34,684 6.9 12,439 8.3 2.164 8.3 5.570 1.399
Note: The investment indicators and income summary on the front page of this report, as well as the back-page financial summary, are all based on the forex assumptions set out in the table at
the back of this report, unless stated otherwise.

Rating upgraded to 2 from 4
We have upgraded our We have upgraded our rating for ASE to 2 from 4, and raised our six-month target
rating for ASE to 2 from price from NT$21 to NT$33, now based on a target PBR of 2.4x on our FY10
4 and raised our six- BVPS forecast (versus a post-2006 trading range of 0.8-3.4x), from a target PBR of
month target price to 1.4x on our FY09 BVPS forecast previously, as we have revised up our 2010 ROE
NT$33 from NT$21 forecast to 15.4% from 10% to reflect our expectations of improvements in the
outlook and gross-profit margin for 2010. Our new target PBR is derived from a
long-term earnings-growth-rate forecast of 3%, our 2010 ROE forecast of 15.4%,
and a cost-of-equity assumption of 8.2%.
We expect ASE to continue to outperform (in terms of share-price performance) SPIL

for a number of reasons, including: 1) ASE’s leading position in copper-wire
technology should help it to increase its market share from 4Q FY09 onward, 2) ASE
has higher operating leverage than SPIL, 3) an increase in IDM outsourcing would
benefit ASE more than SPIL, 4) gold-price hikes would hurt SPIL more than ASE, and
5) MediaTek’s transition to a RF-integrated single-chip solution for its mainstream
handset-IC platform in 2010 would hurt SPIL more than ASE. We forecast ASE 2010
sales to increase by 21% YoY. Due to its higher operating leverage than SPIL, we have
revised up our 2010 ROE forecast for ASE to 15.4% from 10%.
Beneficiary of having a leading position in copper-wire technology

We believe ASE’s ASE has been focusing quite aggressively on copper-wire technology, and started
aggressive focus on R&D work in the area quite some time ago. Since last year, ASE has persuaded
copper wire would around 100 customers to undertake qualification of its copper-wire technology. We
help it to gain market estimate ASE has invested US$75m (30% of 2009 capex) in copper wire (including
share in 2010 procuring new copper-wire bonders and upgrading existing gold wirebonders) The
company targets to install 1,000 sets of copper wirebonders by the end of this year,
and plans to purchase 2,000 copper wirebonders next year.
ASE’s efforts started to bear fruit from the middle of 2009. ASE offers a 15% price
discount to customers if they opt for copper rather than gold wire. At the end of 3Q
FY09, ASE’s copper-wire process had been qualified by about 100 customers, and
mass production has started for more than 30 customers, including some of ASE’s top-
10 customers in terms of revenue. ASE expects copper wire to account for 8% of its
wirebonding revenue for 4Q FY09, which would be a remarkable number, in our view.
In addition, we expect ASE’s leading position in copper-wire technology (ASE

indicates that it has a six-month lead over its competitors, and it can now provide
copper-wire solutions for BGAs with more than 700 wires, while SPIL can only
support no more than 200 wires) to lead to its market share improving in 2010
before its competitors’ copper-wire solutions become competitive.
Operating leverage and IDM outsourcing stories during the upcycle

Operating leverage and ASE has a higher proportion of fixed costs as a percentage of total costs (we
IDM outsourcing story estimate 31% for ASE) than SPIL, indicating that, during an upturn, ASE’s gross-
provide stronger revenue profit margin would improve faster. Besides, ASE’s testing business accounts for
growth catalysts for ASE around 20% of its total revenue. No material costs are incurred for testing, and thus
testing results in higher margins. For 3Q FY09, ASE derived 18% of its revenue
from testing, and its gross-profit margin of 35.2% for this segment was much
higher than its overall gross-profit margin of 25.2%. Once fully-loaded, we believe
that the gross-profit margin for testing could exceed 40%.
When demand recovers and sales for the semiconductor industry bottom out, IDM
customers usually resume their outsourcing strategies, especially after closing
down their factories during a downturn. We expect more outsourcing orders to
materialise in the future from other IDMs, such as NEC, STM, Fujitsu and
Numonyx. We believe ASE’s IDM portion of sales bottomed out in 2Q FY09 at
30%, and that its greater exposure to IDM sales will result in it recording stronger
revenue growth than its peers during the next upturn.

ASE expects flat 4Q FY09 revenue with a flat gross-profit margin
ASE expects its 4Q FY09 sales to be flat to up slightly, and the gross-profit margin
to stay at the 3Q FY09 level with room to rise (even based on the assumption of a
higher gold price). We think the company’s sales guidance is in line with the
market consensus, but that its margin guidance is higher. The company emphasised
that its efforts to come up with a low-cost solution, including copper wire, would
help to offset the impact of rising gold prices.
ASE raised its capex guidance for 2009 again to US$300m (from US$200m
announced at the 2Q results conference). The additional amount will be spent on
low-cost solutions, such as copper wirebonding and bumping fan out. ASE expects
its 2010 capex to be around US$400-500m. The company had 500 sets of copper
wirebonders at the end of 3Q FY09 and expects to add a further 500 sets and 2,000
sets in 4Q FY09 and 2010, respectively (even more aggressive than it was three
months ago).
Earnings-forecast revisions
We have revised up our We have revised up our FY09, FY10, and FY11 EPS forecasts by 33.4%, 41.5%
FY09, FY10, and FY11 and 13.3%, respectively, mainly to factor in our more positive demand assumption
EPS forecasts for electronic products and ASE’s structural improvement.
ASE: Daiwa earnings-forecast revisions (NT$m)

FY09E FY10E FY11E
Previous New Change (%) Previous New Change (%) Previous New Change (%)
Sales 81,009 85,027 5.0 90,492 102,595 13.4 101,165 109,711 8.4
Gross profit 16,361 18,018 10.1 21,043 26,294 25.0 25,252 28,195 11.7
Operating income 7,697 9,123 18.5 11,688 16,712 43.0 15,276 18,098 18.5
Pre-tax income 6,706 8,295 23.7 10,734 15,953 48.6 14,518 17,277 19.0
Net profit 4,409 6,203 40.7 7,729 11,486 48.6 10,453 12,439 19.0
EPS (NT$) 0.81 1.08 33.4 1.41 2.00 41.5 1.91 2.16 13.3
Valuation and risks

ASE is trading currently ASE is trading currently at a PBR of 2.0x on our FY10 BVPS forecast, which is
at a PBR of 2.0x on our around the mid point of its post-2006 PBR range of 0.8-3.4x.
FY10 BVPS forecast
We see the main downside risk for the stock as a worse-than-expected 2010 macro
outlook, which could lead to a slowdown in outsourcing from IDM customers. In
addition, if the price of gold were to fall significantly, we believe ASE’s copper-
wire solution would become less attractive.
ASE: PER bands ASE: PBR bands
50 32x 50
28x
3.5x
40 24x 40
3.0x
20x
30 30 2.5x
16x
2.0x
20 12x 20
1.5x
8x 1.0x
10 10
0.5x
0 0
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Source: Bloomberg, Daiwa forecasts Source: Bloomberg, Daiwa forecasts

ASE: quarterly financial breakdown
1Q FY09 2Q FY09 3Q FY09E 4Q FY09E 1Q FY10E 2Q FY10E 3Q FY10E 4Q FY10E FY08 FY09E FY10E FY11E
GAAP (NT$m)
Net sales 13,397 20,881 25,205 25,544 22,977 25,301 28,372 25,944 94,431 85,027 102,595 109,711
COGS 12,739 16,357 18,848 19,065 17,768 18,819 20,252 19,462 71,902 67,009 76,300 81,516
Gross profit 658 4,524 6,357 6,479 5,209 6,483 8,121 6,482 22,529 18,018 26,294 28,195
SG&A 1,319 1,203 1,595 1,609 1,422 1,554 1,669 1,537 6,853 5,726 6,182 6,178
R&D expenses 750 825 795 800 850 850 850 850 3,877 3,170 3,400 3,920
Operating income (1,411) 2,496 3,967 4,070 2,938 4,079 5,602 4,094 11,800 9,123 16,712 18,098
Net non-operating income (235) (290) (110) (192) (218) (189) (177) (176) (2,152) (828) (760) (821)
Pre-tax income (1,646) 2,206 3,857 3,878 2,720 3,890 5,425 3,918 9,647 8,295 15,953 17,277
Tax expenses (50) 559 558 659 544 778 1,085 784 2,268 1,726 3,191 3,455
Minority interests (29) (27) 112 310 218 311 434 313 1,047 365 1,276 1,382
Net income (1,567) 1,674 3,187 2,908 1,958 2,801 3,906 2,821 6,331 6,203 11,486 12,439
EPS (NT$) (0.27) 0.29 0.55 0.51 0.34 0.49 0.68 0.49 1.14 1.08 2.00 2.16
Profitability (%)
GAAP
Gross-profit margin 4.9 21.7 25.2 25.4 22.7 25.6 28.6 25.0 23.9 21.2 25.6 25.7
Operating-profit margin (10.5) 12.0 15.7 15.9 12.8 16.1 19.7 15.8 12.5 10.7 16.3 16.5
PBT margin (12.3) 10.6 15.3 15.2 11.8 15.4 19.1 15.1 10.2 9.8 15.5 15.7
Net-profit margin (11.7) 8.0 12.6 11.4 8.5 11.1 13.8 10.9 6.7 7.3 11.2 11.3
YoY (%)
GAAP
Sales (46) (18) (2) 39 72 21 13 2 (7) (10) 21 7
Gross profit (89) (32) (4) 102 691 43 28 0 (23) (20) 46 7
Operating profit n.m. (32) 2 321 n.m. 63 41 1 (39) (23) 83 8
Net profit n.m.) (31) 44 n.m. n.m. 67 23 (3) (48) (2) 85 8
QoQ (%)
GAAP
Sales (27) 56 21 1 (10) 10 12 (9)
Gross profit (79) 587 41 2 (20) 24 25 (20)
Operating income n.m. n.m. 59 3 (28) 39 37 (27)
Net income 149 n.m. 90 (9) (33) 43 39 (28)

Company background
Advanced Semiconductor Engineering is the world’s largest semiconductor-assembly and testing company, with an estimated 15%
share of the sales in the outsourced assembly and test sector worldwide for 2007. The company has been expanding aggressively
through both organic and non-organic means.
Advanced Semiconductor Engineering – financial summary

Profit and loss (NT$m) Balance sheet (NT$m)
Year to 31 Dec 2007 2008E 2009E 2010E 2011E Year to 31 Dec 2007 2008E 2009E 2010E 2011E
Sales 101,164 94,431 85,027 102,595 109,711 Total assets 152,377 152,190 147,604 155,998 162,679
Assembly 78,517 73,392 67,120 81,751 88,654 Current assets 56,902 46,367 48,849 57,074 64,284
Testing 20,061 19,022 15,861 18,894 19,207 Cash & equivalent 17,158 26,139 16,759 24,365 28,502
Others 2,586 2,017 2,046 1,950 1,850 Short-term investment 11,058 1,267 8,391 8,391 8,391
Cost of goods sold 71,960 71,902 67,009 76,300 81,516 Inventories 5,597 4,992 4,689 4,752 5,278
Gross profit 29,204 22,529 18,018 26,294 28,195 Accounts receivable 19,684 12,007 16,659 16,920 19,135
Operating expenses 9,793 10,730 8,896 9,582 10,098 Others 3,405 1,962 2,351 2,646 2,978
Operating profit 19,411 11,800 9,123 16,712 18,098 Non-current assets 95,475 105,823 98,754 98,924 98,395
Net other non-op. income (2,060) (2,152) (828) (760) (821) Long-term investments 4,850 4,327 4,679 4,869 5,067
Pre-tax income 17,351 9,647 8,295 15,953 17,277 Net fixed assets 81,788 84,758 78,742 79,346 79,159
Tax currently payable 3,359 2,268 1,726 3,191 3,455 Others 8,837 16,738 15,333 14,709 14,169
Minority interest deduction/(add) 1,828 1,047 365 1,276 1,382 Total liabilities 62,638 80,229 77,978 76,488 75,873
Net profit 12,164 6,331 6,203 11,486 12,439 Current liabilities 35,751 25,271 23,399 24,536 26,357
EBITDA 36,037 29,044 26,004 32,459 34,684 Accounts payable 13,437 5,167 6,152 6,234 6,924
EPS(NT$) 2.59 1.14 1.08 2.00 2.16 Short-term debt 8,922 8,779 8,046 8,373 8,713
Others 13,392 11,324 9,201 9,929 10,720
Long-term liabilities 26,887 54,959 54,579 51,952 49,516
Cash flow (NT$m)
Shareholders' equity 89,740 71,961 69,626 79,510 86,805
Year to 31 Dec 2007 2008E 2009E 2010E 2011E
Operating cash flow 28,754 30,900 16,605 31,945 32,013
Net profit plus MI 13,992 7,379 6,568 12,762 13,822 Ratios
Depreciation & amortisation 16,626 17,245 16,881 15,747 16,586 Year to 31 Dec 2007 2008E 2009E 2010E 2011E
Change in working capital (6,144) 5,461 (2,351) (344) (2,161) Change (%YoY)
Others 4,279 815 (4,493) 3,779 3,767 Sales 0.7 (6.7) (10.0) 20.7 6.9
Investment cash flow (18,108) (36,359) (19,026) (16,857) (16,892) Operating profit (5.1) (39.2) (22.7) 83.2 8.3
Net capex (17,190) (18,396) (10,901) (16,345) (16,345) EBITDA 3.2 (19.4) (10.5) 24.8 6.9
Change in LT investment 102 (17,937) (7,836) (190) (198) Net profit (33.5) (47.9) (2.0) 85.2 8.3
Change in other assets (1,020) (26) (290) (322) (349) EPS (5.4) (55.9) (5.4) 85.2 8.3
Free cash flow 10,645 (5,459) (2,421) 15,087 15,122 Profitability (%)
Financing cash flow (8,493) 13,862 (6,266) (6,288) (9,792) Net income/sales 12.0 6.7 7.3 11.2 11.3
Inc. of borrowing 4,105 23,334 (1,390) (1,616) (1,520) Net income/total assets (ROA) 8.4 4.2 4.1 7.6 7.8
Expenses of employee bonus and dir. 189 (358) (353) (206) (232) Net income/total net worth (ROE) 14.6 7.8 8.8 15.4 15.0
Cash dividend (6,669) (8,827) (3,482) (4,466) (8,040) Operating profit/sales 19.2 12.5 10.7 16.3 16.5
Others (including TRG shares) (6,117) (286) (1,041) 0 0 Effective income-tax rate 19.4 23.5 20.8 20.0 20.0
FX adjustment (725) 578 (692) (1,193) (1,193) Stability
Net cash flow 1,428 8,981 (9,380) 7,606 4,137 Gross debt/equity (%) 26.67 71.19 73.70 61.99 60.05
Current ratio 1.59 1.83 2.09 2.33 2.44
Quick ratio 1.44 1.64 1.89 2.13 2.24
Per-share data (NT$)
EPS 2.59 1.14 1.08 2.00 2.16
CFPS 5.26 5.57 2.99 5.56 5.57
BVPS 16.42 12.97 12.55 13.83 15.10
Activity
Asset turnover (x) 0.70 0.62 0.57 0.68 0.69
Receivables (days) 71.02 46.41 71.51 60.20 63.66
Inventory (days) 28.39 25.34 25.54 22.73 23.63
Payables (days) 68.16 26.23 33.51 29.82 31.00
Cash cycle (days) 31.25 45.52 63.55 53.11 56.29

Siliconware Precision 6-mth rating: 3
(2325 TT) Target price: NT$47.0 (+9.3 %)
Share price: NT$43.0 (5 Nov)
Electronics: Taiwan
Aaron Jeng, CFA
(886) 2 8780 1469
aaron.jeng@daiwasmbc-cathay.com.tw
Suffering from the trend toward copper wire and MediaTek’s single chip
Suffering from MediaTek’s migration to a single-chip Reuters code 2325.TW
solution Market data

TWSE Index 7,417.46
We expect MediaTek’s upcoming single-chip solution to result Market cap (US$bn) 4.12
EV (US$bn; 09E) 3.6
in about a 40% back-end cost saving. In other words, all other 3-mth avg daily T/O (US$m) 17.91
Shares outstanding (m) 3,116
things being equal, we estimate MediaTek’s contribution to Free float (%) 80.0
back-end companies’ sales would decline by 20% after Major shareholder Siliconware Investment
(10.0%)
completion of the transition to the MT6253 from the MT6225 Exchange rate NT$/US$ 32.546
(ie, the MT6225 accounts for 60-70% of MediaTek’s total Performance (%)* 1M 3M 6M
Absolute (2.3) 3.4 (5.0)
handset shipments and the handset business unit accounts for 70- Relative (2.0) (4.6) (18.3)
80% of its total sales currently). Given that MediaTek is SPIL’s Source: Daiwa
Note: *Relative to TWSE Index
largest customer, accounting for about 15% of the latter’s sales,
Investment indicators
we expect SPIL to suffer as a result of this product transition. 2009E 2010E 2011E
PER (x) 16.4 14.5 11.8
PCFR (x) 9.2 7.0 7.0
A laggard in copper wire technology EV/EBITDA (x) 7.1 6.0 5.3
PBR (x) 2.1 2.0 1.8
We believe that rapid adoption of copper-wire technology would Dividend yield (%) 4.2 4.5 5.5
ROE (%) 13.4 14.2 15.8
hurt SPIL, as we estimate that the throughput rate for SPIL’s ROA (%) 11.0 11.7 13.1
Net debt equity (%) Net cash Net cash Net cash
copper wire of around only 75% is much worse than ASE’s Source: Daiwa forecasts
95%. In our view, SPIL’s low throughput rate for copper wire
would force the company to choose between maintaining its Price and relative performance
market share or gross margin/ROE.
3 (Hold) rating maintained

We maintain our 3 rating, but have lowered our six-month target
price to NT$47 from NT$48, now based on a target PBR of 2.2x
Source: Bloomberg, Daiwa
on our 2010 BVPS forecast. We think SPIL will continue to
underperform ASE (in terms of share-price performance) in
2010 due to its less significant structural improvement than
ASE.
Income summary
Revenue EBITDA Net profit EPS CFPS DPS
Year to 31 Dec (NT$m) (%) (NT$m) (%) (NT$m) (%) (NT$) (%) (NT$) (NT$)
2007 64,622 14.7 23,888 22.9 17,489 31.2 5.910 13.2 7.779 3.350
2008 60,474 (6.4) 17,879 (25.2) 6,314 (63.9) 2.003 (66.1) 6.890 4.500
2009E 56,635 (6.3) 16,497 (7.7) 8,271 31.0 2.624 31.0 4.667 1.800
2010E 65,554 15.7 19,405 17.6 9,368 13.3 2.971 13.3 6.169 1.947
2011E 70,560 7.6 21,809 12.4 11,482 22.6 3.642 22.6 6.166 2.347
Note: The investment indicators and income summary on the front page of this report, as well as the back-page financial summary, are all based on the forex assumptions set out in the table at
the back of this report, unless stated otherwise.

Structurally weaker than ASE during the upturn
3 rating maintained, but six-month target price lowered to NT$47
We maintain our 3 We maintain our 3 rating, but have lowered our six-month target price to NT$47
rating, but have lowered from NT$48, now based on a new target PBR of 2.2x on our new 2010 BVPS
our six-month target forecast, from a target PBR of 2.3x on our 2009 BVPS forecast previously. Our
price to NT$47 from target PBR is supported by a long-term earnings-growth-rate forecast of 3%, our
NT$48 2010 ROE forecast of 14.2%, and a cost-of-equity assumption of 8%. Our target
PBR of 2.2x is also near the mid point of the post-2006 range of 1.3-3.3x.
We expect SPIL to underperform (in terms of share-price performance) ASE in

2010, given what we see as the structural negatives mentioned earlier. However,
we maintain our 3 rating, as we regard the stock’s valuation as undemanding.
Suffering from MediaTek’s migration to a single-chip solution

SPIL would suffer more MediaTek’s first RF-integrated single-chip solution, the MT6253, is scheduled to
from MediaTek’s begin mass production at the end of 4Q FY09. The MT6253 integrates four of the
migration to a single- chips used in the current MT6225 platform (the baseband MT6225, the RF MT6139,
chip solution, in our the MT6138 power-management IC, and the MT6302 dual-SIM-card switch). Our
view cost analysis indicates that there are no savings in wafer costs from adopting the
MT6253 (compared with the MT6225) due to the foundry companies’ aggressive
price cuts on the MT6225 wafers.
However, on the IC back-end side, we expect the transition to result in about a 40%
cost saving for MediaTek. In other words, all other things being equal, we estimate
MediaTek’s contribution to back-end companies’ sales would decline by 20% after
completion of the transition to the MT6253 from the MT6225 (ie, the MT6225
accounts for 60-70% of MediaTek’s total handset shipments and the handset
business unit accounts for its 70-80% of total sales currently). Given that
MediaTek is SPIL’s largest customer, accounting for about 15% of the latter’s
sales, we expect SPIL to suffer as a result of this product transition, and for it to
lose about 2-3% sales after the transition to a single-chip solution is completed.
A laggard in copper-wire technology

Lag in copper wire SPIL was reluctant to invest in copper wire in the past, but has turned more
technology might erode aggressive since 3Q FY09 due to cost-saving pressure from its big customers (ie,
SPIL’s margin MediaTek, in our opinion). SPIL targets to have 200 sets of copper wire bonders by
the end of 2009, and plans to purchase 200-300 sets per quarter next year.
In our view, rapid adoption of copper-wire technology would hurt SPIL, as we

estimate that the throughput rate for SPIL’s copper wire of around only 75% is
much worse than ASE’s 95%. In our view, SPIL’s low throughput rate for copper
wire would force the company to choose between maintaining its market share or
gross margin/ROE.
Relatively limited benefit from IDM outsourcing

Low exposure to IDM SPIL has relatively limited exposure to IDM customers. IDM customers have not
customers would be been SPIL’s focus either. However, looking ahead to 2010, our supply-chain
of limited benefit to survey indicates that one of SPIL’s main graphics customers could start to
SPIL, in our view outsource its back-end orders for another product line – CPUs. Nevertheless, we
expect volume to be limited during the initial stage.
Earnings-forecast revisions
We have revised up our We have revised up our FY09, FY10, and FY11 EPS forecasts by 39.6%, 10.4%
FY09, FY10, and FY11 and 4.8%, respectively, mainly to factor in our more positive demand assumption
EPS forecasts for electronic products.

ASE: Daiwa earnings-forecast revisions (NT$m)
FY09E FY10E FY11E
Previous New Change (%) Previous New Change (%) Previous New Change (%)
Sales 52,341 56,635 8.2 56,962 65,554 15.1 62,785 70,560 12.4
Gross profit 9,809 11,253 14.7 12,003 14,542 21.1 15,143 17,198 13.6
Operating income 6,923 8,170 18.0 8,657 11,031 27.4 11,506 13,399 16.5
Pre-tax income 7,256 10,104 39.2 10,160 11,424 12.4 13,127 14,175 8.0
Net profit 5,925 8,271 39.6 8,483 9,368 10.4 10,961 11,482 4.8
EPS (NT$) 1.88 2.62 39.6 2.69 2.97 10.4 3.48 3.64 4.8
Valuation and risks

SPIL is trading SPIL is trading currently at a PBR of 2.0x on our FY10 BVPS forecast, which is
currently at a PBR of around the mid point of its post-2006 PBR range of 1.3-3.3x.
2.0x on our FY10 BVPS
forecast We see the main upside risks to our rating and forecasts as falling gold prices,
more-than-expected outsourcing orders from IDM customers, and faster-than-
expected progress by its competitors in copper-wire technology. We see the main
downside risks as a worse-than-expected 2010 macro outlook and higher gold
prices.
SPIL: PER bands SPIL: PBR bands

30x 80
80 3.5x
26x
3.0x
22x 60
60
2.5x
17x
2.0x
40 12x 40
1.5x
8x
20 1.0x
20
5x
0.5x
0 0
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Source: Bloomberg, Daiwa forecasts Source: Bloomberg, Daiwa forecasts

SPIL: quarterly financial forecasts
1Q FY09 2Q FY09 3Q FY09E 4Q FY09E 1Q FY10E 2Q FY10E 3Q FY10E 4Q FY10E FY08 FY09E FY10E FY11E
GAAP (NT$m)
Net sales 9,203 14,137 16,732 16,562 14,932 16,933 17,634 16,055 60,474 56,635 65,554 70,560
COGS 8,325 11,210 12,856 12,992 11,824 13,010 13,499 12,679 47,686 45,382 51,012 53,362
Gross profit 879 2,927 3,877 3,571 3,107 3,924 4,135 3,376 12,789 11,253 14,542 17,198
SG&A 452 434 486 489 502 520 520 509 2,533 1,860 2,051 2,239
R&D expenses 237 294 343 350 360 370 380 350 1,383 1,224 1,460 1,560
Operating income 190 2,200 3,048 2,732 2,246 3,034 3,234 2,517 8,873 8,170 11,031 13,399
Net non-operating income 127 (49) 57 1,799 90 102 106 96 (2,364) 1,934 393 776
Pre-tax income 317 2,150 3,105 4,531 2,335 3,135 3,340 2,613 6,509 10,104 11,424 14,175
Tax expenses 55 486 544 748 420 564 601 470 196 1,833 2,056 2,693
Net income 262 1,664 2,561 3,784 1,915 2,571 2,739 2,143 6,314 8,271 9,368 11,482
EPS (NT$) 0.08 0.53 0.81 1.20 0.61 0.82 0.87 0.68 2.00 2.62 2.97 3.64
Profitability (%)
GAAP
Gross-profit margin 9.5 20.7 23.2 21.6 20.8 23.2 23.4 21.0 21.1 19.9 22.2 24.4
Operating-profit margin 2.1 15.6 18.2 16.5 15.0 17.9 18.3 15.7 14.7 14.4 16.8 19.0
PBT margin 3.4 15.2 18.6 27.4 15.6 18.5 18.9 16.3 10.8 17.8 17.4 20.1
Net-profit margin 2.8 11.8 15.3 22.8 12.8 15.2 15.5 13.3 10.4 14.6 14.3 16.3
YoY (%)
GAAP
Sales (38) (11) (3) 33 62 20 5 (3) (6) (6) 16 8
Gross profit (72) (10) (4) 49 254 34 7 (5) (33) (12) 29 18
Operating profit (91) (7) (1) 123 n.m. 38 6 (8) (44) (8) 35 21
Net profit (85) (31) (20) n.m. 632 54 7 (43) (64) 31 13 23
QoQ (%)
GAAP
Sales (26) 54 18 (1) (10) 13 4 (9)
Gross profit (63) 233 32 (8) (13) 26 5 (18)
Operating income (84) n.m. 39 (10) (18) 35 7 (22)
Net income n.m. 536 54 48 (49) 34 7 (22)

Company background
SPIL is one of the world’s leading providers of advanced semiconductor assembly and testing services. Founded in 1984, it has
become a strategic manufacturing partner for IC-design houses, integrated device manufacturers and wafer foundries globally,
providing a broad array of package-design, assembly and testing solutions, and also established a reputation for high-quality products
and services.
Siliconware Precision – financial summary

Profit and loss (NT$m) Balance sheet (NT$m)
Year to 31 Dec 2007 2008 2009E 2010E 2011E As at 31 Dec 2007 2008 2009E 2010E 2011E
Sales 64,622 60,474 56,635 65,554 70,560 Total assets 84,309 72,311 77,815 82,411 92,457
Assembly 58,742 54,856 52,023 59,684 64,727 Current assets 37,801 28,477 35,151 37,730 45,779
Testing 5,880 5,619 4,612 5,870 5,833 Cash & equivalent 21,129 17,866 19,187 22,202 23,971
Cost of goods sold 45,444 47,686 45,382 51,012 53,362 Short-term investment 0 0 0 0 0
Gross profit 19,179 12,789 11,253 14,542 17,198 Inventories 3,243 2,193 2,416 2,333 2,486
Operating expense 3,201 3,916 3,084 3,511 3,799 Accounts receivable 10,917 6,838 11,499 11,147 12,272
Operating profit 15,978 8,873 8,170 11,031 13,399 Others 2,512 1,580 2,049 2,049 7,049
Net other non-op. income 3,602 (2,364) 1,934 393 776 Non-current assets 46,508 43,833 42,664 44,680 46,678
Pre-tax income 19,580 6,509 10,104 11,424 14,175 Long-term investments 8,825 5,013 7,028 7,313 7,610
Tax currently payable 2,090 196 1,833 2,056 2,693 Net fixed assets 36,287 35,958 33,927 35,553 37,143
Net profit 17,489 6,314 8,271 9,368 11,482 Others 1,396 2,862 1,709 1,814 1,926
EBITDA 23,888 17,879 16,497 19,405 21,809 Total liabilities 15,401 12,996 13,775 14,147 15,151
EPS (NT$) 5.91 2.00 2.62 2.97 3.64 Current liabilities 12,221 10,582 13,673 14,022 15,069
Accounts payable 8,404 4,690 6,674 6,447 6,869
Short-term debt 0 0 0 0 0
Cash flow (NT$m)
Others 3,817 5,892 6,998 7,575 8,199
Year to 31 Dec 2007 2008 2009E 2010E 2011E
Long-term liabilities 3,179 2,415 102 125 82
Operating cash flow 23,909 21,722 14,712 19,447 19,438
Shareholders' equity 68,908 59,314 64,040 68,264 77,306
Net profit 17,489 6,314 8,271 9,368 11,482
Common stock 30,734 31,526 31,164 31,164 31,164
Depreciation & amortisation 7,910 9,006 8,328 8,374 8,410
Capital reserve 19,999 21,909 22,216 23,155 23,238
Change in working capital (3,135) 7,066 (3,047) 11 (1,562)
Retained earnings 17,761 6,453 8,418 11,423 22,905
Others 1,645 (664) 1,160 1,695 1,108
Others 414 (574) 2,241 2,523 0
Investment cash flow (4,958) (9,812) (5,656) (10,070) (10,036)
Net capex (11,030) (8,942) (5,070) (9,698) (9,698)
Change in long-term investments 6,751 (323) (395) (285) (297) Ratios
Change in other assets (680) (547) (191) (87) (41) Year to 31 Dec 2007 2008 2009E 2010E 2011E
Free cash flow 18,951 11,910 9,056 9,378 9,402 Change (% YoY)
Financing cash flow (11,175) (15,173) (7,735) (6,363) (7,633) Sales 14.7 (6.4) (6.3) 15.7 7.6
Inc. of borrowing (12) 2 (2,997) 0 0 Operating profit 29.6 (44.5) (7.9) 35.0 21.5
Expenses of employee bonus and dir. (848) (1,250) 0 (224) (232) EBITDA 22.9 (25.2) (7.7) 17.6 12.4
Cash dividend (9,974) (13,836) (5,609) (6,139) (7,401) Net profit 31.2 (63.9) 31.0 13.3 22.6
Others (including TRG shares) (342) (88) 872 0 0 EPS 13.2 (66.1) 31.0 13.3 22.6
Net cash flow 7,776 (3,263) 1,321 3,015 1,770 Profitability (%)
Net income/sales 27.1 10.4 14.6 14.3 16.3
Net income/total assets (ROA) 21.6 8.1 11.0 11.7 13.1
Net income/total net worth (ROE) 26.5 9.8 13.4 14.2 15.8
Operating profit/sales 24.7 14.7 14.4 16.8 19.0
Effective income-tax rate 10.7 3.0 18.1 18.0 19.0
Stability
Gross debt/equity (%) 4.61 4.07 0.16 0.18 0.11
Current ratio 3.09 2.69 2.57 2.69 3.04
Quick ratio 2.83 2.48 2.39 2.52 2.87
Per-share data (NT$)
EPS 5.91 2.00 2.62 2.97 3.64
CFPS 7.78 6.89 4.67 6.17 6.17
BVPS 22.42 18.81 20.31 21.65 24.52
Activity
Asset turnover (x) 0.80 0.77 0.75 0.82 0.81
Receivables (days) 61.66 41.27 74.11 62.06 63.48
Inventory (days) 26.05 16.79 19.43 16.70 17.01
Payables (days) 67.50 35.90 53.68 46.13 46.99
Cash cycle (days) 20.21 22.16 39.86 32.63 33.50

Daiwa forex assumptions (vs. US$)
Year end Rmb HK$ W S$ NT$ A$ Rs Rp RM
2007 7.300 7.800 935.8 1.440 32.432 1.143 39.413 9,400 3.310
2008 6.828 7.750 1,259.6 1.430 32.792 1.423 48.803 11,120 3.460
2009E 6.700 7.800 1,200.0 1.440 32.500 1.250 47.000 9,800 3.480
2010E 6.450 7.800 1,160.0 1.420 32.200 1.120 46.100 9,500 3.440
2011E 6.200 7.800 1,100.0 1.400 32.400 1.160 45.500 9,500 3.420
Source: Daiwa

DAIWA’S ASIA PACIFIC RESEARCH DIRECTORY
Hong Kong
Regional Research Head Nagahisa MIYABE (852) 2848 4971 nagahisa.miyabe@daiwasmbc.com.hk
Regional Research Co-head Craig IRVINE (852) 2848 4485 craig.irvine@daiwasmbc.com.hk
Macro Economy (Hong Kong, China) Kevin LAI (852) 2848 4926 kevin.lai@daiwasmbc.com.hk
Strategy (Regional) Mun Hon THAM (852) 2848 4426 munhon.tham@daiwasmbc.com.hk
Banking (Hong Kong), Insurance (China) Steven CHAN (852) 2848 4468 steven.chan@daiwasmbc.com.hk
Consumer/Retail (Hong Kong, China) Peter CHU (852) 2848 4430 peter.chu@daiwasmbc.com.hk
Industrials (Regional) Taiki KAJI (852) 2848 4460 taiki.kaji@daiwasmbc.com.hk
IT/Electronics (Regional, Taiwan, Singapore, Pranab Kumar SARMAH (852) 2848 4441 pranab@daiwasmbc.com.hk
Hong Kong and China) (Regional Head of IT/Electronics)
IT/Electronics (Hong Kong, China) Joseph HO (852) 2848 4443 joseph.ho@daiwasmbc.com.hk
Materials/Energy (Regional) Alexander LATZER (852) 2848 4463 alexander.latzer@daiwasmbc.com.hk
(Regional Head of Materials)
Materials/Energy (China) Jason LI (852) 2848 4499 jason.li@daiwasmbc.com.hk
Oil & Gas (China, Korea) Andrew CHAN (852) 2848 4964 andrew.chan@daiwasmbc.com.hk
Property Developers (Hong Kong) Jonas KAN (852) 2848 4439 jonas.kan@daiwasmbc.com.hk
(Head of Hong Kong Research)
Property Developers (China), Small/Medium Kevin LEUNG (852) 2848 4489 kevin.leung@daiwasmbc.com.hk
Caps (Hong Kong, China)
Telecommunication (Regional, Greater China, Marvin LO (852) 2848 4465 marvin.lo@daiwasmbc.com.hk
Korea and Singapore)
Transportation (Hong Kong, China) Geoffrey CHENG (852) 2848 4024 geoffrey.cheng@daiwasmbc.com.hk
Transportation (Hong Kong, China, Singapore) Kelvin LAU (852) 2848 4467 kelvin.lau@daiwasmbc.com.hk
China – Shanghai
Strategy (Regional) Hirokazu YUIHAMA (Head of Research) (86) 21 5840 1338 h.yuihama@dirsh.com.cn
Automobiles Ricon XIA (86) 21 5879 6833 ricon.xia@dirsh.com.cn
Consumer/Retail Nicolas WANG (86) 21 5840 5653 nicolas.wang@dirsh.com.cn
All Industries Hongxia ZHU (86) 21 5840 1138 hongxia.zhu@dirsh.com.cn
Singapore
Head of Research Tatsuya TORIKOSHI (65) 6321 3050 tatsuya.torikoshi@daiwasmbc.com.sg
Macro Economy (Regional) Prasenjit K BASU (65) 6321 3069 p-k.basu@daiwasmbc.com.sg
(Chief Economist, Asia Ex-Japan)
Banking, Property and REITs (Singapore) David LUM (65) 6329 2102 davidlum@daiwasmbc.com.sg
(Regional Head of Banking/Finance)
Healthcare (Singapore, Hong Kong and China) Soo Kee ANG (65) 6329 2133 sookee@daiwasmbc.com.sg
Conglomerates, Commodities, Energy and Chris SANDA (65) 6321 3085 csanda@daiwasmbc.com.sg
Small/Medium Caps (Singapore)
Taiwan
Head of Research Hirokazu MITSUDA (886) 2 2758 8754 h.mitsuda@daiwasmbc-cathay.com.tw
Consumer/Retail Yoshihiko KAWASHIMA (886) 2 8780 5987 y.kawashima@daiwasmbc-cathay.com.tw
IT/Electronics (IC-design, Semiconductors) Aaron JENG (886) 2 8780 1469 aaron.jeng@daiwasmbc-cathay.com.tw
IT/Technology Hardware Calvin HUANG (886) 2 2758 8805 calvin.huang@daiwasmbc-cathay.com.tw
IT/Technology Hardware (Components) Andrew CHANG (886) 2 8789 5341 andrew.chang@daiwasmbc-cathay.com.tw
IT/Technology Hardware Mitsuharu WATANABE (886) 2 2758 9437 m.watanabe@daiwasmbc-cathay.com.tw
Materials, Small/Medium Caps Albert HSU (886) 2 8786 2212 albert.hsu@daiwasmbc-cathay.com.tw
South Korea
Banking/Finance Chang H LEE (Head of Research) (82) 2 787 9177 chlee@daiwasmbc.co.kr
Automobiles, Shipbuilding, Industrials, Steel Sung Yop CHUNG (82) 2 787 9157 sychung@daiwasmbc.co.kr
Capital goods Mike OH (82) 2 787 9179 mike.oh@daiwasmbc.co.kr
Chemicals Daniel LEE (82) 2 787 9121 daniel.lee@daiwasmbc.co.kr
Consumer/Retail Sang Hee PARK (82) 2 787 9165 sanghee.park@daiwasmbc.co.kr
Industrials Naoki IEIRI (82) 2 787 9184 ieiri@daiwasmbc.co.kr
IT/Electronics Jae H LEE (82) 2 787 9173 jhlee@daiwasmbc.co.kr
IT/Electronics, Software Thomas Y KWON (82) 2 787 9181 yskwon@daiwasmbc.co.kr
Australia
Banking/Insurance Johan VANDERLUGT (61) 3 9916 1335 johan.vanderlugt@daiwasmbc.com.au
Resources/Mining/Petroleum David BRENNAN (61) 3 9916 1323 david.brennan@daiwasmbc.com.au
India
Strategy/Industrials Jaideep GOSWAMI (Head of Research) (91) 22 6622 1010 jaideep.goswami@in.daiwasmbc.com
Banking/Finance Punit SRIVASTAVA (91) 22 6622 1013 punit.srivastava@in.daiwasmbc.com
Materials Vishal CHANDAK (91) 22 6622 1006 vishal.chandak@in.daiwasmbc.com
Oil & Gas Atul RASTOGI (91) 22 6622 1020 atul.rastogi@in.daiwasmbc.com
Pharmaceuticals and Healthcare, Consumer Kartik A. MEHTA (91) 22 6622 1012 kartik.mehta@in.daiwasmbc.com
Software, Telecommunications R. RAVI (91) 22 6622 1014 ravi.r@in.daiwasmbc.com

DAIWA SECURITIES GROUP INC
OFFICE / BRANCH / AFFILIATE ADDRESS TEL FAX
HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, (03) 5555 3111 (03) 5555 0661
Tokyo, 100-6753
Daiwa Securities America Inc Financial Square, 32 Old Slip, New York, NY10005, U.S.A. (1) 212 612 7000 (1) 212 612 7100
Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726
Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129
Daiwa Securities Trust and Banking (Europe) PLC (Dublin Branch) Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469
DAIWA SECURITIES SMBC LIMITED

HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, (03) 5555 3111 (03) 5555 0661
Tokyo, 100-6753
Daiwa Securities SMBC Europe Limited 5 King William Street, London EC4N 7AX, United Kingdom (44) 20 7597 8000 (44) 20 7597 8600
(Daiwa SMBC Europe)
Daiwa Securities SMBC Europe Limited, Frankfurt Branch Trianon Building, Mainzer Landstrasse 16, 60325 Frankfurt am Main, (49) 69 717 080 (49) 69 723 340
(Daiwa SMBC Europe, Frankfurt) Federal Republic of Germany
Daiwa Securities SMBC Europe Limited, Paris Branch 112, Avenue Kléber, 75116 Paris, France (33) 1 56 262 200 (33) 1 47 550 808
(Daiwa SMBC Europe, Paris)
Daiwa Securities SMBC Europe Limited, London, 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland (41) 22 818 7400 (41) 22 818 7441
Geneva Branch (Daiwa SMBC Europe, Geneva)
Daiwa Securities SMBC Europe Limited, Milan Branch Via Senato 14/16, 20121 Milan, Italy (39) 02 763 271 (39) 02 763 27250
(Daiwa SMBC Europe, Milan)
Daiwa Securities SMBC Europe Limited, Sucursal en España Jose Ortega y Gasset 20, 7th floor, Madrid 28006, Spain (34) 91 529 9800 (34) 91 577 5887
(Daiwa SMBC Europe, Spain)
Daiwa Securities SMBC Europe Limited 25/9, build. 1, Per. Sivtsev Vrazhek, Moscow 119002, Russian Federation (7) 495 617 1960 (7) 495 244 1977
Moscow Representative Office
Daiwa Securities SMBC Europe Limited, Middle East Branch 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, (973) 17 534 452 (973) 17 535 113
(Daiwa SMBC Europe, Middle East) Manama, Bahrain
Daiwa Securities SMBC Europe Limited Dubai Branch The Gate village Building 1, 1st floor, Unit-6, DIFC, P.O.Box-506657, (971) 47 090 401 (971) 43 230 332
Dubai, UAE.
Daiwa Securities SMBC Hong Kong Limited Level 26, One Pacific Place, 88 Queensway, Hong Kong (852) 2525 0121 (852) 2845 1621
Daiwa Securities SMBC Singapore Limited 6 Shenton Way #26-08, DBS Building Tower Two, Singapore 068809, (65) 6220 3666 (65) 6223 6198
Republic of Singapore
Daiwa Securities SMBC Australia Limited Level 34, Rialto North Tower, 525 Collins Street, Melbourne, (61) 3 9916 1300 (61) 3 9916 1330
Victoria 3000, Australia
DBP Daiwa Securities SMBC Philippines, Inc 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, (632) 813 7344 (632) 848 0105
Makati City, Republic of the Philippines
Daiwa Securities SMBC-Cathay Co Ltd 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. (886) 2 2723 9698 (886) 2 2345 3638
Daiwa Securities SMBC Co Ltd, Seoul Branch 6th Floor, Hana Daetoo Securities Bldg 27-3, Yeouido-Dong, (82) 2 787 9100 (82) 2 787 9191
Yeongdeungpo-Gu, Seoul, Republic of Korea
Daiwa Securities SMBC Co Ltd, Beijing Office Room 3503/3504, Capital Tower Beijing, (86) 10 6500 6688 (86) 10 6500 3594
No.6 Jia Jianguomen Wai Avenue, Chaoyang District,
Beijing 100022, People’s Republic of China
Daiwa SMBC-SSC Securities Co Ltd, Shanghai Office Room 011, 45F HSBC Tower, 1000 Lujiazui Ring Road, (86) 21 6859 8000 (86) 21 6859 8030
Pudong New Area, Shanghai 200120, People’s Republic of China
Daiwa Securities SMBC Co. Ltd, Bangkok Representative Office Level 8 Zuellig House, 1 Sliom Road, Bangkok 10500, (66) 2 231 8381 (66) 2 231 8121
Thailand
Daiwa Securities SMBC India Private Limited 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, (91) 22 6622 1000 (91) 22 6622 1019
Bandra East, Mumbai – 400051, India
Daiwa Securities SMBC Co. Ltd, Hanoi Office Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, (84) 4 3946 0460 (84) 4 3946 0461
Hoan Kiem Dist. Hanoi, Vietnam
DAIWA INSTITUTE OF RESEARCH LTD

HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603
DIR America Inc 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. (1) 212 612 6100 (1) 212 612 7103, 7104
DIR Europe Ltd 1/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8654
DIR Hong Kong Ltd Level 26, One Pacific Place, 88 Queensway, Hong Kong (852) 2536 9332 (852) 2845 2190
Paris Representative Office 112 Avenue Kleber, 75116 Paris, France (33) 156 26 2272 (33) 156 26 2270
Shanghai Representative Office Room 011, 45F HSBC Tower, 1000 Lujiazui Ring Road, (86) 21 5840 1181 (86) 21 5840 1178
Pudong New Area, Shanghai 200120, People’s Republic of China

DISCLAIMER
This publication is produced by Daiwa Securities SMBC Co. Ltd and/or its non-U.S. affiliates, and distributed by Daiwa Securities SMBC Co. Ltd
and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information
purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on
this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities SMBC Co. Ltd nor any of
its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the
accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any
responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any
content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned
herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view,
recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities SMBC Co. Ltd, and/or its
affiliates except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision
or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives,
financial situation and particular needs of any person.
Daiwa Securities SMBC Co. Ltd, its parent, holding, subsidiaries or affiliates, or its or their respective directors, officers and employees from time to
time have trades as principals, or have positions in , or have other interests in the securities of the company under research including derivatives in
respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are
additional disclosures.
Japan
Daiwa Securities SMBC and Daiwa Securities Group
Daiwa Securities SMBC is a Daiwa Securities Group company that is 60% owned by parent Daiwa Securities Group and 40% by Sumitomo Mitsui
Financial Group. Note, however, that the former has announced plans to acquire the stake of the latter on 31 December 2009, making Daiwa
Securities SMBC into a wholly owned subsidiary.
Investment Banking Relationship
Within the preceding 12 months, The Affiliates of Daiwa Securities SMBC Co. Ltd* has lead-managed public offerings and/or secondary offerings
(excluding straight bonds) of the securities of the following companies: China Zhongwang Holdings Ltd; Sundart International Holdings; China
Automation Group; China Kangda Food Co Ltd; Glorious Property; Tong Yang Life; China Kangda Food Co Ltd; Great Group Co., Ltd, Patel
Engineering.
*Affiliates of Daiwa Securities SMBC Co. Ltd. for the purposes of this section shall mean any one or more of:
• Daiwa Securities SMBC Hong Kong Limited
• Daiwa Securities SMBC Singapore Limited
• Daiwa Securities SMBC Australia Limited
• Daiwa Securities SMBC India Pvt. Limited
• Daiwa Securities SMBC-Cathy Co., Ltd
• Daiwa Securities SMBC Co., Ltd, Seoul branch
Hong Kong
This research is distributed in Hong Kong by Daiwa Securities SMBC Hong Kong Limited (“DHK”) which is regulated by the Hong Kong Securities
and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this
research.
Ownership of Securities
For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at http://www.daiwausa.com/report_disclosure.html.
Investment Banking Relationship
For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at http://www.daiwausa.com/report_disclosure.html.
Relevant Relationship (DHK)
DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research
coverage.
DHK market making
DHK may from time to time make a market in securities covered by this research.
Singapore
This research is distributed in Singapore by Daiwa Securities SMBC Singapore Limited and it may only be distributed in Singapore to accredited
investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act. By virtue of
distribution to these category of investors, Daiwa Securities SMBC Singapore Limited and its representatives are not required to comply with Section
36 of the Financial Advisers Act (Section 36 relates to disclosure of Daiwa Securities SMBC Singapore Limited’s interest and/or its representative’s
interest in securities). Recipients of this research in Singapore may contact Daiwa Securities SMBC Singapore Limited in respect of any matter
arising from or in connection with the research.
Australia
This research is distributed in Australia by Daiwa Securities SMBC Stockbroking Limited and it may only be distributed in Australia to wholesale
investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Securities SMBC Stockbroking
Limited in respect of any matter arising from or in connection with the research.
For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at http://www.daiwausa.com/report_disclosure.html.
India
This research is distributed in India by Daiwa Securities SMBC India Private Limited which is regulated by the Securities and Exchange Board of
India. Recipients of this research in India may contact Daiwa Securities SMBC India Private Limited in respect of any matter arising from or in
connection with this research.

DISCLAIMER (cont’d)
United Kingdom
This research report is distributed by Daiwa Securities SMBC Europe Limited, which is authorised and regulated by The Financial Services Authority
and is a member of the London Stock Exchange, Eurex and NYSE Liffe. Daiwa Securities SMBC Europe Limited and its affiliates may, from time to
time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the
“Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options
thereof and/or may have acted as an underwriter during the past three years for the issuer of such securities. In addition, employees of Daiwa
Securities SMBC Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors
of such issuers. Daiwa Securities SMBC Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation,
effect transactions in the Securities before this material is published to recipients.
This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FSA and should not
therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Securities SMBC
Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may
not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.
Daiwa Securities SMBC Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. These
include the requirement that the remuneration of Analysts must not be linked to specific transactions carried out by underwriting or investment
banking departments, nor may any decisions on remunerations of Analysts involve the said departments directly. Daiwa Securities SMBC Europe
Limited’s research has been published in accordance with our conflict management policy, which is available at http://www.daiwasmbc.co.uk/about-
us/corporate-governance-and-regulatory.
Regulatory disclosures of investment banking relationships are available at http://www.daiwausa.com/report_disclosure.html.
Germany
This document has been approved by Daiwa Securities SMBC Europe Ltd and is distributed in Germany by Daiwa Securities SMBC Europe Ltd,
Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.
United States
This report is distributed in the U.S. by Daiwa Securities America Inc. (DSA). It may not be accurate or complete and should not be relied upon as
such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DSA’s
views at any time. Neither DSA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This
report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky
and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to
determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not
recommend to U.S. recipients the use of any of DSA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding
that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S.
customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most
countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their
residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions.
Customers wishing to obtain further information about this report should contact DSA: Daiwa Securities America Inc., Financial Square, 32 Old Slip,
New York, New York 10005 (telephone 212-612-7000).
For “Ownership of Securities” information please visit BlueMatrix disclosure Link at http://www.daiwausa.com/report_disclosure.html.
Investment Banking Relationships
For “Investment Banking Relationships” please visit BlueMatrix disclosure link at http://www.daiwausa.com/report_disclosure.html.
DSA Market Making
For “DSA Market Making” please visit BlueMatrix disclosure link at http://www.daiwausa.com/report_disclosure.html. DSA made a market in securities
or ADRs of the following issuers at the time this report was published.
Research Analyst Conflicts
For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at http://www.daiwausa.com/report_disclosure.html. The principal
research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members
of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant
conflict of interest involving the analyst or DSA, and did not receive any compensation from the issuer during the past 12 months except as noted: no
exceptions.
Research Analyst Certification
For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at
http://www.daiwausa.com/report_disclosure.html. The views about any and all of the subject securities and issuers expressed in this Research
Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the
report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the
firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views
contained in this Research Report.
The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report.
"1": the security could outperform the local index by more than 15% over the next six months.
"2": the security is expected to outperform the local index by 5-15% over the next six months.
"3": the security is expected to perform within 5% of the local index (better or worse) over the next six months.
"4": the security is expected to underperform the local index by 5-15% over the next six months.
"5": the security could underperform the local index by more than 15% over the next six months.
Additional information may be available upon request.

Osat Sector Taiwan

Încărcat de

Informații document

Descriere originală:

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Osat Sector Taiwan

Încărcat de

Drepturi de autor:

Formate disponibile

Industry Report

6 November 2009 (No. of pages: 33)

Focus on the structural winner

Valuation comparison: ASE, SPIL, Powertech Technology (PTI) and peers

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH Global Equity Research

Sector rating upgraded to Positive ....................................................................................3

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 2

Daiwa revenue-growth forecasts by sector (YoY %)

Supply – capex discipline expected to continue into 2010

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 3

Source: Companies, Daiwa forecasts

Gross-profit margin and utilisation rate: ASE vs. SPIL

Source: Companies, Daiwa forecasts

Capacity and utilisation rates: ASE vs. SPIL

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 4

Based on the current sales-growth outlooks of foundry companies and IC-design

Key assumptions for Daiwa’s DOI forecasts

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 5

Source: Bloomberg, Daiwa estimates Source: Bloomberg, Daiwa estimates

Downstream inventory and DOI Downstream DOI by sector

Inventory (LHS) DOI (RHS) Handset PC TFT-LCD EMS

Source: Bloomberg Source: Bloomberg

We prefer ASE to SPIL for 2010

Summary – the factors we expect to affect ASE and SPIL in 2010

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 6

Meanwhile, SPIL was relatively conservative in terms of its investment in copper

According to our industry survey, SPIL’s copper-wire throughput rate currently is

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 7

How can throughput affect the gross margin of copper wire?

Copper wirebonding gross-profit margin scenario under different throughput assumptions

Selling price (%) 100 85 85 85 85 85

Gross margin (%) (selling price - COGS) 22 9 13 16 18 21

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 8

Revenue breakdown: ASE & SPIL

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 9

SPIL (LHS) ASE (LHS) Spot market gold price (RHS)

Source: Bloomberg, Daiwa estimates

MediaTek’s RF-integrated single-chip solution expected to hurt

MediaTek: chip-cost breakdown

Cost saving (%) 0 40 20

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 10

Others Intel (IDM) Atheros BRCM

Source: Daiwa estimates Source: Daiwa estimates

Operating leverage expected to benefit ASE more than SPIL during

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 11

Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts

ASE: cost breakdown SPIL: cost breakdown

Fixed costs Variable costs Fixed costs Variable costs

Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts

Source: Companies, Daiwa forecasts Source: Companies, Daiwa forecasts

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 12

Sales to IDM customers for ASE and SPIL

Source: Companies, Daiwa forecasts

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 13

QoQ change (%)

QoQ change (%)

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 14

Operating-margin difference vs. relative share-price performance

Operating-margin diff (SPIL-ASE) (RHS) SPIL relative share price (LHS)

Source: Bloomberg, Daiwa forecasts

ROE comparison for ASE and SPIL

Source: Company, Daiwa forecasts

Aaron Jeng, CFA (886) 2 8780 1469 OSAT Sector 15