20-F 1 dp146696_20f.htm FORM 20-F
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

(Mark One)

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

 

Commission file number: 001-16125


(Exact name of Registrant as specified in its charter)

ASE Technology Holding Co., Ltd.
(Translation of Registrant’s name into English)

 

REPUBLIC OF CHINA
(Jurisdiction of incorporation or organization)

 

26, Chin 3rd Road
Kaohsiung, Taiwan
Republic of China
(Address of principal executive offices)

 

Joseph Tung
Room 1901, No. 333, Section 1 Keelung Rd.
Taipei, Taiwan, 110
Republic of China
Tel: 886-2-6636-5678
Fax: 882-2-2757-6121
Email: ir@aseglobal.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on which Registered

Common Shares, par value NT$10.00 each ASX The New York Stock Exchange*

 

*Traded in the form of American Depositary Receipts evidencing American Depositary Shares (the “ADSs”), each representing two common shares of ASE Technology Holding Co., Ltd.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

As of December 31, 2020, 4,350,675,482 Common Shares, par value NT$10 each were outstanding.**

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes             No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

Yes             No

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes             No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes             No

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Large Accelerated Filer Accelerated Filer Non-accelerated Filer Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP International Financial Reporting Standards as issued by the International Accounting Standards Board Other

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17             Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes             No

 

** As a result of the exercise of employee stock options subsequent to December 31, 2020, as of January 31, 2021, we had 4,370,278,782 Common Shares outstanding.

 

 

 

 

table of contents

 

 

Page

 

USE OF CERTAIN TERMS 1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 5
PART I 6
Item 1. Identity of Directors, Senior Management and Advisers 6
Item 2. Offer Statistics and Expected Timetable 6
Item 3. Key Information 6
SELECTED FINANCIAL DATA 6
CAPITALIZATION AND INDEBTEDNESS 8
REASON FOR THE OFFER AND USE OF PROCEEDS 8
RISK FACTORS 8
Item 4. Information on the Company 28
HISTORY AND DEVELOPMENT OF THE COMPANY 28
BUSINESS OVERVIEW 31
ORGANIZATIONAL STRUCTURE 51
PROPERTY, PLANTS AND EQUIPMENT 53
Item 4A. Unresolved Staff Comments 56
Item 5. Operating and Financial Review and Prospects 56
OPERATING RESULTS AND TREND INFORMATION 56
LIQUIDITY AND CAPITAL RESOURCES 66
RESEARCH AND DEVELOPMENT 69
TREND INFORMATION 70
OFF-BALANCE SHEET ARRANGEMENTS 70
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS 70
SAFE HARBOR 71
Item 6. Directors, Senior Management and Employees 71
DIRECTORS AND SENIOR MANAGEMENT 71
COMPENSATION 76
BOARD PRACTICES 78
EMPLOYEES 78
SHARE OWNERSHIP 79
Item 7. Major Shareholders and Related Party Transactions 80
MAJOR SHAREHOLDERS 80
RELATED PARTY TRANSACTIONS 81
INTERESTS OF EXPERTS AND COUNSEL 81
Item 8. Financial Information 82
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION 82
SIGNIFICANT CHANGES 84
Item 9. The Offer and Listing 84
OFFER AND LISTING DETAILS 84
PLAN OF DISTRIBUTION 84
MARKETS 84
SELLING SHAREHOLDERS 84
DILUTION 84
EXPENSES OF THE ISSUE 84
Item 10. Additional Information 84
SHARE CAPITAL 84
ARTICLES OF INCORPORATION 84
MATERIAL CONTRACT 89
FOREIGN INVESTMENT IN THE R.O.C. 91
EXCHANGE CONTROLS 92
TAXATION 92
DIVIDENDS AND PAYING AGENTS 95
STATEMENT BY EXPERTS 96

 

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DOCUMENTS ON DISPLAY 96
SUBSIDIARY INFORMATION 96
Item 11. Quantitative and Qualitative Disclosures about Market Risk 96
Item 12. Description of Securities Other Than Equity Securities 99
DEBT SECURITIES 99
WARRANTS AND RIGHTS 99
OTHER SECURITIES 99
AMERICAN DEPOSITARY SHARES 99
PART II 101
Item 13. Defaults, Dividend Arrearages and Delinquencies 101
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 101
Item 15. Controls and Procedures 101
Item 16. [Reserved] 106
Item 16A. Audit Committee Financial Expert 106
Item 16B. Code of Ethics 106
Item 16C. Principal Accountant Fees and Services 106
Item 16D. Exemptions from the Listing Standards for Audit Committees 107
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 107
Item 16F. Change In Registrant’s Certifying Accountant 107
Item 16G. Corporate Governance 107
Item 16H. Mine Safety Disclosure 110
PART III 111
Item 17. Financial Statements 111
Item 18. Financial Statements 111
Item 19. Exhibits 111

 

 ii

USE OF CERTAIN TERMS

 

Unless the context otherwise requires, references in this annual report to:

 

·“2018 NTD-linked Convertible Bonds” are to US$200.0 million NTD-linked Zero Coupon Convertible Bonds due March 27, 2018, issued by ASE;

 

·“Advanced Shanghai” are to ASE Advanced Semiconductor (Shanghai) Limited, a company incorporated under the laws of the P.R.C. that spun off from ASESH AT in November 2020;

 

·“ASDI” are to ASDI Assistance Direction S.A.S., a simplified limited liability company (société par actions simplifiée) organized under the laws of France;

 

·“ASE,” “ASE Inc.” or “ASE Group” are to Advanced Semiconductor Engineering Inc. and, unless the context requires otherwise, its subsidiaries;

 

·“ASE Chung Li” are to ASE (Chung Li) Inc., a company previously incorporated under the laws of the R.O.C. that merged into ASE Inc. in 2004;

 

·“ASE Electronics” are to ASE Electronics Inc., a company incorporated under the laws of the R.O.C.;

 

·“ASE Japan” are to ASE Japan Co. Ltd., a company incorporated under the laws of Japan;

 

·“ASE Korea” are to ASE (Korea) Inc., a company incorporated under the laws of the Republic of Korea;

 

·“ASE Material” are to ASE Material Inc., a company previously incorporated under the laws of the R.O.C. that merged into ASE Inc. in 2004;

 

·“ASE Shanghai” are to ASE (Shanghai) Inc., a company incorporated under the laws of the P.R.C.;

 

·“ASE Test” are to ASE Test Limited, a company incorporated under the laws of Singapore;

 

·“ASE Malaysia” are to ASE Electronics (M) Sdn. Bhd., a company incorporated under the laws of Malaysia;

 

·“ASE Test Taiwan” are to ASE Test, Inc., a company incorporated under the laws of the R.O.C.;

 

·“ASEEE” are to ASE Embedded Electronics Inc., a company incorporated under the laws of the R.O.C. that merged into ASE Inc. in February 2020;

 

·“ASEH,” the “Company,” “ASE Technology Holding,” “we,” “us” or “our” are to ASE Technology Holding Co., Ltd. and, unless the context requires otherwise, its subsidiaries;

 

·“ASEKS” are to ASE (Kunshan) Inc., a company incorporated under the laws of the P.R.C.;

 

·“ASEN” are to Suzhou ASEN Semiconductors Co., Ltd., a company incorporated under the laws of the P.R.C.;

 

·“ASESH AT” are to ASE Assembly & Test (Shanghai) Limited, formerly known as Global Advanced Packaging Technology Limited, or GAPT, a company incorporated under the laws of the P.R.C.;

 

·“ASEWH” are to ASE (Weihai), Inc., a company incorporated under the laws of the P.R.C.;

 

·“DECA” are to Deca Technologies Inc., a company incorporated in the Cayman Islands;

 

·“Deposit Agreement” are to the deposit agreement, dated as of April 30, 2018, by and among ASE Technology Holding Co., Ltd., a company organized under the laws of the R.O.C. and previously known as “ASE Industrial Holding Co., Ltd.”, Citibank, N.A., as Depositary, and the Holders and Beneficial Owners of American Depositary Shares issued thereunder;

 

·“EEMS Test Singapore” are to EEMS Test Singapore Pte. Ltd., a company incorporated under the laws of Singapore, which changed its name to ASE Singapore II Pte. Ltd. and was subsequently merged into ASE Singapore Pte. Ltd. in 2011;

 

1 

·“EMS” are to electronic manufacturing services;

 

·“EU” are to the European Union;

 

·“Exchange Act” are to the U.S. Securities Exchange Act of 1934, as amended;

 

·“FAFG” or “FAFG Group” are to Financiere AFG S.A.S., a simplified limited liability company (société par actions simplifiée) organized under the laws of France and, unless the context requires otherwise, its subsidiaries;

 

·“FSC” are to the Financial Supervisory Commission of the Republic of China;

 

·“Hung Ching” are to Hung Ching Development & Construction Co. Ltd., a company incorporated under the laws of the R.O.C.;

 

·“IFRS” are to International Financial Reporting Standards, International Accounting Standards and Interpretations as issued by the International Accounting Standards Board;

 

·“ISE Shanghai” are to ISE Labs, China, Ltd., a company incorporated under the laws of the P.R.C.;

 

·“ISE Labs” are to ISE Labs, Inc., a corporation incorporated under the laws of the State of California;

 

·“Initial SPIL Tender Offer” are to ASE’s offer to purchase 779,000,000 common shares (including common shares represented by outstanding American depositary shares) of SPIL through concurrent tender offers in the R.O.C. and the U.S., at a price of NT$45 per SPIL common share and NT$225 per SPIL American depositary share, commenced on August 24, 2015 and expired on September 22, 2015;

 

·“Joint Share Exchange Agreement” are to the joint share exchange agreement entered into between ASE and SPIL on June 30, 2016;

 

·“Korea” or “South Korea” are to the Republic of Korea;

 

·“MOEAIC” are to Investment Commission of the R.O.C. Ministry of Economic Affairs;

 

·“NYSE” are to New York Stock Exchange;

 

·“PowerASE” are to PowerASE Technology, Inc., a company incorporated under the laws of the R.O.C., which was merged into ASE Inc. in 2012;

 

·“PPA Effects” are the earnings effects from purchase price allocation (“PPA”). PPA is the allocation of ASEH’s purchase price of SPIL into identifiable assets acquired and liabilities assumed from SPIL based on their fair values. The fair value write-up results in earnings effects over time which generates increased operating costs, operating expenses, other operating income and expenses and non-operating expense;

 

·“P.R.C.” are to the People’s Republic of China and excludes Taiwan, Macau and Hong Kong;

 

·“P.R.C. Regulations” are to the Regulations Governing Securities Investment and Futures Trading in Taiwan by Mainland Area Investors;

 

·“QDII” are to qualified domestic institutional investors;

 

·“Republic of China”, the “R.O.C.” and “Taiwan” are to the Republic of China, including Taiwan and certain other possessions;

 

·“R.O.C. Trading Day” are to a day when TWSE is open for business;

 

·“SEC” are to the Securities and Exchange Commission of the U.S.;

 

·“Second SPIL Tender Offer” are to ASE’s offer to purchase 770,000,000 common shares (including common shares represented by outstanding American depositary shares) of SPIL through concurrent tender offers in the R.O.C. and the U.S., at a price of NT$55 per SPIL common share and NT$275 per SPIL American depositary share, commenced on December 29, 2015 and expired on March 17, 2016 due to failure to obtain regulatory approval from the Taiwan Fair Trade Commission (“TFTC”) prior to the expiration of the Second SPIL Tender Offer;

 

2 

·“Securities Act” are to the U.S. Securities Act of 1933, as amended;

 

·“Share Exchange” is the statutory share exchange pursuant to the laws of the Republic of China, through which ASEH (i) acquired all issued shares of ASE in exchange for shares of ASEH using the share exchange ratio and (ii) acquired all issued shares of SPIL using the cash consideration;

 

·“SiP” are to system-in-package;

 

·“SPIL” or “SPIL Group” are to Siliconware Precision Industries Co., Ltd., and, unless the context requires otherwise, its subsidiaries;

 

·“SPIL Acquisition” are to ASEH’s effort to effect an acquisition of 100% of the common shares and American depositary shares of SPIL pursuant to the Joint Share Exchange Agreement;

 

·“SZ” are to Siliconware Technology (Suzhou) Limited, a company incorporated under the laws of the P.R.C.;

 

·“Taiwan-IFRS” are to the Regulations Governing the Preparation of Financial Reports by Securities Issuers, the IFRS as well as related guidance translated by Accounting Research and Development Foundation and endorsed by the FSC;

 

·“Tessera” are to Tessera Technologies, Inc. and its subsidiaries;

 

·“TWSE” are to Taiwan Stock Exchange;

 

·“UGJQ” are to Universal Global Technology (Shanghai) Co., Ltd., a company incorporated under the laws of the P.R.C.;

 

·“UGKS” are to Universal Global Technology (Kunshan) Co. Ltd., a company incorporated under the laws of the P.R.C.;

 

·“USIPL” are to Universal Scientific Industrial Poland Sp. z o.o., a company incorporated under the laws of Poland and former name was Chung Hong Electronics Poland Sp. z o.o.;

 

·“UGTW” are to Universal Global Scientific Industrial Co. Ltd., a company incorporated under the laws of the R.O.C.;

 

·“Universal Scientific Industrial” or “USI” are to Universal Scientific Industrial Co., Ltd., a company incorporated under the laws of the R.O.C.;

 

·“USIFR” are to Universal Scientific Industrial (France), a simplified limited liability company (société par actions simplifiée) organized under the laws of France;

 

·“USI Shanghai” are to Universal Scientific Industrial (Shanghai) Co., Ltd., a company incorporated under the laws of the P.R.C.;

 

·“U.S.” refers to the United States of America;

 

·“U.S. GAAP” are to accounting principles generally accepted in the U.S.;

 

·“USI Group” are to USI Inc. and its subsidiaries. Prior to the 2016 USI Group Restructuring, USI Group are to USI and its subsidiaries;

 

·“USI Inc.” are to USI Inc., a company incorporated under the laws of the R.O.C.;

 

·“USI Mexico” are to Universal Scientific Industrial de Mexico S.A. DE C.V., a company incorporated under the laws of Mexico;

 

·“USISZ” are to USI Electronics (Shenzhen) Co. Ltd., a company incorporated under the laws of the P.R.C.; and

 

·“Wuxi Tongzhi” are to Wuxi Tongzhi Microelectronics Co., Ltd., a company incorporated under the laws of the P.R.C.

 

We publish our financial statements in New Taiwan dollars, the lawful currency of the R.O.C. In this annual report, references to “United States dollars,” “U.S. dollars” and “US$” are to the currency of the United States; references to “New

 

3 

Taiwan dollars,” “NT dollars” and “NT$” are to the currency of the R.O.C.; references to “RMB” are to the currency of the P.R.C.; references to “JP¥” are to the currency of Japan; references to “MYR” are to the currency of Malaysia; references to “SGD” are to the currency of the Republic of Singapore; references to “KRW” are to the currency of the Republic of Korea; references to “EUR” are to the currency of the EU; and references to “PLN” are to the currency of the Poland. Unless otherwise noted, all translations from NT dollars to U.S. dollars were made at the exchange rate as set forth in the H.10 weekly statistical release of the Federal Reserve System of the United States (the “Federal Reserve Board”) as of December 31, 2020, which was NT$28.08=US$1.00, and all translations from RMB to U.S. dollars were made at the exchange rate as set forth in the H.10 weekly statistical release of the Federal Reserve Board as of December 31, 2020, which was RMB6.5250=US$1.00. All amounts translated into U.S. dollars in this annual report are provided solely for your convenience and no representation is made that the NT dollar, RMB or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or NT dollars/RMB, as the case may be, at any particular rate or at all. On March 19, 2021, the exchange rate between NT dollars and U.S. dollars as set forth in the H.10 weekly statistical release by the Federal Reserve Board was NT$28.42=US$1.00. On March 19, 2021, the exchange rate between RMB and U.S. dollars as set forth in the H.10 weekly statistical release by the Federal Reserve Board was RMB6.5070=US$1.00.

 

4 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This annual report on Form 20-F contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although these forward-looking statements, which may include statements regarding our future results of operations, financial condition or business prospects, are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on these forward-looking statements, which apply only as of the date of this annual report. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions, as they relate to us, are intended to identify these forward-looking statements in this annual report. Our actual results of operations, financial condition or business prospects may differ materially from those expressed or implied in these forward-looking statements for a variety of reasons, including risks associated with cyclicality and market conditions in the semiconductor or electronics industry; changes in our regulatory environment, including our ability to comply with new or stricter environmental regulations and to resolve environmental liabilities; demand for the outsourced semiconductor packaging, testing and EMS we offer and for such outsourced services generally; the highly competitive semiconductor or manufacturing industry we are involved in; our ability to introduce new technologies in order to remain competitive; international business activities; our business strategy; our future expansion plans and capital expenditures; the strained relationship between the R.O.C. and the P.R.C.; general economic and political conditions; the recent global economic crisis; possible disruptions in commercial activities caused by natural or human-induced disasters; fluctuations in foreign currency exchange rates; and other factors. For a discussion of these risks and other factors, see “Item 3. Key Information—Risk Factors.”

 

5 

PART I

 

Item 1. Identity of Directors, Senior Management and Advisers

 

Not applicable.

 

Item 2. Offer Statistics and Expected Timetable

 

Not applicable.

 

Item 3. Key Information

 

SELECTED FINANCIAL DATA

 

The following tables present selected consolidated financial data for ASEH as of and for the years ended December 31, 2018, 2019 and 2020, and ASE as of and for the years ended December 31, 2016 and 2017.

 

The selected consolidated statements of comprehensive income data and cash flow data for the years ended December 31, 2018, 2019 and 2020, and the selected consolidated balance sheet data as of December 31, 2019 and 2020 set forth below are derived from our audited consolidated financial statements included in this annual report and should be read in conjunction with, and are qualified in their entirety by reference to, these consolidated financial statements, including the notes thereto. The selected consolidated statements of comprehensive income data and cash flow data for the years ended December 31, 2016 and 2017 and the selected consolidated balance sheet data as of December 31, 2016 and 2017 and 2018 set forth below are derived from our audited consolidated financial statements not included herein.

 

Our consolidated financial statements have been prepared and presented in accordance with IFRS.

 

   As of and for the Year Ended December 31
IFRS 

2016
(Retrospectively Adjusted)(1) 

 

2017
(Retrospectively Adjusted)(1) 

 

2018(2) 

  2019  2020
   NT$  NT$  NT$  NT$  NT$  US$
   (in millions, except earnings per share and per ADS data)
Statement of Comprehensive Income Data:                  
Operating revenues   274,884.1    290,441.2    371,092.4    413,182.2    476,978.7    16,986.4 
Operating costs   (221,696.9)   (237,708.9)   (309,929.4)   (348,871.4)   (398,994.4)   (14,209.2)
Gross profit   53,187.2    52,732.3    61,163.0    64,310.8    77,984.3    2,777.2 
Operating expenses   (26,526.8)   (27,513.7)   (34,515.3)   (40,784.4)   (43,108.2)   (1,535.2)
Other operating income and expenses, net   (800.3)   108.6    371.6    (268.6)   502.5    17.9 
Profit from operations   25,860.1    25,327.2    27,019.3    23,257.8    35,378.6    1,259.9 
Non-operating income, net   2,108.6    5,693.5    4,918.4    22.0    390.2    13.9 
Profit before income tax   27,968.7    31,020.7    31,937.7    23,279.8    35,768.8    1,273.8 
Income tax expense   (5,390.8)   (6,523.6)   (4,513.4)   (5,011.2)   (7,116.9)   (253.4)
Profit for the year   22,577.9    24,497.1    27,424.3    18,268.6    28,651.9    1,020.4 
Attributable to                              
Owners of the Company   21,324.4    22,819.1    26,220.7    17,060.6    26,970.6    960.5 
Non-controlling interests   1,253.5    1,678.0    1,203.6    1,208.0    1,681.3    59.9 
    22,577.9    24,497.1    27,424.3    18,268.6    28,651.9    1,020.4 
Other comprehensive loss, net of income tax   (7,959.3)   (4,637.9)   (852.6)   (4,370.6)   495.3    17.6 
Total comprehensive income for the year   14,618.6    19,859.2    26,571.7    13,898.0    29,147.2    1,038.0 
Attributable to                              
Owners of the Company   13,957.0    18,524.1    25,620.5    13,122.2    27,440.7    977.2 
Non-controlling interests   661.6    1,335.1    951.2    775.8    1,706.5    60.8 
    14,618.6    19,859.2    26,571.7    13,898.0    29,147.2    1,038.0 
Earnings per common share(3)(4):                              
Basic   5.57    5.59    6.18    4.01    6.32    0.23 
Diluted   4.66    5.19    6.07    3.91    6.17    0.22 
Dividends per common share(5)   1.60    1.40    2.50    2.50    2.00    0.07 
Earnings per equivalent ADS(3)(4):                              
Basic   11.13    11.18    12.35    8.02    12.65    0.45 
Diluted   9.31    10.38    12.14    7.82    12.33    0.44 
Number of common shares(3)(6):                              
Basic   3,831.4    4,080.4    4,245.2    4,252.0    4,265.7    4,265.7 
Diluted   4,142.1    4,184.6    4,251.1    4,262.8    4,288.6    4,288.6 
Number of equivalent ADSs(3)(6):                              
Basic   1,915.7    2,040.2    2,122.6    2,126.0    2,132.9    2,132.9 
Diluted   2,071.0    2,092.3    2,125.6    2,131.4    2,144.3    2,144.3 

 

6 

 

   As of and for the Year Ended December 31
IFRS 

2016
(Retrospectively Adjusted)(1) 

 

2017
(Retrospectively Adjusted)(1) 

 

2018(2) 

  2019  2020
   NT$  NT$  NT$  NT$  NT$  US$
   (in millions, except earnings per share and per ADS data)
Balance Sheet Data:                  
Current assets   142,789.7    144,938.3    201,558.9    202,001.1    224,012.9    7,977.7 
Investments - non-current(7)   50,853.0    49,876.8    11,545.9    15,017.4    16,341.0    581.9 
Property, plant and equipment   143,880.2    135,168.4    214,592.6    232,093.3    233,207.3    8,305.1 
Right-of-use assets(8)   -    -    -    9,792.2    8,620.6    307.0 
Intangible assets   12,107.6    11,341.4    80,872.1    79,222.8    81,586.1    2,905.5 
Long-term prepayments for lease(8)   2,237.0    8,851.3    10,764.8    -    -    - 
Others(8)(9)   6,063.1    13,746.1    14,727.6    19,096.9    19,809.0    705.4 
Total assets   357,930.6    363,922.3    534,061.9    557,223.7    583,576.9    20,782.6 
Short-term debts(10)   20,955.5    17,962.5    43,263.5    40,572.3    34,597.9    1,232.1 
Current portion of long-term debts(11)   16,341.1    14,441.3    10,796.2    5,995.6    11,994.8    427.2 
Long-term debts(12)   74,354.9    44,501.5    144,336.9    177,414.1    162,525.3    5,788.0 
Other liabilities(12)   79,437.9    85,706.8    116,637.4    120,439.4    142,727.7    5,082.8 
Total liabilities   191,089.4    162,612.1    315,034.0    344,421.4    351,845.7    12,530.1 
Share capital   79,568.0    87,380.8    43,217.1    43,305.3    43,515.9    1,549.7 
Non-controlling interests   12,000.6    13,190.1    17,639.5    13,374.9    15,616.1    556.1 
Equity attributable to owners of the Company   154,840.6    188,120.1    201,388.4    199,427.4    216,115.1    7,696.4 
Cash Flow Data:                              
Capital expenditures   (26,714.2)   (24,699.2)   (41,386.4)   (56,810.2)   (62,077.4)   (2,210.7)
Depreciation and amortization   29,470.4    29,205.2    42,688.9    50,466.8    51,259.1    1,825.5 
Net cash inflow from operating activities   52,107.9    47,430.8    51,074.7    72,303.3    75,060.6    2,673.1 
Net cash outflow from investing activities   (43,159.5)   (16,086.2)   (129,542.3)   (54,579.1)   (60,946.3)   (2,170.5)
Net cash inflow (outflow) from financing activities   (21,087.0)   (19,323.4)   83,111.4    (6,498.8)   (21,995.3)   (783.3)
Segment Data:                              
Operating revenues                              
Packaging   125,282.8    126,225.1    178,308.2    198,916.8    218,666.1    7,787.2 
Testing   27,031.8    26,157.3    35,903.2    42,658.7    47,271.1    1,683.4 
EMS   115,395.1    133,948.0    151,890.4    165,789.5    204,690.6    7,289.6 
Others   7,174.4    4,110.8    4,990.6    5,817.2    6,350.9    226.2 
Gross profit                              
Packaging   28,524.6    28,785.3    33,669.0    34,539.0    43,251.7    1,540.3 
Testing   9,980.6    9,303.6    12,289.5    14,536.9    15,257.3    543.4 
EMS   11,234.8    13,562.5    14,278.8    14,491.4    18,825.9    670.4 
Others   3,447.3    1,080.9    925.7    743.5    649.4    23.1 

_______________

(1)The financial data for the years ended December 31, 2016 and 2017 represents the financial condition, financial performance and cash flow of ASE, except for earnings per common share, earnings per equivalent ADS, number of common shares and number of equivalent ADSs which have been retrospectively adjusted to reflect share exchange ratio stated in the Joint Share Exchange Agreement. For details about the Joint Share Exchange Agreement, see “Item 10. Additional information—Material Contract.”

 

(2)Financial data for ASEH are derived from the results of: (a) ASE Technology Holding Co., Ltd. and SPIL for the period from April 30, 2018 through December 31, 2018; and (b) ASE, the predecessor entity of ASEH, for the twelve months ended December 31, 2018.

 

(3)We retrospectively adjusted the earnings per common share, earnings per equivalent ADS, number of common shares and number of equivalent ADSs in accordance with share exchange ratio stated in the Joint Share Exchange Agreement for the years ended December 31, 2016 and 2017, which differ from the results included in our annual reports on Form 20-F for the years ended December 31, 2016 and 2017. For details about the Joint Share Exchange Agreement, see “Item 10. Additional information—Material Contract.”

 

(4)The denominators for diluted earnings per common share and diluted earnings per equivalent ADS are calculated to account for the potential diluted factors, such as employees’ compensation, the exercise of options and conversion of our convertible bonds into our common shares.

 

(5)Dividends per common share issued as a cash dividend and cash dividend distribution from capital surplus.

 

(6)Represents the weighted average number of shares after retroactive adjustments to give effect to the Joint Share Exchange Agreement aforementioned. Common shares held by consolidated subsidiaries are classified as “treasury stock,” and are deducted from the number of common shares outstanding.

 

(7)Data as of December 31, 2016 and 2017 included available-for-sale financial assets – non-current and investments accounted for using the equity method. The category as of December 31, 2018, 2019 and 2020 included financial assets at fair value through profit or loss – non-current, financial assets at fair value through other comprehensive income – noncurrent and investments accounted for using the equity method.

 

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(8)Starting from 2019, upon initial application of IFRS 16 “Leases,” long-term prepayments for lease were reclassified to related assets, such as right-of-use assets and investment properties.

 

(9)Including investment properties, deferred tax assets, other financial assets – non-current and other non-current assets.

 

(10)Including short-term bank borrowings and financial liabilities for hedging – current.

 

(11)Including current portion of bonds payable, current portion of long-term debts (consisted of bank borrowings and notes payable), current portion of financial liabilities for hedging and lease liabilities – current.

 

(12)Including bonds payable, long-term debts (consisted of bank borrowings and bills payable), financial liabilities for hedging – non-current and lease liabilities – non-current.

 

(13)Including (x) current liabilities other than short-term debts and current portion of long-term debts and (y) non-current liabilities other than long-term debts.

 

Exchange Rates

 

Fluctuations in the exchange rate between NT dollars and U.S. dollars will affect the U.S. dollar equivalent of the NT dollar price of our common shares on the TWSE and, as a result, will likely affect the market price of the ADSs. Fluctuations will also affect the U.S. dollar conversion by the depositary under our ADS deposit agreement referred to below of cash dividends paid in NT dollars on, and the NT dollar proceeds received by the depositary from any sale of, common shares represented by ADSs, in each case, according to the terms of the deposit agreement dated April 30, 2018, Citibank N.A. as depositary, and the holders and beneficial owners from time to time of the ADSs, which we refer to as the deposit agreement.

 

CAPITALIZATION AND INDEBTEDNESS

 

Not applicable.

 

REASON FOR THE OFFER AND USE OF PROCEEDS

 

Not applicable.

 

RISK FACTORS

 

Below please find a summary of the principal risks we face, organized under relevant headings.

 

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Risks Relating to the SPIL Acquisition

 

·Due to the SPIL Acquisition, our financial and operational results of annual and interim periods may not be comparable.

 

·There may be risks associated with our current holding company structure.

 

Risks Relating to Our Business

 

·Since we are dependent on the highly cyclical semiconductor and electronics industries and conditions in the markets for the end-use applications of our products, our revenues and net income may fluctuate significantly.

 

·A reversal or slowdown in the outsourcing trend for semiconductor packaging and testing services and EMS could adversely affect our growth prospects and profitability.

 

·Any global economic downturn could adversely affect the demand for our products and services, and a protracted global economic crisis would have a material adverse effect on us.

 

·If we are unable to compete favorably in the highly competitive markets of semiconductor packaging and testing and EMS, our revenues and net income may decrease.

 

·Our profitability depends on our ability to respond to rapid technological changes in the semiconductor industry.

 

·Our operating results are subject to significant fluctuations, which could adversely affect the market value of your investment.

 

·Due to our high percentage of fixed costs, we may be unable to maintain our gross margin at past levels if we are unable to achieve relatively high capacity utilization rates.

 

·If we are unable to manage our expansion or investments effectively, our growth prospects may be limited and our future profitability and core business operations may be adversely affected.

 

·The packaging and testing businesses are capital intensive. If we cannot obtain additional capital when we need it, our growth prospects and future profitability may be adversely affected.

 

·

A cybersecurity breach could interfere with our business operations, compromise confidential information, adversely impact our reputation and operating results and potentially lead to litigation and other liabilities.

 

·Any impairment charges may have a material adverse effect on our income.

 

·Any attempt by the U.S. government to withdraw from or materially modify existing international trade agreements or take further actions against certain P.R.C. technology companies could adversely affect our business, financial condition and results of operations.

 

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Risks Relating to Taiwan, R.O.C.

 

·Strained relations between the R.O.C. and the P.R.C. and disruptions in Taiwan’s political environment caused by domestic political events could negatively affect our business and the market value of your investment.

 

·As a substantial portion of our business and operations is located in Taiwan, we are vulnerable to natural disasters including earthquakes, typhoons, drought, as well as power outages and other industrial incidents, which could severely disrupt the normal operation of our business and adversely affect our results of operations.

 

Risks Relating to Ownership of Our Common Shares and the ADSs

 

·The market for our common shares and the ADSs may not be liquid.

 

·If a non-R.O.C. holder of ADSs withdraws and holds common shares, such holder of ADSs will be required to appoint a tax guarantor, local agent and custodian in the R.O.C. and register with the TWSE or the Taipei Exchange in order to buy and sell securities on the TWSE.

 

·The market value of your investment may fluctuate due to the volatility of the R.O.C. securities market.

 

·We may not continue to declare cash dividends in any particular amount.

 

·Holders of common shares and ADSs may experience dilution if we issue stock bonuses and stock options to employees or sell additional equity or equity-linked securities.

 

Below please find the detailed analysis of the principal risks we face.

 

Risks Relating to the SPIL Acquisition

 

Due to the SPIL Acquisition, our financial and operational results of annual and interim periods may not be comparable.

 

ASEH was formed pursuant to the consummation of the Share Exchange on April 30, 2018. ASE is ASEH’s predecessor entity; therefore, the financial and operational results of ASEH for periods before the Share Exchange were prepared under the assumption that ASEH owned 100% shareholdings of ASE. The financial and operational results before April 30, 2018 reflect the business operations of ASE. The financial and operational results for the second quarter of 2018 reflect the business operations of ASE starting from April 1, 2018 and the business operations of ASEH starting from April 30, 2018. The financial and operational results after April 30, 2018 reflect the combined operations after the SPIL Acquisition. Therefore, the financial and operational results of annual and interim periods may not be comparable.

 

There may be risks associated with our current holding company structure.

 

We entered into the Joint Share Exchange Agreement with SPIL in June 2016, pursuant to which ASEH, a holding company in Taiwan, holds 100% of the equity interests in both ASE and SPIL such that ASE and SPIL became wholly owned subsidiaries of ASEH. The common shares of ASE and SPIL were delisted from the TWSE. The ADSs of ASE and SPIL were delisted from NYSE and NASDAQ, respectively, and became eligible for deregistration under the Exchange Act. Subsequently, the common shares of ASEH were listed on the TWSE, and the ADSs of ASEH were listed on the NYSE. The implementation of such corporate structure restructuring plan may result in contingent risks, including increase in tax liabilities or trading discounts relating to a holding company discount that may become apparent in the future. For details about the Joint Share Exchange Agreement, see “Item 10. Additional Information—Material Contract.”

 

Risks Relating to Our Business

 

Since we are dependent on the highly cyclical semiconductor and electronics industries and conditions in the markets for the end-use applications of our products, our revenues and net income may fluctuate significantly.

 

Our business is affected by market conditions in the highly cyclical semiconductor and electronics industries. Most of our customers operate in this industry, and variations in order levels from our customers and service fee rates may result in volatility in our revenues and net income. From time to time, the semiconductor and electronics industries have experienced significant, and sometimes prolonged, downturns. As our business is, and will continue to be, dependent on the requirements for independent packaging, testing and EMS, any future downturn in the industry would reduce demand for our services. If we cannot reduce our costs or adjust our product mix to sufficiently offset any decline in sales volumes, our profitability will suffer, and we may incur losses.

 

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Market conditions in the semiconductor and electronics industries depend to a large degree on conditions in the markets for the end-use applications of various products, such as communications, computing and consumer electronics products. Any deterioration of conditions in the markets for the end-use applications would reduce demand for our services, and would likely have a material adverse effect on our financial condition and results of operations. In 2020, approximately 53.3%, 14.1% and 32.6% of our operating revenues from packaging and testing were attributed to the packaging and testing of semiconductors used in communications, computing and consumer electronics/industrial/automotive/other applications, respectively. In the same year, approximately 42.5%, 8.0%, 36.2%, 9.1% and 4.2% of our operating revenues from EMS were attributed to the communications, computing and storage, consumer electronics applications, industrial and automotive applications and other, respectively. Across end-use applications, our customers face intense competition and significant shifts in demand, which could put pricing pressure on our services and may adversely affect our revenues and net income.

 

A reversal or slowdown in the outsourcing trend for semiconductor packaging and testing services and EMS could adversely affect our growth prospects and profitability.

 

Semiconductor manufacturers that have their own in-house packaging and testing capabilities, known as integrated device manufacturers and original equipment manufacturers, have increasingly outsourced stages of the production process, including packaging, testing, electronic manufacturing and assembly, to independent companies in order to reduce costs, eliminate product complexity and meet fast-to-market requirements. In addition, the availability of advanced independent semiconductor manufacturing services has also enabled the growth of so-called “fabless” semiconductor companies that focus exclusively on design and marketing and outsource their manufacturing, packaging and testing requirements to independent companies. We cannot assure you that these manufacturers and companies will continue to outsource their packaging, testing and manufacturing requirements to third parties like us. Furthermore, during an economic downturn, these integrated device manufacturers typically rely more on their own in-house packaging and testing capabilities, therefore decreasing their need to outsource. A reversal of, or a slowdown in, this outsourcing trend could result in reduced demand for our services and adversely affect our growth prospects and profitability.

 

Any global economic downturn could adversely affect the demand for our products and services, and a protracted global economic crisis would have a material adverse effect on us.

 

The global financial markets experienced significant disruptions in 2008 and the United States, Europe and other economies went into a recession. The recovery from the lows of 2008 and 2009 was uneven and it is facing new challenges, including a European sovereign debt crisis that began in 2011, a referendum in the United Kingdom in June 2016, in which the majority of voters voted in favor of an exit from the European Union (“Brexit”), and continuing high unemployment rates in much of the world. It is unclear what the long-term impact of the European sovereign debt crisis will be and uncertainty remains over the long-term effects of the expansionary monetary and fiscal policies that have been adopted by the central banks and financial authorities of some of the world’s leading economies. Following the cease of the United Kingdom from the EU on January 31, 2020 and the end of the Brexit transition period on December 31, 2020, it remains unclear how Brexit would affect the fiscal, monetary and regulatory landscape within the United Kingdom, the EU and globally. There has been a general adverse impact on the global economies and financial markets as the COVID-19 outbreak continues to evolve into a worldwide health crisis. Any economic downturn or crisis may cause our customers to cancel or reduce planned expenditures for our products and services. Any uncertainty or significant volatility in global economic conditions may also make it difficult for our customers to accurately forecast and plan future business activities and may have a material adverse effect on us.

 

If we are unable to compete favorably in the highly competitive markets of semiconductor packaging and testing and EMS, our revenues and net income may decrease.

 

The markets of semiconductor packaging and testing and EMS are very competitive. We face competition from a number of sources, including other independent semiconductor packaging and testing companies, integrated device manufacturers, and other EMS providers with large-scale manufacturing capabilities who can quickly react to market changes. We believe that the principal competitive factors in our industry are:

 

·technological expertise;

 

·the ability to provide total solutions to our customers, including integrated design, manufacturing, packaging and testing and EMS;

 

·ability to offer interconnect technologies at an optimal scale for our businesses;

 

·range of package types and testing platforms available;

 

·the ability to work closely with our customers at the product development stage;

 

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·responsiveness and flexibility;

 

·fast-to-market product development;

 

·capacity;

 

·diversity in facility locations;

 

·production yield; and

 

·price.

 

We face increasing competition, as most of our customers obtain services from more than one source. Rapid technological advances and aggressive pricing strategies by our competitors may continue to increase competition. Our ability to compete depends on factors both within and outside of our control and may be constrained by the distinct characteristics and production requirements of individual products. We cannot assure you that we will be able to continue to improve production efficiency and maintain reasonable profit for all of our products.

 

In addition, some of our competitors may have superior financial, marketing, manufacturing, research and development and technological resources than we do. For example, the central government of the P.R.C. as well as provincial and municipal governments have provided various incentives to domestic companies in the semiconductor industry, including major semiconductor testing and packaging providers, such as Jiangsu Changjiang Electronics Technology Co., Ltd. Similarly, our customers may face competition from their competitors in the P.R.C., and such competitors may also receive significant subsidies from the P.R.C. government. As we are downstream suppliers, the impact of such government policies on competition and price pressure of our customers may negatively impact our own business. Increasing competition may lead to declines in product prices and profitability and could have a material adverse effect on our business, financial condition, results of operations and future prospects.

 

Our profitability depends on our ability to respond to rapid technological changes in the semiconductor industry.

 

The semiconductor industry is characterized by rapid increases in the diversity and complexity of semiconductors. As a result, we expect that we will need to constantly offer more sophisticated packaging and testing technologies and processes in order to respond to competitive industry conditions and customer requirements. We have successfully combined our packaging, testing and materials technologies with the expertise of EMS at the systems level to develop our SiP business. We also entered into multiple technology license agreements with DECA to advance our fan-out technology. There is, however, no assurance that our development efforts for our SiP business or the use of licensed technology to further advance our fan-out technology will be successful.

 

We continue to develop new products in anticipation of future demand. However, there is no assurance that the launch of any new product will be successful or that whether we will be able to produce sufficient quantities of these products to meet market demand. If we fail to develop, or obtain access to, advances in packaging or testing technologies or processes, we may become less competitive and less profitable. In addition, advances in technology typically lead to declining average selling prices for semiconductors packaged or tested with older technologies or processes. As a result, if we cannot reduce the costs associated with our services, the profitability of a given service and our overall profitability may decrease over time.

 

Our operating results are subject to significant fluctuations, which could adversely affect the market value of your investment.

 

Our operating results have varied significantly from period to period and may continue to vary in the future. Downward fluctuations in our operating results may result in decreases in the market price of our common shares and the ADSs. Among the more important factors affecting our quarterly and annual operating results are the following:

 

·changes in general economic and business conditions, particularly the cyclical nature of the semiconductor and electronics industries and the markets served by our customers;

 

·our ability to quickly adjust to unanticipated declines or shortfalls in demand and market prices;

 

·changes in prices for our products or services;

 

·volume of orders relative to our packaging, testing and manufacturing capacity;

 

·changes in costs and availability of raw materials, equipment and labor;

 

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·our ability to obtain or develop substitute raw materials with lower cost;

 

·our ability to successfully develop or market new products or services;

 

·our ability to successfully manage product mix in response to changes in market demand and differences in margin associated with different products;

 

·timing of capital expenditures in anticipation of future orders;

 

·our ability to acquire or design and produce cost-competitive interconnect materials, and provide integrated solutions for EMS;

 

·fluctuations in the exchange rate;

 

·fluctuations in interest rates, including the potential impact of the phase-out of LIBOR on our variable rate borrowings; and

 

·typhoons, earthquakes, drought, epidemics, tsunami and other natural disasters, as well as industrial and other incidents such as fires and power outages.

 

Due to the factors listed above, our future operating results or growth rates may be below the expectations of research analysts and investors. If so, the market price of our common shares and the ADSs, and thus the market value of your investment, may fall.

 

Due to our high percentage of fixed costs, we may be unable to maintain our gross margin at past levels if we are unable to achieve relatively high capacity utilization rates.

 

Our operations, in particular our testing operations, are characterized by relatively high fixed costs. We expect to continue to incur substantial depreciation and other expenses in connection with our acquisitions of equipment and facilities. Our profitability depends not only on the pricing levels for our services or products, but also on utilization rates for our machinery and equipment, commonly referred to as “capacity utilization rates.” In particular, increases or decreases in our capacity utilization rates can significantly affect gross margins since the unit cost generally decreases as fixed costs are allocated over a larger number of units. In periods of low demand, we experience relatively low capacity utilization rates in our operations, which leads to reduced margins. We cannot assure you that we will be able to maintain or surpass our past gross margin levels if we cannot consistently achieve or maintain relatively high capacity utilization rates.

 

If we are unable to manage our expansion or investments effectively, our growth prospects may be limited and our future profitability and core business operations may be adversely affected.

 

We have significantly expanded our operations through acquisitions and joint ventures in recent years. For our expansion or investments, see “Item 4. Information on the Company—Business Overview—Strategy—Strategically Expand and Streamline Production Capacity.”

 

While we expect that we will continue to expand our operations in the future to broaden our product offerings, rapid expansion may strain our managerial, technical, financial, operational and other resources. As a result of our expansion, we have implemented and will continue to implement additional operational and financial controls and hire and train additional personnel. Any failure to manage our growth effectively could lead to inefficiencies and redundancies and result in reduced growth prospects and profitability.

 

In addition, we have made several investments in the real estate development businesses in China. The P.R.C. property market is volatile and may experience undersupply or oversupply and property price fluctuations. The central and local governments frequently adjust monetary and other fiscal policies to prevent and curtail the overheating of the economy. Such policies may lead to changes in market conditions, including price instability and imbalance of supply and demand in respect of office, residential, retail, entertainment, cultural and intellectual properties. Our exposure to risks related to real estate development may also increase over time as a result of our expansion into such a business. We may continue to make investments in this area in the future and our diversification in this industry may put pressure on our managerial, financial, operational and other resources. There can be no assurance that our investments in such a business will yield the anticipated returns and that our expansion into such a business, including the resulting diversion of management’s attention, will not adversely affect our core business operations.

 

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The financial performance of our equity method investments could adversely affect our results of operations.

 

As part of our business strategy, we have and may continue to pursue acquisitions of businesses and assets, strategic alliances and joint ventures. We currently have equity investments in certain entities and the accounting treatment applied for these investments varies depending on a number of factors, including, but not limited to, our percentage ownership, our percentage of membership of investee’s board and the level of influence we have over the relevant entity. Any losses experienced by these entities could adversely affect our results of operations and the value of our investment. In addition, if these entities were to fail and cease operations, we may lose the entire value of our investment and the stream of any shared profits.

 

There can be no assurance that we will be able to maintain or enhance the value or performance of our investee companies or that we will achieve the returns or benefits sought from such investments. If our interests differ from those of other investors in our investee companies, we may not be able to enjoy synergies with the investee and it may adversely affect our financial results or financial condition.

 

We recognized impairment charges of NT$521.0 million, NT$400.2 million and nil in 2018, 2019 and 2020, respectively, in our investments under the equity method. See note 14 to our consolidated financial statements included in this annual report and see “Item 5. Operating and Financial Review and Prospects—Operating Results and Trend Information—Critical Accounting Policies and Estimates—Valuation of Investments.”

 

The packaging and testing businesses are capital intensive. If we cannot obtain additional capital when we need it, our growth prospects and future profitability may be adversely affected.

 

The packaging and testing business is capital intensive. We will need capital to fund the expansion of our facilities as well as fund our research and development activities in order to remain competitive. We believe that our existing cash, marketable securities, expected cash flow from operations and existing credit lines under our loan facilities will be sufficient to meet our capital expenditures, working capital, cash obligations under our existing debt and lease arrangements, and other requirements for at least the next twelve months. However, future capacity expansions or market or other developments may cause us to require additional funds. Our ability to obtain external financing in the future is subject to a variety of uncertainties, including:

 

·our future financial condition, results of operations and cash flows;

 

·general market conditions for financing activities by semiconductor or electronics companies; and

 

·economic, political and other conditions in Taiwan and elsewhere.

 

If we are unable to obtain funding in a timely manner or on acceptable terms, our results of operations and financial conditions may be materially and adversely affected.

 

Restrictive covenants and broad default provisions in our existing debt agreements may materially restrict our operations as well as adversely affect our liquidity, financial condition and results of operations.

 

We are a party to numerous loans and other agreements relating to the incurrence of debt, which may include restrictive covenants and broad default provisions. In general, covenants in the agreements governing our existing debt, and debt we may incur in the future, may materially restrict our operations, including our ability to incur debt, pay dividends, make certain investments and payments, other than in connection with restructurings of consolidated entities, and encumber or dispose of assets. In addition, any global economic deterioration or ineffective expansion may cause us to incur significant net losses or force us to assume considerable liabilities. We cannot assure you that we will be able to remain in compliance with our financial covenants, which, as a result, may lead to a default. This may thereby restrict our ability to access unutilized credit facilities or the global capital markets to meet our liquidity needs. Furthermore, a default under any agreement by us or our subsidiaries may trigger cross-defaults under our other agreements. In the event of default, we may not be able to cure the default or obtain a waiver on a timely basis. An event of default under any agreement timely governing our existing or future debt, if not cured or waived, could have a material adverse effect on our liquidity, financial condition and results of operations.

 

We have on occasion failed to comply with certain financial covenants in some of our loan agreements. Such non-compliance may also have, through broadly worded cross-default provisions, resulted in default under some of the agreements governing our other existing debt. If we are unable to timely rectify any possible non-compliance under such loan agreements or obtain applicable waivers or amendments, we would breach our financial covenants and our financial condition would be adversely affected. As of December 31, 2020, we were not in breach of any of the financial covenants under our existing loan agreements, although we cannot provide any assurance that we will not breach any of such financial covenants in the future.

 

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We depend on select personnel and could be affected by the loss of their services.

 

We depend on the continued service of our executive officers and skilled technical personnel. Our business could suffer if we lose the services of any of these personnel and cannot adequately replace them. Although some of these management personnel have entered into employment agreements with us, they may nevertheless leave before the expiration of these agreements. We are not insured against the loss of the services of any of our personnel. In addition, these proceedings may divert these and other employees’ attention from our business operations.

 

We may be required to increase substantially the number of these employees in connection with our expansion plans, and there is intense competition for their services in this industry. We may not be able to either retain our present personnel or attract additional qualified personnel as and when needed. In addition, we may need to increase employee compensation levels in order to attract and retain our existing officers and employees and the additional personnel that we expect to require. Recently, some companies accelerate efforts to malicious talent poaching Taiwan semiconductor experts by offering a high position with handsome pay. If such malicious acts involving technology theft growing worse, Taiwan’s semiconductor industry would be seriously affected and our business would be adversely jeopardized.

 

Furthermore, a portion of the workforce at our facilities in Taiwan are foreign workers employed under work permits, which are subject to government regulations on renewal and other terms. Consequently, our business could also suffer if the Taiwan regulations relating to the employment of foreign workers were to become significantly more restrictive or if we are otherwise unable to attract or retain these workers at a reasonable cost.The ongoing proceeding involving Dr. Tien Wu may have an adverse impact on our business and cause our common shares and ADS price to decline.

 

Dr. Tien Wu, ASEH’s director and chief operating officer, was involved in a criminal proceeding brought by the Taiwan Kaohsiung District Prosecutors Office. The indictment alleged that Dr. Tien Wu violated Article 157-1 of the R.O.C. Securities and Exchange Act for insider trading activities involving SPIL common shares conducted during the period when the Initial SPIL Tender Offers, the Second SPIL Tender Offers and negotiations of the memorandum of understanding in relation to SPIL Acquisition took place. Dr. Tien Wu was accused of tipping off a friend about the aforementioned tender offers and negotiation ahead of the public announcements. After an investigation that spanned over two years, the Taiwan Kaohsiung District Court pronounced its judgment on February 5, 2020 that Dr. Tien Wu is found to be NOT guilty. On March 20, 2020, the Taiwan Kaohsiung District Prosecutors Office filed an appeal against the February 5, 2020 judgment. This matter is now being tried by the Taiwan High Court Kaohsiung Branch Court. ASEH has reinforced internal control measures after this incident and no ASEH directors are expected to become party to any current or future litigation related to Dr. Tien Wu.

 

On October 26, 2018, the R.O.C. Securities and Futures Investors Protection Center ("SFIPC") filed a civil lawsuit against Dr. Tien Wu and ASEH, requesting the court to remove him from ASEH’s board based on Article 10-1 of the Securities Investor and Futures Trader Protection Act. On August 25, 2020, the Taiwan Ciaotou District Court ruled in favor of Dr. Tien Wu. The SFIPC filed an appeal against the August 25, 2020 judgment. This matter is now being tried by the Taiwan High Court Kaohsiung Branch Court. There is no assurance that this proceeding or the further scrutiny from regulators will not generate publicity or media attention. Any negative publicity in connection to this legal proceeding may adversely affect ASEH’s brand and reputation and result in a material adverse impact on their business operations and prospects. As ASEH depends on the continued service of its executive officers and is not insured against the loss of service of any of their personnel, ASEH’s business operations could suffer if it loses the service of any executive officers, including Dr. Tien Wu, and cannot adequately replace them.

 

If we are unable to obtain additional packaging and testing equipment or facilities in a timely manner and at a reasonable cost, our competitiveness and future profitability may be adversely affected.

 

The semiconductor packaging and testing businesses are capital intensive and require significant investment in expensive equipment manufactured by a limited number of suppliers. The market for semiconductor packaging and testing equipment is characterized, from time to time, by intense demand, limited supply and long delivery cycles. Our operations and expansion plans depend on our ability to obtain a significant amount of such equipment from a limited number of suppliers. From time to time we have also leased certain equipment. We have no binding supply agreements with any of our suppliers and acquire our packaging and testing equipment on a purchase order basis, which exposes us to changing market conditions and other substantial risks. For example, shortages of capital equipment could result in an increase in the price of equipment and longer delivery times. Semiconductor packaging and testing also require us to operate sizeable facilities. If we are unable to obtain equipment or facilities in a timely manner, we may be unable to fulfill our customers’ orders, which could adversely affect our growth prospects as well as financial condition and results of operations. See “Item 4. Information on the Company—Business Overview—Equipment.”

 

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Fluctuations in exchange rates could result in foreign exchange losses.

 

Currently, the majority of our revenues are denominated in U.S. dollars, with a portion denominated in NT dollars and Japanese yen. Our operating costs and operating expenses, on the other hand, are incurred in several currencies, primarily NT dollars, U.S. dollars, RMB, Japanese yen, Korean won, as well as, to a lesser extent, Singapore dollars and Malaysian ringgit, Polish zloty and EUR. In addition, a substantial portion of our capital expenditures, primarily for the purchase of packaging and testing equipment, has been, and is expected to continue to be, denominated in U.S. dollars, with the remainder in Japanese yen. Fluctuations in exchange rates, primarily among the U.S. dollar, Japanese yen and HKD against the NT dollar and RMB, will affect our costs and operating margins. In addition, these fluctuations could result in exchange losses and increased costs in NT dollar and other local currency terms. Despite hedging and mitigating techniques implemented by us, fluctuations in exchange rates have affected, and may continue to affect, our financial condition and results of operations. We recorded net foreign exchange losses of NT$1,015.6 million in 2018, net foreign exchange gains of NT$1,125.7 million in 2019, and net foreign exchange gains of NT$1,005.4 million (US$35.8 million) in 2020. We cannot assure you that we will achieve foreign exchange gains in the future. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Market Risk—Foreign Currency Exchange Rate Risk.”

 

The loss of a large customer or disruption of our strategic alliance or other commercial arrangements with semiconductor foundries and providers of other complementary semiconductor manufacturing services may result in a decline in our revenues and profitability.

 

Although we have a large customer base, we have derived and expect to continue to derive a large portion of our revenues from a small group of customers during any particular period due in part to the concentration of market share in the semiconductor and electronics industries. Our five largest customers together accounted for approximately 46.2%, 51.1% and 54.5% of our operating revenues in 2018, 2019 and 2020, respectively. One customer accounted for more than 10.0% of our operating revenues in 2018 and 2020, and two of our customers individually accounted for more than 10.0% of our operating revenues in 2019. The demand for our services from a customer is directly dependent upon that customer’s level of business activity, which could vary significantly from year to year. Our key customers typically operate in the cyclical semiconductor and electronic business and, in the past, have varied, and may vary in the future, order levels significantly from period to period. Some of these companies are relatively small, have limited operating histories and financial resources, and are highly exposed to the cyclicality of the industry. We cannot assure you that these customers or any other customers will continue to place orders with us in the future at the same levels as in past periods. The loss of one or more of our significant customers, or reduced orders by any one of them, and our inability to replace these customers or make up for such orders, could adversely affect our revenues and profitability. In addition, we have in the past reduced, and may in the future be requested to reduce, our prices to limit the level of order cancellations. Any price reduction would likely reduce our margins and profitability.

 

Since 1997, we have maintained a strategic alliance with Taiwan Semiconductor Manufacturing Company Limited, or TSMC, one of the world’s largest dedicated semiconductor foundries. TSMC designates us as their nonexclusive preferred provider of packaging and testing services for semiconductors manufactured by TSMC. Such strategic alliances, as well as our other commercial arrangements with providers of other complementary semiconductor manufacturing services, enable us to offer total semiconductor manufacturing solutions to our customers. These strategic alliances and other commercial arrangements may not achieve their anticipated commercial benefits and may be terminated at any time. For example, in February 2018, we entered into a joint venture agreement with Qualcomm Incorporated to form Semicondutores Avancados do Brasil S.A. to expand our SiP business and in December 2020, both parties agreed to terminate the agreement due to a failure to achieve certain agreed conditions. Any failure in successfully maintaining such alliances, any termination of such alliances or our failure to enter into substantially similar strategic alliances or commercial arrangements may adversely affect our competitiveness and our revenues and profitability.

 

We rely on a limited number of key customers in certain products for our revenues, and our results of operations may be adversely affected by a reduction of business from our key customers.

 

Our results of operations also depend on the performance and business of our key customers. Accordingly, risks that could seriously harm our key customers could harm us as well, including:

 

·loss of market share for our key customers’ products;

 

·recession in our key customers’ markets;

 

·failure of their products to gain wide-spread commercial acceptance; and

 

·our key customers’ inability to manage their operations efficiently and effectively.

 

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The launch and market acceptance of our individual key customers’ products could significantly impact our product and customer mix, resulting in significant volatility in the demand for the solutions we offer and our results of operations. It is also possible that a key customer’s market share with respect to its product may decline as its competitors introduce new products, which could adversely affect our results of operations, particularly if we are unable to sell our solutions to such competitors. Furthermore, sales of our key customers’ products are subject to seasonal fluctuation.

 

Our revenues and profitability may decline if we are unable to obtain adequate supplies of raw materials in a timely manner and at a reasonable price.

 

Our operations, such as packaging operations, substrate operations and EMS, require that we obtain adequate supplies of raw materials on a timely basis. Shortages in the supply of raw materials have in the past resulted in occasional price increases and delivery delays. In addition, the operations of some of our suppliers are vulnerable to natural disasters, such as earthquakes and typhoons, the occurrences of which may deteriorate and prolong the shortage or increase the uncertainty of the supply of raw materials. We experienced a disruption to the supply of raw materials from Japan for about three to four weeks due to the fear of radiation contamination and the reduction or postponement in production by some of our Japanese suppliers. Although the purchase of supplies from Japan has been restored to the previous level, we cannot assure you that we will not suffer in the long term from the impact of the earthquake and the tsunami. In addition, further earthquakes, aftershocks thereof or other disasters in Japan or other regions in which we operate may cause a decline in our sales. Any of the above events or developments may have a material adverse effect on our business, results of operations and financial condition.

 

Raw materials such as IC substrates are prone to supply shortages since such materials are produced by a limited number of suppliers, such as Kinsus Interconnect Technology Corporation, Nan Ya Printed Circuit Board Corporation, LG Innotek Co., Ltd., and Unimicron Technology Corporation. Our operations conducted through our wholly owned subsidiaries ASE Electronics and ASE Shanghai have improved our ability to obtain IC substrates on a timely basis and at a reasonable cost. In 2020, our interconnect materials operations supplied approximately 10.1% of our consolidated substrate requirements by value. We do not expect that our internal interconnect materials operations will be able to meet all of our interconnect materials requirements. Consequently, we will remain dependent on market supply and demand for our raw materials. In addition, recent fluctuations in prices of precious metals, such as gold, have also affected the price at which we have been able to purchase the principal raw materials we use in our packaging processes. We cannot guarantee that we will not experience shortages in the near future or that we will be able to obtain adequate supplies of raw materials in a timely manner or at a reasonable price. Our revenues and net income could decline if we are unable to obtain adequate supplies of high quality raw materials in a timely manner or if there are significant increases in the costs of raw materials that we cannot pass on to our customers.

 

Regulations related to conflict minerals could adversely affect our business, financial condition and results of operations.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, which are defined as cassiterite, columbite-tantalite, gold, wolframite or their derivatives and other minerals determined by the U.S. government to be financing conflict in the Democratic Republic of Congo and adjoining countries. As a result, in August 2012 the SEC adopted annual disclosure and reporting requirements for those companies who use conflict minerals in their products. These rules require companies that manufacture or contract to manufacture products for which conflict minerals are necessary to the functionality or production to begin scrutinizing the origin of conflict minerals in their products starting from January 1, 2013, and file a new form, Form SD, containing the conflict minerals disclosure by May 31 for the prior calendar year, beginning May 31, 2014. We filed a specialized disclosure report on Form SD since the reporting period of 2013 and we have retained an independent auditing firm to conduct audits on our due diligence framework to provide a private sector report for our specialized disclosure report on Form SD since the reporting period of 2014. As a result, there will be costs associated with complying with these disclosure requirements, including costs for diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products.

 

As there may be only a limited number of suppliers offering “conflict free” minerals, we cannot be sure that we will be able to obtain necessary “conflict free” minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face adverse effects to our reputation if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.

 

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System security risks, data protection breaches or unexpected system outage or failures could harm our business, financial condition and results of operations.

 

We rely on the efficient and uninterrupted operation of complex information technology applications, systems and networks to operate our business. Our systems are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss, telecommunications failures, cyber-attacks, computer viruses, computer denial of service attacks or other attempts to harm our system, and similar events. In recent years, the risks that we face from cyber-attacks have increased significantly. Some of these attacks may originate from well-organized, highly skilled organizations. Although there have not been reported major cyber-attacks against our systems in recent years, any such attack or system or network disruption could result in a loss of our intellectual property, the release of commercially sensitive information, customer or employee personal data. Failures to protect the privacy of customer and employee confidential data against breaches of network security could result in damage to our reputation.

 

Furthermore, some of our data centers are located in areas with a high risk of major earthquakes. Our data centers are also subject to break-ins, sabotage and intentional acts of vandalism, and to potential disruptions if the operators of these facilities have financial difficulties. Some of our systems are not fully redundant, and our disaster recovery planning cannot account for all eventualities. The occurrence of a natural disaster, a decision to close a facility we are using without adequate notice for financial reasons or other unanticipated problems at our data centers could result in loss of production capabilities and lengthy interruptions in our service. Any damage to or failure of our systems could result in interruptions in our service. Interruptions in our service could materially and adversely affect our business, financial condition and results of operations.

 

A cybersecurity breach could interfere with our business operations, compromise confidential information, adversely impact our reputation and operating results and potentially lead to litigation and other liabilities.

 

Cybersecurity threats continue to expand and evolve globally. We established information security management committee which is dedicated to enhancing information security, preventing and mitigating information security threats and risks by developing strategic plans for information security, establishing benchmarks for information security maturity assessments, promoting information security risk management in our subsidiaries, and coordinating internal and external technologies, resources and information. Our chief information security officer is responsible for regular reviews of all our subsidiaries’ information security management and incident response plans, and submits the information security governance report to the board of directors in the fourth quarter of each year. In addition, our major subsidiaries have obtained ISO 27001 certification (information security management system). We also have established management procedures for the reporting and handling of information security incidents which allow employees to report any security incidents to ensure prompt handling, followed by efficient responses that will mitigate information security risks. In addition, we conduct an annual disaster recovery drill to mitigate the risk of service disruptions caused by impacts from major crisis events to our information systems. All employees participate in our annual proprietary information protection training courses, which include training on information security policy, management framework, and control measures.

 

Furthermore, we employ certain third party auditor to conduct an annual audit and review of our information security performance. In the event of a sudden external cyber-attack, our on-site safety teams immediately hold a meeting to share information, discuss responses and countermeasures; external experts would be invited to join the meeting to conduct reviews and analyses if necessary. While we actively take measures to manage information technology security risks, there can be no assurance that these measures will be sufficient to mitigate all potential risks to our system, networks and data.

 

Although we protect our trade secrets and customer data through strict enforcement and protection protocols, a failure or breach in security could expose us and our customers, dealers and suppliers to risks of unauthorized access to information technology systems, misuse and compromise of confidential information, manipulation and destruction of data, which could potentially result in disruption of our business operations and adversely affect our reputation, competitive position, financial condition and results of operations. Security breaches could also result in litigation with third parties, regulatory actions and higher costs of implementing additional data protection measures.

 

Negative publicity may adversely affect our brand and reputation, which may result in a material adverse impact on our business, results of operations and business prospects and cause fluctuations in the price of our common shares and ADSs.

 

Any negative publicity may damage our brand and reputation, harm our ability to attract and retain customers and have a material adverse impact on our results of operations as well as cause fluctuations in the trading price of our common shares and ADSs. In addition, any change in policy or the direction in which we carry out our corporate social responsibility or corporate sustainability activities may also have an adverse effect on our business reputation. In recent years, we have experienced and may continue to experience negative publicity in connection with administrative penalties and criminal charges related to alleged violations of environmental regulations and laws. For further details, see “Item 4. Information on the Company—Business Overview—Environmental Matters,” and “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings.”

 

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Any environmental claims or failure to comply with any present or future environmental regulations, as well as any fire or other industrial accident, may require us to spend additional funds and may materially and adversely affect our financial condition and results of operations.

 

We are subject to various laws and regulations relating to the use, storage, discharge and disposal of chemical by-products of, and water used in, our packaging and interconnect materials production processes, and the emission of volatile organic compounds and the discharge and disposal of solid industrial wastes from EMS operations. In recent years, we have been subject to environmental administrative actions and judicial proceedings related to certain wastewater discharge incidents that occurred at our facilities. As a result of these proceedings, we have been subject to monetary fines as well as sanctions, including orders to suspend or limit our operations and criminal charges against us. For further details, see “Item 4. Information on the Company—Business Overview—Environmental Matters,” and “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings.”

 

Climate change, water shortage and other environmental concerns could negatively affect our business and financial planning.

 

There is concern that without substantial remediation, increasing anthropogenic greenhouse gas emissions could adversely affect the global economy irreversibly. A modest change in average global temperatures would result in increased coastal flooding, altered precipitation patterns and increased risk of biodiversity loss for the vulnerable species. Extreme weather conditions, such as heat, droughts and floods, which occur due to climate change can also impact our business operations and financial performance. For example, since our business operations depend on adequate supplies of water, an extended drought may affect our ability to obtain sufficient amounts of water and threaten our production capability.

 

We believe that we should play our part in the mitigation of man-made climate change. For instance, we have incorporated green design standards and building concepts into the construction of our facilities. Since 2012, we have been committed to constructing all of our new Taiwan manufacturing facilities and office buildings while following the most up-to-date green building standards, such as the US Leadership in Energy and Environmental Design, LEED and the Taiwan Ecology, Energy Saving, Waste Reduction and Health standards, EEWH. Also we are transitioning green factories into low-carbon buildings by introducing the ‘carbon footprint of buildings’ concept in 2015, in which the carbon emissions of buildings were quantified and analyzed throughout their lifecycle to drive carbon reductions from the design stage.

 

Public expectations for reductions in greenhouse gas emissions could result in increased energy, transportation and raw material costs. Scientific examination of, political attention to and rules and regulations on issues surrounding the existence and extent of man-made climate change may result in an increase in the cost of production due to increase in the prices of energy and introduction of energy or carbon tax. Various regulatory developments have been introduced that focus on restricting or managing emissions of greenhouse gases. Enterprises may need to purchase at higher costs emission credits, new equipment or raw materials with lower carbon footprints. These developments and further legislation that is likely to be enacted could negatively affect our operations and financial performance. Also, changes in environmental regulations, such as those that concern the use of perfluorinated compounds (known commonly as PFC’s), could increase our production costs, which may adversely affect our results of operation and financial results.

 

Stable water supply of sufficient amounts of good quality freshwater plays a critical role for ASEH. Taiwan is also susceptible to typhoons and drought, which may cause damage and business interruptions to facilities. Since our business operations depend on adequate supplies of water, an extended drought may affect our ability to obtain sufficient water and threaten our production capability. Although we have not been directly affected by droughts, we are dependent upon water for our packaging and substrates operations and a drought could interrupt such operations. Not only freshwater supply is key to our business operations, we also have established a sustainable water recycling system and implemented water management strategies to identify and prevent water-shortage related risks, hence, about 100% withdrawal of freshwater was recycled to process and facility. Our water management program is based on the core ideas of reduce, reuse and recycle. We continuously seek opportunities to improve our operational resilience through effective water use management.

 

We may be subject to intellectual property rights disputes, which could materially adversely affect our business.

 

Our ability to compete successfully and achieve future growth depends, in part, on our ability to develop and protect our proprietary technologies and to secure on commercially acceptable terms certain technologies that we do not own. We cannot assure you that we will be able to independently develop, obtain patents for, protect or secure from any third party, the technologies required. Our failure to successfully obtain such technology may seriously harm our competitive position.

 

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Our ability to compete successfully also depends, in part, on our ability to operate without infringing the proprietary rights of others. We have no means of knowing what patent applications have been filed in the United States or elsewhere until they are granted or published. In particular, the semiconductor and electronics industries are characterized by frequent litigation regarding patent and other intellectual property rights. It is common for patent owners to assert their patents against semiconductor manufacturers. We have received from time to time communication from third parties asserting patents that cover certain of our technologies and alleging infringement of intellectual property rights of others, and we may continue receiving such communication in the future. In the event that any third party makes a valid claim against us or against our customers, we could be required to:

 

·seek to acquire licenses to the infringed technology which may not be available on commercially reasonable terms, if at all;

 

·discontinue using certain process technologies, which could cause us to stop manufacturing certain semiconductors;

 

·pay substantial monetary damages; and/or

 

·seek to develop non-infringing technologies, which may not be feasible.

 

Any one of these developments could place substantial financial and administrative burden on us and hinder our business. In February 2006, Tessera filed a suit against ASE Inc., ASE (U.S.) Inc. and others alleging patent infringement. In February 2014, ASE Inc. and ASE (U.S.) Inc. reached a term sheet agreement with Tessera to fully resolve the remaining legal proceedings between each other, under which ASE Inc. and ASE (U.S.) Inc. would pay a total of US$30.0 million to Tessera and both Tessera and ASE Inc. and ASE (U.S.) Inc. would dismiss all pending claims against each other. The final settlement agreement was entered into among the parties in October 2014 and the final settlement amount was reduced to US$27.0 million. In October 2014, the United States District Court for the Northern District of California dismissed all claims between Tessera and ASE Inc. and ASE (U.S.) Inc. ASE Inc. and ASE (U.S.) Inc. have fully paid the settlement amount in January 2015. In connection to the 2016 patent dispute between Broadcom and Tessera, SPIL and Broadcom settled the dispute for a total of US$5.0 million in February 2020. This settlement amount was recognized in our consolidated financial statements for the year end December 31, 2019. See “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings” for more information about the Broadcom Patent Dispute.

 

Any litigation, whether as plaintiff or defendant and regardless of the outcome, is costly and diverts company resources. Any of the foregoing could harm our competitive position and render us unable to provide some of our services operations.

 

Our major shareholders may take actions that are not in, or may conflict with, our public shareholders’ best interest.

 

Members of the Chang family own, directly or indirectly, a significant interest in our outstanding common shares. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders.” Accordingly, these shareholders will continue to have the ability to exercise a significant influence over our business, including matters relating to:

 

·our operation, management and policies;

 

·the timing and distribution of dividends; and

 

·the election of our directors.

 

Members of the Chang family may take actions that you may not agree with or that are not in our or our public shareholders’ best interests.

 

We are an R.O.C. company and, because the rights of shareholders under R.O.C. law differ from those under U.S. law and the laws of certain other countries, you may have difficulty protecting your shareholder rights.

 

Our corporate affairs are governed by our Articles of Incorporation and by the laws governing corporations incorporated in the R.O.C. The rights of shareholders and the responsibilities of management and the members of the board of directors under R.O.C. law are different from those applicable to a corporation incorporated in the United States and certain other countries. As a result, public shareholders of R.O.C. companies may have more difficulty in protecting their interests in connection with actions taken by management or members of the board of directors than they would as public shareholders of a corporation in the United States or certain other countries.

 

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We have made investments in, and are exploring the possibility of expanding our businesses and operations to, or making additional investments in, the P.R.C., which may expose us to additional political, regulatory, economic and foreign investment risks.

 

We currently maintain packaging and testing facilities and EMS sites in the P.R.C. We also made substantial investments in P.R.C. real estate development through our subsidiaries in the P.R.C. Under P.R.C. laws and regulations, foreign investment projects, such as our subsidiaries, must obtain certain approvals from the relevant governmental authorities in the provinces or special economic zones in which they are located and, in some circumstances, from the relevant authorities in the P.R.C. central government. Foreign investment projects must also comply with certain regulatory requirements. However, P.R.C. laws and regulations are often subject to varying interpretations and means of enforcement, and additional approvals from the relevant governmental authorities may be required for the operations of our P.R.C. subsidiaries. If required, we cannot assure you that we will be able to obtain these approvals in a timely manner, if at all. Because the P.R.C. government holds significant discretion in determining matters relating to foreign investment, we cannot assure you that the relevant governmental authorities will not take action that is materially adverse to our P.R.C. operations.

 

In addition, the P.R.C. stock market is subject to extreme price and volume fluctuations. We are the controlling shareholder of USI Shanghai, which is an entity currently listed on the Shanghai Stock Exchange. The P.R.C. securities markets have recently experienced, and may experience in the future, significant volatility. Any volatility may have a significant effect on USI Shanghai’s share price and may indirectly affect the market price of our common shares and ADSs.

 

Our global manufacturing and sales activities subject us to risks associated with legal, political, economic or other conditions or developments in various jurisdictions, including in particular the R.O.C. and the P.R.C., which could negatively affect our business and financial status and therefore the market value of your investment.

 

Our principal executive office and our principal production facilities are located in the R.O.C., and a substantial majority of our net revenues are derived from our operations in the R.O.C. and the P.R.C. In addition, we have operations worldwide and a significant percentage of our revenue comes from sales to locations outside the R.O.C. or the P.R.C. Operating in the R.O.C., P.R.C. and other overseas locations exposes us to changes in policies and laws, including environmental regulations, as well as the general political and economic conditions, security risks, health conditions and possible disruptions in transportation networks, in the various countries in which we operate, which could result in an adverse effect on our business operations in such countries. If any of our global operations are affected by the legal, political, economic or other conditions in the jurisdiction we operate, our results of operations as well as market price and the liquidity of our ADSs and common shares may be materially and adversely affected.

 

Any impairment charges may have a material adverse effect on our net income.

 

Under IFRS, we are required to evaluate our assets, such as property, plant and equipment, intangible assets, including goodwill, and investments in financial instruments, for possible impairment at least annually or whenever there is an indication of impairment. If certain criteria are met, we are required to record an impairment charge.

 

With respect to assets, we recognized impairment charges of NT$654.1 million, NT$601.2 million and NT$992.3 million (US$35.3 million) in 2018, 2019 and 2020, respectively, primarily as a result of impairment charges related to property, plant and equipment and investments under the equity method. See “Item 5. Operating and Financial Review and Prospects—Operating Results and Trend Information—Critical Accounting Policies and Estimates—Impairment of Tangible and Intangible Assets Other Than Goodwill,” “Item 5. Operating and Financial Review and Prospects—Operating Results and Trend Information—Critical Accounting Policies and Estimates—Valuation of Investments” and “Item 5. Operating and Financial Review and Prospects—Operating Results and Trend Information—Critical Accounting Policies and Estimates—Goodwill.”

 

We are unable to estimate the extent and timing of any impairment charges for future years and we cannot give any assurance that impairment charges will not be required in periods subsequent to December 31, 2020. Any impairment charge could have a material adverse effect on our net income. The determination of an impairment charge at any given time is based significantly on our expected results of operations over a number of years in the future. As a result, an impairment charge is more likely to occur during a period in which our operating results and outlook are otherwise already depressed.

 

Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business and results of operations.

 

We are subject to reporting obligations under the U.S. securities laws. The SEC as required by Section 404 of the Sarbanes-Oxley Act of 2002 adopted rules requiring every public company to include a management report on the effectiveness of such company’s internal control over financial reporting in its annual report. In addition, an independent registered public accounting firm must report on such company’s internal control over financial reporting.

 

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As effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help prevent fraud, any failure to maintain effective internal control over financial reporting could harm our business and result in a loss of investor confidence in the reliability of our financial statements, which in turn could negatively impact the trading price of our common shares and ADSs. Furthermore, we may need to incur additional costs and use additional management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward. Please refer to “Item 15. Controls and Procedures” for details on our internal control over financial reporting.

 

Our insurance coverage may be inadequate to cover all of our business risks.

 

Although we seek to obtain insurance for some of our main operational risks, the amount of our insurance coverage may not be adequate to cover all potential claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. There is also no guarantee that we will be able to obtain insurance coverage when desired or that insurance will be available on commercially attractive terms. Any failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition and results of operations.

 

We could potentially face tax uncertainties arising from the decisions, activities and operations undertaken by us.

 

There are many business activities that may give rise to tax issues in our daily operations, ranging from procurement, research and development activities, manufacturing to product storage and distribution, among other activities. Additional tax liabilities such as double taxation, inapplicability of tax incentives, tax adjustment and related interest and penalties may arise if all these tax issues are not dealt with properly. The development and evolution of tax laws and regulations present considerable uncertainties in interpretation and enforcement, which could call for more onerous compliance measures and tax audits in the jurisdictions in which we operate. Failure to comply with any change in tax laws could result in unfavorable tax consequences to us and have an adverse impact on our business, financial condition and results of operations.

 

We have business operations in multiple countries and our worldwide operations are taxed under the laws of the jurisdictions in which we operate. However, the integrated nature of our worldwide operations can produce conflicting claims from revenue authorities in different countries as to the profits to be taxed in the individual countries. Recently, tax authorities around the world have heightened their scrutiny of company tax filings and have adopted a more rigid regulatory posture. As part of this shift, the Organization for Economic Co-operation and Development has proposed a number of tax law changes under its Base Erosion and Profit Shifting Action Plans to address issues of transparency, coherence and substance. The EU list of non-cooperative jurisdictions for tax purposes is part of the EU's external strategy for taxation and aims to contribute to ongoing efforts to promote tax good governance worldwide. If the countries where our operations are based be added into EU list of non-cooperative jurisdictions for tax purposes could adversely affect our operations.

 

Uncertainty under United States corporate income tax reform legislation could adversely affect our operating results and financial condition.

 

On December 22, 2017, the United States enacted tax reform legislation (the “Tax Reform Legislation”) that, among other things, reduced the U.S. federal corporate income tax rate from 35% to 21% and imposes an alternative “base erosion and anti-abuse tax” (“BEAT”) on U.S. corporations that make deductible payments to foreign related persons in excess of specified amounts. The reduction in the U.S. federal corporate income tax rate is expected to be beneficial to us in future years in which our consolidated U.S. subsidiaries have net income subject to U.S. tax.

 

The U.S. Internal Revenue Service has issued proposed and final regulations in relation to many aspects of the new law. However, a number of uncertainties remain as to the interpretation and application of the provisions in the Tax Reform Legislation and related regulations. In the absence of final guidance and clearer interpretation by the regulators on these issues, we will use what we believe are reasonable interpretations and assumptions in interpreting and applying the Tax Reform Legislation and related regulations for purposes of determining our income tax payable and results of operations, which may change as we receive additional clarification and implementation guidance. It is also possible that the Internal Revenue Service could issue subsequent guidance or take positions on audit that differ from the interpretations and assumptions that we previously made, which could have a material adverse effect on our cash tax liabilities, results of operations and financial condition.

 

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We face risks related to public health epidemics, including the recent novel coronavirus outbreaks.

 

Our financial condition and results of operations may be adversely affected if a public health epidemic interferes with our ability, or that of our employees, suppliers, customers and other business partners to perform our and their respective responsibilities and obligations related to the conduct of our business. Since November 2019, a novel strain of coronavirus (COVID-19) has spread across the world. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. To date, the COVID-19 outbreak has caused significant disruption to the financial markets and international supply chains, which can substantially depress global business activities, restrict access to capital and result in a long-term economic downturn that would negatively affect our operating results. Any interruption to our supply chain can cause shortages in materials and labor supplies that are key to our commercial operations and negatively impact our business results. COVID-19 related factors, including facility shutdowns mandated by national or regional public health policies, could also prevent our sites from operating in full capacity and adversely affect our financial position.

 

To combat the impact of COVID-19, we continually update our preventative policies for our manufacturing facilities and provide constant monitoring of our operations. We go beyond just adopting control measures to comply with local government health and safety regulations. For example, we have implemented enhanced health and safety protocols across our sites, including temperature screening, mandatory and self-quarantine protocols, suspension of non-critical overseas business travel, remote work arrangements and social distancing guidelines in our employee cafeteria, changing rooms, conference rooms as well as other public common areas to reduce the risk of disease exposure. We build a class 100K clean room facility to manufacture high quality surgical face masks and provide free of charge to employees in Taiwan to help prevent transmission. While we have leveraged corporate resources across our business platform and manufacturing sites to mitigate the potential impact that COVID-19 might have on our operations and there has been intensifying efforts to contain the spread of the COVID-19 by the governments of the countries and territories affected, the extent to which COVID-19 impacts our results remains highly uncertain and depends on future developments, including new information which may emerge concerning the severity of the COVID-19, the effective of COVID-19 vaccines and their ability to prevent the transmission of the coronavirus, among others.

 

We face uncertainties relating to the phasing out of LIBOR.

 

In July 2017, the U.K. Financial Conduct Authority, which regulates the London Interbank Offered Rate (LIBOR), announced that it intends to phase out LIBOR by the end of 2021. Discontinuation of LIBOR and uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may impact the amounts of interest we pay under our debt arrangements and to the extent that the impact on our operation due to such transition remains uncertain.

 

Escalation of tensions between South Korea and North Korea could have an adverse effect on our operations in South Korea and the market value of our shares.

 

The political relationship between South Korea and North Korea has been tense throughout Korea’s modern history. The level of tension between the two countries has heightened and may increase abruptly as a result of current and future events. In recent years, there have been increasing security concerns stemming from North Korea’s nuclear weapons and ballistic missile programs and uncertainty regarding North Korea’s actions and possible responses from the international community. Although we do not derive any revenue from, nor sell any products in, North Korea, any further increase in tension between North and South Korea, for example, if North Korea experiences a leadership crisis, high-level contacts between South Korea and North Korea break down or military hostilities occur, could have a material adverse effect on our South Korea subsidiary, our business, financial condition, results of operations and the market value of our common stock.

 

Any attempt by the U.S. government to withdraw from or materially modify existing international trade agreements or take further actions against certain P.R.C. technology companies could adversely affect our business, financial condition and results of operations.

 

The U.S. is currently undergoing major political changes, which has created uncertainty regarding future U.S. trade policies. The United States government has made certain comments that suggest the U.S. is not supportive of certain existing international trade agreements, such as the North America Free Trade Agreement. The United States government has also issued executive orders to withdraw the U.S. from the Trans-Pacific Partnership. The United States government has shown inclinations to withdraw the U.S. from the World Trade Organization, which can lead to greater economic instability. If the U.S. were to withdraw from or materially modify certain international trade agreements to which it is a party, or if tariffs continue to be raised on foreign-sourced goods imported to the U.S., our U.S. customers may seek new suppliers in the U.S. or other countries, and our business, financial condition and results of operations could be adversely affected.

 

In addition, the United States government has also escalated disputes with certain P.R.C. technology companies, some of which are our customers, over issues in cybersecurity. Since mid-2018, political tension has increased between the U.S. and the P.R.C. and has escalated into a tariff war. On January 15, 2020, the United States and the P.R.C. signed the Phase One trade deal, which officially agreed to the rollback of tariffs, expansion of trade purchases, and renewed commitments on intellectual property, technology transfer, and currency practices. Any future re-adoption or expansion of United States trade restrictions and tariffs, quotas and embargoes, or further escalation of the United States and the P.R.C. trade war can adversely impact our business operations.

 

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We may not be successful in pursuing mergers and acquisitions. Any mergers or acquisitions we make may lead to a diversion of management resources.

 

Our future success may depend on acquiring businesses and technologies, making investments or forming joint ventures that complement, enhance or expand our current product offerings or otherwise offer us growth opportunities. In pursuing such acquisitions, we may face competition from other companies in the semiconductor industry. Our ability to acquire or invest in suitable targets may be limited by applicable laws and regulations in the R.O.C., P.R.C., the United States, European countries and other jurisdictions where we do business. Even if we are successful in making such acquisitions or investments, we may have to expend substantial amounts of cash, incur debt, assume loss-making divisions and incur other types of expenses. We may also face challenges in successfully integrating any acquired companies into our existing organization or in creating the anticipated synergistic benefits. Each of these risks could have a material adverse effect on our business, financial condition and results of operations.

 

Risks Relating to Taiwan, R.O.C.

 

Strained relations between the R.O.C. and the P.R.C. and disruptions in Taiwan’s political environment caused by domestic political events could negatively affect our business and the market value of your investment.

 

Our principal executive offices and our principal facilities are located in Taiwan and approximately 56.9%, 58.7% and 56.3% of our operating revenues in 2018, 2019 and 2020, respectively, were derived from our operations in Taiwan. Accordingly, our business and financial condition may be affected by changes in local governmental policies and political and social instability.

 

The R.O.C. has a unique international political status. The government of the P.R.C. asserts sovereignty over all of China, including Taiwan, and does not recognize the legitimacy of the R.O.C. government. Although significant economic and cultural relations have been established in recent years between the R.O.C. and the P.R.C., relations have often been strained. Any major change in the Taiwanese political environment, including the outcome of presidential or municipal elections, or potential shifts in government policy, may affect the direction of economic and political developments and negatively impact the economic and political environment in Taiwan. Past developments related to the interaction between the R.O.C. and the P.R.C., domestic political events or election results have on occasion depressed the market prices of the securities of Taiwanese or Taiwan-related companies, including our own. Relations between the R.O.C. and the P.R.C. and other factors affecting the political or economic conditions in Taiwan could have a material adverse effect on our financial condition and results of operations, as well as the market price and the liquidity of our common shares and ADSs.

 

Currently, we manufacture interconnect materials in the P.R.C. through our wholly owned subsidiary, ASE Shanghai. We also provide packaging and testing services in the P.R.C. through some of our subsidiaries. In addition, we engage in the P.R.C. in real estate development and the manufacture of computer peripherals and electronic components through our subsidiaries in the P.R.C. See “Item 4. Information on the Company—Organizational Structure—Our Consolidated Subsidiaries.” In the past, R.O.C. companies, including ourselves, were prohibited from investing in facilities for the packaging and testing of semiconductors in the P.R.C. Although the prohibitions have been relaxed since February 2010, the R.O.C. government currently still restricts certain types of investments by R.O.C. companies, including ourselves, in the P.R.C. We do not know when or if such laws and policies governing investment in the P.R.C. will be amended, and we cannot assure you that such R.O.C. investment laws and policies will permit us to make further investments of certain types in the P.R.C. in the future that we consider beneficial to us. Our growth prospects and profitability may be adversely affected if we are restricted from making certain additional investments in the P.R.C. and are not able to fully capitalize on the growth of the semiconductor industry in the P.R.C.

 

As a substantial portion of our business and operations is located in Taiwan, we are vulnerable to natural disasters including earthquakes, typhoons, drought, as well as power outages and other industrial incidents, which could severely disrupt the normal operation of our business and adversely affect our results of operations.

 

Taiwan is susceptible to earthquakes and has experienced severe earthquakes which caused significant property damage and loss of life. Earthquakes have damaged production facilities and adversely affected the operations of many companies involved in the semiconductor and other industries. For example, in February 2016, an earthquake measuring 6.4 on the Richter magnitude scale occurred in Kaohsiung caused several deaths and property damages. However, the earthquake did not have a material impact on our operations. We have never experienced structural damage to our facilities or damage to our machinery and equipment as a result of these earthquakes. In the past, however, we have experienced interruptions to our production schedule primarily as a result of power outages caused by earthquakes.

 

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The supply of electrical power in Taiwan, which is primarily provided by Taiwan Power Company, is susceptible to power disruptions that could be prolonged and frequent, caused by overload as a result of high demand or other reasons. Such power disruptions could further be exacerbated with the government of Taiwan set the target of achieving a nuclear-free homeland by 2025. In 2017, for example, Taiwan suffered a massive power blackout, which left millions of homes, offices and factories without power. Although the power blackout did not have a material impact on our operations, future power blackout may disrupt our business operations and adversely affect our results of operations.

 

Taiwan is also susceptible to typhoons, which may cause damage and business interruptions to companies with facilities located in Taiwan. However, on the other hand, Taiwan did not experience a typhoon in 2020 and faces worst drought in 56 years recently. Our manufacturing process uses extensive amounts of freshwater. Our primary water recycling methods are ultra-filtration systems, chemical mechanical polishing wastewater recycling, and reverse osmosis water recycling. We also harvest rainwater for scrubbing towers and cooling towers. In addition, we take responsive measures by water supply levels such as regularly check water storage and recycling equipment, prepare truckloads of water for meeting future water demand and refine manufacturing capacity in responding to water allocation. Although we have not been directly affected by droughts, we are dependent upon water for our packaging and substrates operations and a drought could interrupt such operations. In addition, a drought could interrupt the manufacturing process of the foundries, in turn disrupting some of our customers’ production, which could result in a decline in the demand for our services. While we aim to minimize the impact of water risks and plan ahead to soften the impact, we cannot assure that water storage will not affect our operations.

 

In addition, we are also subject to the risk of industrial and workplace accidents that could lead to injury or loss of life, damages to our facilities, and adversely impact our business reputation, commercial prospects and operations, as well as our share price and dividends.

 

Our production facilities as well as many of our suppliers and customers and providers of complementary semiconductor manufacturing services, including wafer foundries, are located in Taiwan. If our customers are impacted by natural disasters including earthquake, typhoon, drought or industrial incidents including power outage and labor strikes, these events could cause a decline in the demand for our services. If our suppliers or providers of complementary semiconductor manufacturing services are affected by the aforementioned events, our production schedule could be interrupted, which can adversely impact our financial condition and results of operations.

 

Risks Relating to Ownership of Our Common Shares and the ADSs

 

The market for our common shares and the ADSs may not be liquid.

 

Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors, compared to less active and less liquid markets. Liquidity of a securities market is often a function of the volume of the underlying shares that are publicly held by unrelated parties.

 

There has been no trading market outside the R.O.C. for our common shares and the only trading market for our common shares is the TWSE. The outstanding ADSs are listed on the NYSE. There is no assurance that the market for our common shares or the ADSs will be active or liquid.

 

Although ADS holders are entitled to withdraw our common shares underlying the ADSs from the depositary at any time, R.O.C. law requires that our common shares be held in an account in the R.O.C. or sold for the benefit of the holder on the TWSE. In connection with any withdrawal of common shares from our ADS facility, the ADSs evidencing these common shares will be canceled. Unless additional ADSs are issued, the effect of withdrawals will be to reduce the number of outstanding ADSs. If a significant number of withdrawals are effected, the liquidity of our ADSs will be substantially reduced. We cannot assure you that the ADS depositary will be able to arrange for a sale of deposited shares in a timely manner or at a specified price, particularly during periods of illiquidity or volatility.

 

If a non-R.O.C. holder of ADSs withdraws and holds common shares, such holder of ADSs will be required to appoint a tax guarantor, local agent and custodian in the R.O.C. and register with the TWSE or the Taipei Exchange in order to buy and sell securities on the TWSE.

 

When a non-R.O.C. holder of ADSs elects to withdraw and hold common shares represented by ADSs, such holder of the ADSs will be required to appoint an agent for filing tax returns and making tax payments in the R.O.C. Such agent will be required to meet the qualifications set by the R.O.C. Ministry of Finance and, upon appointment, becomes the guarantor of the withdrawing holder’s tax payment obligations. Evidence of the appointment of a tax guarantor, the approval of such appointment by the R.O.C. tax authorities and tax clearance certificates or evidentiary documents issued by such tax guarantor may be required as conditions to such holder repatriating the profits derived from the sale of common shares. We cannot assure you that a withdrawing holder will be able to appoint, and obtain approval for, a tax guarantor in a timely manner.

 

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In addition, under current R.O.C. law, such withdrawing holder is required to register with the TWSE or the Taipei Exchange and appoint a local agent in the R.O.C. to, among other things, open a bank account and open a securities trading account with a local securities brokerage firm, pay taxes, remit funds and exercise such holder’s rights as a shareholder. Furthermore, such withdrawing holder must appoint a local bank or a local securities firm to act as custodian for confirmation and settlement of trades, safekeeping of securities and cash proceeds and reporting and declaration of information. Without satisfying these requirements, non-R.O.C. withdrawing holders of ADSs would not be able to hold or otherwise subsequently sell our common shares on the TWSE or otherwise.

 

Pursuant to P.R.C. Regulations, only QDIIs or persons that have otherwise obtained the approval from the MOEAIC and registered with the TWSE are permitted to withdraw and hold our shares from a depositary receipt facility. In order to hold our shares, such QDIIs are required to appoint an agent and custodian as required by the P.R.C. Regulations. If the aggregate amount of our shares held by any QDII or shares received by any QDII upon a single withdrawal or in the aggregate accounts for 10.0% of our total issued and outstanding shares, such QDII must obtain the prior approval from the MOEAIC. We cannot assure you that such approval would be granted.

 

The market value of your investment may fluctuate due to the volatility of the R.O.C. securities market.

 

The trading price of our ADSs may be affected by the trading price of our common shares on the TWSE. The R.O.C. securities market is smaller and more volatile than the securities markets in the United States and in many European countries. The TWSE has experienced substantial fluctuations in the prices and volumes of sales of listed securities and there are currently limits on the range of daily price movements on the TWSE. During 2020, the TWSE Weighted Index peaked at 14,732.53 on December 31, 2020. and reached a low of 8,681.34 on March 19, 2020, and the trading price of our common shares ranged from NT$49.95 per share to NT$83.80 per share. On March 19, 2021, the TWSE Weighted Index closed at 16,070.24 and the closing value of our common shares was NT$108.00 per share.

 

The TWSE is particularly volatile during times of political instability, including when relations between Taiwan and the P.R.C. are strained. Several investment funds affiliated with the R.O.C. government have also from time to time purchased securities from the TWSE to support the trading level of the TWSE. Moreover, the TWSE has experienced problems such as market manipulation, insider trading and settlement defaults. The recurrence of these or similar problems could have an adverse effect on the market price and liquidity of the securities of R.O.C. companies, including our common shares and ADSs, in both the domestic and international markets.

 

We may not continue to declare cash dividends in any particular amount.

 

We intend to continue to pay dividends. However, future dividends may be affected by, among other things, the best interests of our Company and our shareholders, our results of operations, cash balances and future cash requirements, financial condition, investments and acquisitions, legal risks, and other factors that the board of directors may consider relevant. Our dividend payments may change from time to time, and we cannot assure that we will continue to declare dividends in any particular amounts. A reduction in, a delay of, or elimination of our dividend payments could adversely affect our share price.

 

Holders of common shares and ADSs may experience dilution if we issue stock bonuses and stock options to employees or sell additional equity or equity-linked securities.

 

Similar to other R.O.C. technology companies, we issue bonuses from time to time in the form of common shares. Bonuses in the form of our common shares are valued at the closing price of our common shares on the day prior to our meeting of the board of directors. In addition, under the R.O.C. Company Law we may, upon approval from our board of directors and the R.O.C. Securities and Futures Bureau of the FSC, establish employee stock option plans provided that shareholders’ approval is required if the exercise price of an option would be less than the closing price of our common shares on the TWSE on the grant date of the option.

 

As of December 31, 2020, a total of approximately 144,768 thousand options assumed and granted by ASEH were outstanding. See “Item 6. Directors, Senior Management and Employees—Compensation—ASEH Employee Compensation and Stock Option Plans.” The issuance of our common shares pursuant to stock bonuses or stock options may have a dilutive effect on the holders of outstanding common shares and ADSs.

 

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In addition, the issuance of additional equity or equity-linked securities may result in additional dilution to our shareholders. For example, in 2015, ASE issued 2018 NTD-linked Convertible Bonds to fund procurement of equipment from overseas. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources” for more information.

 

Restrictions on the ability to deposit our common shares into our ADS facility may adversely affect the liquidity and price of our ADSs.

 

The ability to deposit common shares into our ADS facility is restricted by R.O.C. law. A significant number of withdrawals of common shares underlying our ADSs would reduce the liquidity of the ADSs by reducing the number of ADSs outstanding. As a result, the prevailing market price of our ADSs may differ from the prevailing market price of our common shares on the TWSE. Under current R.O.C. law, no person or entity, including you and us, may deposit our common shares in our ADS facility without specific approval of the FSC, unless:

 

(1)we pay stock dividends on our common shares;

 

(2)we make a free distribution of common shares;

 

(3)holders of ADSs exercise preemptive rights in the event of capital increases; or

 

(4)to the extent permitted under the deposit agreement and the relevant custody agreement, investors purchase our common shares, directly or through the depositary, on the TWSE, and deliver our common shares to the custodian for deposit into our ADS facility, or our existing shareholders deliver our common shares to the custodian for deposit into our ADS facility.

 

With respect to item (4) above, the depositary may issue ADSs against the deposit of those common shares only if the total number of ADSs outstanding following the deposit will not exceed the number of ADSs previously approved by the FSC, plus any ADSs issued pursuant to the events described in items (1), (2) and (3) above.

 

In addition, in the case of a deposit of our common shares requested under item (4) above, the depositary will refuse to accept deposit of our common shares if such deposit is not permitted under any legal, regulatory or other restrictions notified by us to the depositary from time to time, which restrictions may include blackout periods during which deposits may not be made, minimum and maximum amounts and frequency of deposits.

 

The depositary will not offer holders of ADSs preemptive rights unless the distribution of both the rights and the underlying common shares to our ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act.

 

Holders of ADSs will not have the same voting rights as our shareholders, which may affect the value of their ADSs.

 

The voting rights of a holder of ADSs as to our common shares represented by its ADSs are governed by the deposit agreement. Holders of ADSs will not be able to exercise voting rights on an individual basis. If holders representing at least 51% of the ADSs outstanding at the relevant record date instruct the depositary to vote in the same manner regarding a resolution, including the election of directors, the depositary will cause all common shares represented by the ADSs to be voted in that manner. If the depositary does not receive timely instructions representing at least 51% of the ADSs outstanding at the relevant record date to vote in the same manner for any resolution, including the election of directors, holders of ADSs will be deemed to have instructed the depositary or its nominee to authorize all our common shares represented by the ADSs to be voted at the discretion of our chairman or his designee, which may not be in the interest of holders of ADSs. Moreover, while shareholders who own 1% or more of our outstanding shares are entitled to submit one proposal to be considered at our annual general meetings of shareholders, only holders representing at least 51% of our ADSs outstanding at the relevant record date are entitled to submit one proposal to be considered at our annual general meetings of shareholders. Hence, only one proposal may be submitted on behalf of all ADS holders.

 

The right of holders of ADSs to participate in our rights offerings is limited, which could cause dilution to your holdings.

 

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary will not offer holders of ADSs those rights unless both the distribution of the rights and the underlying securities to all our ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. Although we may be eligible to take advantage of certain exemptions under the Securities Act available to certain foreign issuers for rights offerings, we can give no assurances that we will be able to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement for any of these rights. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings.

 

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If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case holders of ADSs will receive no value for these rights.

 

Changes in exchange controls, which restrict your ability to convert proceeds received from your ownership of ADSs, may have an adverse effect on the value of your investment.

 

Under current R.O.C. law, the depositary, without obtaining approvals from the Central Bank of the Republic of China (Taiwan) or any other governmental authority or agency of the R.O.C., may convert NT dollars into other currencies, including U.S. dollars, for:

 

·the proceeds of the sale of common shares represented by ADSs or received as stock dividends from our common shares and deposited into the depositary receipt facility; and

 

·any cash dividends or distributions received from our common shares.

 

In addition, the depositary may also convert into NT dollars incoming payments for purchases of common shares for deposit in the ADS facility against the creation of additional ADSs. The depositary may be required to obtain foreign exchange approval from the Central Bank of the Republic of China (Taiwan) on a payment-by-payment basis for conversion from NT dollars into foreign currencies of the proceeds from the sale of subscription rights for new common shares. Although it is expected that the Central Bank of the Republic of China (Taiwan) will grant this approval as a routine matter, we cannot assure you that in the future any approval will be obtained in a timely manner, or at all.

 

Under the R.O.C. Foreign Exchange Control Act, the Executive Yuan of the R.O.C. government may, without prior notice but subject to subsequent legislative approval, impose foreign exchange controls in the event of, among other things, a material change in international economic conditions. We cannot assure you that foreign exchange controls or other restrictions will not be introduced in the future.

 

The value of your investment may be reduced by possible future sales of common shares or ADSs by us or our shareholders.

 

While we are not aware of any plans by any major shareholders to dispose of significant numbers of common shares, we cannot assure you that one or more existing shareholders or owners of securities convertible or exchangeable into or exercisable for our common shares or ADSs will not dispose of significant numbers of common shares or ADSs. In addition, several of our subsidiaries and affiliates hold common shares, depositary shares representing common shares and options to purchase common shares or ADSs. They may decide to sell those securities in the future. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders” for a description of our significant shareholders and affiliates that hold our common shares.

 

We cannot predict the effect, if any, that future sales of common shares or ADSs, or the availability of common shares or ADSs for future sale, will have on the market price of our common shares or the ADSs prevailing from time to time. Sales of substantial numbers of common shares or ADSs in the public market, or the perception that such sales may occur, could depress the prevailing market prices of our common shares or the ADSs.

 

Item 4. Information on the Company

 

HISTORY AND DEVELOPMENT OF THE COMPANY

 

ASE Technology Holding Co., Ltd. was jointly established on April 30, 2018 as a company limited by shares under the R.O.C. Company Law, by the combination of Advanced Semiconductor Engineering, Inc., which was incorporated on March 23, 1984, and Siliconware Precision Industries Co., Ltd., which was incorporated on May 17, 1984.

 

ASEH directly controls ASE Group, SPIL Group and USI Group. ASEH’s main manufacturing facilities are located in Taiwan, China, South Korea, Japan, Singapore, Malaysia, Mexico, America, Poland, France, the United Kingdom, Germany, Tunisia and Czech Republic. Our principal executive offices are located at 26, Chin 3rd Road, Kaohsiung, Taiwan, R.O.C. and our telephone number at the above address is (886) 7-361-7131. Our common shares have been listed on the TWSE under the symbol “3711” and ADSs representing our common shares have been listed on the NYSE under the ticker symbol “ASX” since April 2018.

 

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SPIL Acquisition

 

In August 2015, ASE announced an offer to purchase 779,000,000 common shares (including those represented by American depositary shares) of SPIL through concurrent tender offers in the R.O.C. and the United States, at a price of NT$45 per SPIL common share and NT$225 per SPIL American depositary share. The Initial SPIL Tender Offer expired on September 22, 2015, with 1,147,898,165 common shares (including those represented by American depositary shares) validly tendered and not validly withdrawn, exceeding the offer cap, and as a result, after proration, 725,749,060 SPIL common shares and 10,650,188 SPIL American depositary shares were accepted for purchase. On October 1, 2015, ASE became a shareholder holding approximately 24.99% of the issued and outstanding share capital in SPIL.

 

In December 2015, following an announcement by SPIL that it plans to issue 1,033 million shares, if approved by SPIL shareholders, to a third party pursuant to a share placement agreement, ASE submitted a written proposal to SPIL’s board proposing to acquire all SPIL shares not otherwise owned by ASE, contingent upon the termination of the share placement agreement. The board of directors of SPIL did not respond to our acquisition proposal. Subsequently, ASE launched an offer to purchase 770,000,000 common shares (including those represented by American depositary shares) of SPIL through concurrent tender offers in the R.O.C. and the United States, at a price of NT$55 per SPIL common share and NT$275 per SPIL American depositary share. The Second SPIL Tender Offer expired on March 17, 2016. Because the TFTC did not render a decision before the expiration of the Second SPIL Tender Offer, resulting in the failure to satisfy one of the tender offer conditions, the Second SPIL Tender Offer was not successful. The TFTC subsequently suspended its review on March 23, 2016.

 

Notwithstanding the failure of the Second SPIL Tender Offer, ASE continued to seek control of SPIL, with the purpose of effecting an acquisition of 100% of the common shares and American depositary shares of SPIL. Simultaneously with the acquisition of SPIL, ASE planned to establish a holding company in Taiwan that would hold 100% of the equity interests of both ASE and SPIL such that ASE and SPIL would be wholly owned subsidiaries of such holding company, which would maintain all current operations of ASE and SPIL.

 

In March and April 2016, ASE acquired an additional 258,300,000 common shares of SPIL (including those represented by American depositary shares) through open market purchases.

 

In June 2016, ASE entered into the Joint Share Exchange Agreement with SPIL, pursuant to which ASEH was formed by means of a statutory share exchange pursuant to the laws of the Republic of China, and ASEH (i) acquired all issued shares of ASE in exchange for shares of ASEH, and (ii) acquired all issued shares of SPIL using cash consideration.

 

The Share Exchange was conditionally approved by the Anti-Monopoly Bureau under the State Administration for Market Regulation on November 23, 2017. Among other restrictive conditions imposed by the Anti-Monopoly Bureau, ASE and SPIL had to maintain independent operations for 24 months.

 

On January 16, 2018, ASE converted 9,690,452 American depositary shares of SPIL that it owned into 48,452,260 common shares.

 

On February 12, 2018, ASE and SPIL, respectively, held extraordinary general shareholders’ meetings and each approved the proposed Joint Share Exchange, pursuant to which, ASEH acquires 100% of both ASE and SPIL shares.

 

The Share Exchange consummated on April 30, 2018, and ASE and SPIL became privately held and wholly owned subsidiaries of ASEH concurrently. The common shares of ASE and SPIL were delisted from the TWSE and their respective ADSs were delisted from NYSE and NASDAQ.

 

On March 25, 2020, the Anti-Monopoly Bureau officially lifted all restrictive conditions imposed on the Share Exchange.

 

USI Group and USI Group Restructuring

 

USI Group engages primarily in EMS in relation to computing and storage, consumer electronics, communications, industrial and automotive, among other services and businesses. We purchased 22.6% of the outstanding shares of Universal Scientific Industrial in 1999. We subsequently increased our holding to 23.3% in 2000. As of December 31, 2009, we held approximately 18.1% of Universal Scientific Industrial’s outstanding equity shares, which allowed us to exercise significant influence over Universal Scientific Industrial and therefore accounted for this investment by the equity method. In February 2010, we, along with our two subsidiaries, J&R Holding Limited and ASE Test, through a cash and stock tender offer, acquired 641,669,316 common shares of Universal Scientific Industrial at NT$21 per share, amounting to NT$13,475.1 million in total, resulting in our controlling ownership over Universal Scientific Industrial.

 

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As a result, Universal Scientific Industrial became our subsidiary. The shares of Universal Scientific Industrial were delisted from the TWSE on June 17, 2010, where they were previously listed under the symbol “2350.” In August 2010, we acquired an additional 222,243,661 shares of Universal Scientific through another tender offer at NT$21 per share, amounting to NT$4,667.1 million in total. In September 2012, as part of our internal business restructuring, our subsidiaries transferred their shareholdings in Universal Scientific Industrial to ASE.

 

In February 2012, USI Shanghai completed its IPO on the Shanghai Stock Exchange. The total proceeds from the IPO were approximately RMB811.7 million prior to deducting underwriting discounts and commissions. In November 2014, USI Shanghai completed its capital increase by way of domestic private placements through a bidding process, raising a total of RMB2,063.0 million prior to deducting underwriting discounts and commissions. The issue price per share was RMB27.06.

 

On February 2, 2015, Universal Scientific Industrial’s shareholders passed a resolution at the shareholders’ meeting to spin off and assign Universal Scientific Industrial’s investment businesses with a then estimated value of NT$35,537.8 million to USI Inc. In April 2015, Universal Scientific Industrial completed a spin-off of its subsidiaries to USI Inc., a company incorporated under R.O.C. law. As part of our business realignment effort, we acquired 990.1 million shares in USI Inc. on the spin-off record date, which resulted in us holding 99.2% of the total then outstanding shares of USI Inc. Following Universal Scientific Industrial’s spin-off of its investment businesses to USI Inc., Universal Scientific Industrial carried out a capital reduction plan reducing its capital from NT$16,413.0 million to NT$400.0 million. As a result of such spin-off, as of April 1, 2015, we held approximately 99.0% of the outstanding common shares of Universal Scientific Industrial.

 

On September 24, 2015, as part of our corporate reorganization to align each business function to different legal entity groups, the board of directors of ASE passed a resolution to announce our intention to carry out the Universal Scientific Industrial Share Transfer. The Universal Scientific Industrial Share Transfer was approved by the MOEAIC on February 3, 2016. The majority of shares were transferred in March 2016, and the remaining shares were transferred in May 2016. Following the completion of the Universal Scientific Industrial Share Transfer, USI Group will operate under the legal entities directly and indirectly held under USI Inc.

 

In October 2018, to enhance operational flexibility through organizational restructure, ASE’s board of directors resolved to spin off ASE’s investment department, which is responsible for managing the ordinary shares and assets of USI Inc., into USI Global, a newly established company. USI Global issued new ordinary shares to us as consideration for the spin-off. The spin-off consummated in November 2018 and we obtained control over ASE and USI Global. In December 2018, our board of directors and the board of director of USI Global resolved to merge USI Global and ASE Technology Holding Co., Ltd. The merger consummated in January 2019 and ASE Technology Holding Co., Ltd. became the surviving entity after the merger and USI Global was thereby dissolved. Our financial position or financial performance was not materially affected by USI Global’s spin-off from ASE Inc. or USI Global’s merger with ASE Technology Holding Co., Ltd.

 

On December 12, 2019, USIFR, FAFG and the shareholders of FAFG entered into a share purchase agreement (the “FAFG Share Purchase Agreement”), and USI Shanghai and ASDI, one of the shareholders of FAFG and privately held company owned by FAFG’s founder, entered into a framework agreement for purchasing asset through issuing shares, pursuant to which USIFR and USI Shanghai will ultimately acquire 100.0% of the share capital of FAFG by way of a share purchase (the “FAFG Transaction”). The FAFG Transaction is a two-step transaction. In the first step, USIFR will directly purchase 89.6% of FAFG’s share capital in exchange for a cash payment. In the second step, USI Shanghai will acquire the remaining 10.4% of FAFG’s share capital from ASDI in exchange for newly issued shares of USI Shanghai. At the conclusion of both steps, USI Shanghai will directly or indirectly own 100% of the share capital of FAFG. On March 26, 2020, the issuance of new shares for the FAFG Transaction was approved unconditionally by the M&A and Restructuring Committee of China Securities Regulatory Commission. On December 1, 2020, the transaction was completed and as a result, USI acquired 100% of FAFG’s total issued shares, 79,848 thousand shares. The consideration transferred amounting to NT$12,829.4 million (US$456.9 million), of which NT$10,800.6 million (US$384.6 million) was cash, NT$1,734.6 million (US$61.8 million) was equity instrument and NT$294.2 million (US$10.5 million) was contingent consideration arrangement. Such consideration transferred was tentative as of December 31, 2020 because the fair values of the ordinary shares newly issued by USI Shanghai and the contingent consideration arrangement for the earn-out were still being determined. For details about the FAFG Share Purchase Agreement, see “Item 10. Additional information—Material Contract” and refer to note 29 to our consolidated financial statements included in this annual report for more information.

 

Capital Expenditures

 

Our principal capital expenditures for the years ended December 31, 2018, 2019 and 2020 have been for machinery and equipment procurements and investments in buildings and improvement in connection with the expansion of our capacity expansion, for which we spent NT$39,092.2 million, NT$63,073.9 million and NT$59,024.2 million (US$2,102.0 million), respectively. We had commitments for capital expenditures of approximately NT$32,627.4 million (US$1,161.9 million), of which NT$1,968.8 million (US$70.1 million) had been prepaid as of December 31, 2020, mainly in connection with the expansion of our packaging and testing services operations primarily in the R.O.C. and the P.R.C. Any future expansion of our operating activities could result in additional capital expenditures. We anticipate our capital expenditures in 2021 will be financed through our existing cash, expected cash flow from operations and existing credit lines under our loan facilities and will consist of, among other things, additional machinery and equipment procurements for our capacity expansions. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources” for more information. Other than the SPIL Acquisition, there was no significant financial investments or divestitures in 2018, 2019 and 2020. See “—SPIL Acquisition” for information.

 

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For more information on our history and development, see “—Organizational Structure.”

 

BUSINESS OVERVIEW

 

ASEH is a leading provider of semiconductor manufacturing services in assembly and testing. Our services include semiconductor packaging, production of interconnect materials, front-end engineering testing, wafer probing and final testing services, as well as integrated solutions for EMS in relation to computing and storage, peripherals, communications, industrial, automotive and server applications.

 

We believe that, as a result of the following strengths, we are able to compete effectively to meet customers’ requirements across a wide range of applications:

 

·our ability to provide a broad range of cost-effective semiconductor packaging and testing services on a large-scale turnkey basis within key centers of semiconductor manufacturing;

 

·our expertise in developing and providing cost-effective packaging, interconnect materials and testing technologies and solutions;

 

·our ability to provide proactive original design manufacturing services using innovative solution-based designs;

 

·our commitment to investing in capacity expansion and research and development, as well as selective acquisitions, that will benefit customers and our business;

 

·our geographic presence in key centers of outsourced semiconductor and electronics manufacturing; and

 

·our long-term relationships with providers of complementary semiconductor manufacturing services, including our strategic alliance with TSMC.

 

We believe that it is still the trend for semiconductor companies to outsource their packaging, testing and manufacturing requirements as semiconductor companies rely on independent providers of foundry, packaging and testing and EMS. In response to the increased pace of new product development and shortened product life and production cycles, semiconductor companies are increasingly seeking both independent packaging and testing companies that can provide turnkey services in order to reduce time to market and electronic manufacturing companies with proactive original design capabilities that can provide large-scale production. We believe that our technological expertise and scale and our ability to integrate our broad range of solutions into turnkey services and EMS allow us to benefit from the accelerated outsourcing trend and better serve our existing and potential customers.

 

We believe that we have benefited, and will continue to benefit, from our geographic location in Taiwan. Taiwan is currently the largest center for outsourced semiconductor manufacturing in the world and has a high concentration of EMS providers. Our close proximity to foundries and other providers of complementary semiconductor manufacturing services is attractive to our customers who wish to take advantage of the efficiencies of a total semiconductor manufacturing solution by outsourcing several stages of their manufacturing requirements. We believe that, as a result, we are well positioned to meet the advanced semiconductor engineering and manufacturing requirements of our customers.

 

Industry Background

 

General

 

Semiconductors are the building blocks used to create an increasing variety of electronic products and systems. Continuous improvements in semiconductor process and design technologies have led to smaller, more complex and more reliable semiconductors at a lower cost per function. These improvements have resulted in significant performance and price benefits to manufacturers of electronic products. As a result, semiconductor demand has grown substantially in our primary end-user markets for communications, computing and consumer electronics, and has experienced increased growth in other markets such as automotive products and industrial automation and control systems.

 

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The semiconductor industry is characterized by strong long-term growth, with periodic and sometimes severe cyclical downturns. The Semiconductor Industry Association reported that worldwide sales of semiconductors increased from approximately US$51.0 billion in 1990 to approximately US$439.0 billion in 2020. We believe that overall growth and cyclical fluctuations will continue over the long-term in the semiconductor industry.

 

EMS

 

EMS providers typically achieve large economies of scale in manufacturing by pooling together product design techniques and also provide value-added services such as warranties and repairs. Companies who do not need to manufacture a constant supply of products have increasingly outsourced their manufacturing to these service providers so that they can respond quickly and efficiently to sudden spikes in demand without having to maintain large inventories of products.

 

EMS are sought by companies in a wide range of industries including, among others, information, communications, computing and storage, consumer electronics, automotive electronics, medical treatment, industrial applications, aviation, navigation, national defense and transportation. Although affected by global economic fluctuations, we expect the EMS industry to continue to grow in the long-term, and we have enhanced our presence in the industry through USI Group.

 

Outsourcing Trends in Semiconductor Manufacturing

 

Historically, semiconductor companies designed, manufactured, packaged and tested semiconductors primarily within their own facilities. However, there is a clear trend in the industry to outsource the manufacturing process. Virtually every significant stage of the manufacturing process can be outsourced. Wafer foundry services, semiconductor packaging and testing services, and EMS are currently the largest segments of the independent semiconductor manufacturing services market.

 

The availability of technologically advanced independent manufacturing services has also enabled the growth of “fabless” semiconductor companies that focus on semiconductor design and marketing, while outsourcing their wafer fabrication, packaging and testing requirements to independent companies. We believe that the growth in the number and scale of fabless semiconductor companies that rely solely on independent companies to meet their manufacturing requirements will continue to be a driver of growth for us. Similarly, the availability of technologically advanced independent manufacturing services has encouraged integrated device manufacturers, which traditionally have relied on in-house semiconductor manufacturing capacity, to increasingly outsource their manufacturing requirements to independent semiconductor manufacturing companies.

 

We believe the outsourcing of semiconductor manufacturing services will increase in the future for many reasons, including the following:

 

·Technological Expertise and Significant Capital Expenditure. Semiconductor manufacturing processes have become highly complex, requiring substantial investment in specialized equipment and facilities and sophisticated engineering and manufacturing expertise. In addition, product life cycles have been shortening, magnifying the need to continuously upgrade or replace manufacturing equipment to accommodate new products. As a result, new investments in in-house facilities are becoming less desirable to integrated device manufacturers because of the high investment costs as well as the inability to achieve sufficient economies of scale and utilization rates necessary to be competitive with the independent service providers. Independent packaging, testing, wafer foundry and EMS companies, on the other hand, are able to realize the benefits of specialization and achieve economies of scale by providing services to a large base of customers across a wide range of products. This enables them to reduce costs and shorten production cycles through high capacity utilization and process expertise. In the process, they are also able to focus on discrete stages of semiconductor manufacturing and deliver services of superior quality. Some semiconductor companies with in-house operations are under increasing pressure to rationalize these operations by relocating to locations with lower costs or better infrastructure, in order to lower manufacturing costs and shorten production cycle time. We expect semiconductor companies to increasingly outsource their requirements to take advantage of the advanced technology and scale of operations of independent packaging and testing companies and EMS providers.

 

·Focus on Core Competencies. As the semiconductor industry becomes more competitive, semiconductor companies are expected to further outsource their semiconductor manufacturing requirements in order to focus their resources on core competencies, such as semiconductor design and marketing.

 

·Time-to-Market Pressure. The increasingly short product life cycle has accelerated time-to-market pressure for semiconductor companies, leading them to rely increasingly on outsourced suppliers as a key source for effective manufacturing solutions.

 

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·Capitalize on the High Growth Rates in Emerging Markets. Emerging markets, and China in particular, have become both major manufacturing centers for the technology industry and growing markets for technology-based products. Thus, in order to gain direct access to the Chinese market, many semiconductor companies are seeking to establish manufacturing facilities in China by partnering with local subcontractors. As a result, certain stages of the semiconductor manufacturing process that were previously handled in-house will be increasingly outsourced in order to improve efficiency.

 

Trends of Mergers and Acquisitions in the Semiconductor Industry

 

The global semiconductor industry is highly competitive, and such competitive landscape is changing as a result of a trend toward consolidation within the industry. In particular, packaging and testing service providers in the semiconductor industry have engaged in cross-border mergers and acquisitions in recent years as part of their expansion strategy, which has gradually changed the ecosystem of the semiconductor industry. Examples of mergers and acquisitions in recent years include mergers and acquisitions by and among semiconductor design companies or integrated device manufacturers, including Intel Corporation’s acquisition of Altera Corporation, ON Semiconductor Corporation’s acquisition of Fairchild Semiconductor International, Inc., NXP Semiconductors N.V.’s acquisition of Freescale Semiconductor, Inc., Avago Technologies Ltd.’s acquisition of Broadcom Corporation, several acquisitions of semiconductor design companies by MediaTek, Inc., Bain Capital’s acquisition of Toshiba Corporation’s memory chip business, Microchip Technology Inc.’s acquisition of Atmel Corporation and Microsemi Corporation, Qualcomm Incorporated’s attempted acquisition of NXP Semiconductors, Broadcom Limited’s attempted acquisition of Qualcomm Incorporated, Infineon’s acquisition of Cypress, NXP Semiconductors N.V.’s acquisition of Marvell’s Wi-Fi Connectivity Business, ON Semiconductor Corporation’s acquisition of Quantenna, NVIDIA’s acquisition of ARM Limited from SoftBank Group Corp., and Analog Devices, Inc.’s acquisition of Maxim Integrated Products, Inc. Examples of mergers and acquisitions by and among semiconductor packaging and testing companies, including Jiangsu Changjiang Electronics Technology Co., Ltd.’s acquisition of STATS ChipPAC Ltd., Nantong Fujitsu Microelectronics Co., Ltd.’s acquisition of the packaging and testing factory of Advanced Micro Devices, Inc., Amkor Technology, Inc.’s acquisition of J-Devices Corporation and Tianshui Huatian Technology’s acquisition of Unisem.

 

As a result of the aforementioned mergers and acquisitions, our competitors were able to further strengthen their competitive position by expanding their product offerings and combining their financial resources. We expect this consolidation trend to continue.

 

Overview of Semiconductor Manufacturing Process

 

The manufacturing of semiconductors is a complex process that requires increasingly sophisticated engineering and manufacturing expertise. The manufacturing process can be generally divided into the following stages:

 

 

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We are involved in all stages of the semiconductor manufacturing process except circuit design and wafer fabrication.

 

Process 

Description 

1. Circuit Design The design of a semiconductor is developed by laying out circuit components and interconnections.
2. Engineering Test Throughout and following the design process, prototype semiconductors undergo engineering testing, which involves software development, electrical design validation, and reliability and failure analysis.
3. Wafer Fabrication Process begins with the generation of a photomask through the definition of the circuit design pattern on a photographic negative, known as a mask, by an electron beam or laser beam writer. These circuit patterns are transferred to the wafers using various advanced processes.
4. Wafer Probe Each individual die is electrically tested, or probed, for defects. Dies that fail this test are marked to be discarded.
5. Packaging (or Assembly) Packaging, also called assembly, is the processing of bare semiconductors into finished semiconductors and serves to protect the die and facilitate electrical connections and heat dissipation. The patterned silicon wafers received from our customers are diced by means of diamond saws into separate dies, also called chips. Basically each die is attached to a leadframe or a laminate (plastic or tape) substrate by epoxy resin. A leadframe is a miniature sheet of metal, generally made of copper and silver alloys, on which the pattern of input/output leads has been cut. On a laminate substrate, typically used in ball grid array, or BGA, packages, the leads take the shape of small bumps or balls. Leads on the leadframe or the substrate are connected by extremely fine gold or copper wires or bumps to the input/output terminals on the chips, through the use of automated machines known as “bonders.” Each chip is then encapsulated, generally in a plastic casing molded from a molding compound, with only the leads protruding from the finished casing, either from the edges of the package as in the case of the leadframe-based packages, or in the form of small bumps on a surface of the package as in the case of BGA or other substrate-based packages.
6. Final Test Final testing is conducted to ensure that the packaged semiconductor meets performance specifications. Final testing involves using sophisticated testing equipment known as testers and customized software to electrically test a number of attributes of packaged semiconductors, including functionality, speed, predicted endurance and power consumption. The final testing of semiconductors is categorized by the functions of the semiconductors tested into logic/mixed-signal/RF/3D IC/discrete final testing and memory final testing. Memory final testing typically requires simpler test software but longer testing time per device tested.
7. Module, Board Assembly and Test Module, board assembly and test refers to the combination of one or more packaged semiconductors with other components in an integrated module or board to enable increased functionality.
8. Material Material refers to the interconnection of materials which connect the input/output on the semiconductor dies to the printed circuit board, such as substrate, leadframe and flip chip.

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Strategy

 

Our objective is to provide integrated solutions that set industry standards, including packaging, testing services, interconnect materials design and production capabilities, and to lead and facilitate the industry trend toward outsourcing semiconductor manufacturing requirements. The principal elements of our strategy are to:

 

Grow Our Packaging Services and Expand Our Range of Offerings

 

We believe that an important factor to attract leading semiconductor companies as our customers has been our ability to fulfill demand for a broad range of packaging solutions on a large scale. We intend to continue to develop process and product technologies to meet the packaging requirements of clients. Our expertise in packaging technology has enabled us to develop sophisticated solutions such as flip chip packaging, bump chip carrier packaging, stacked die packaging and fine-pitch wire bonding. We are continuously investing in research and development in response to and in anticipation of migrations in technology and intend to continue to acquire access to new technologies through strategic alliances and licensing arrangements.

 

The increasing miniaturization of semiconductors and the growing complexity of interconnect technology have also resulted in the convergence of assembly processes at different levels of integration: chip, module, board and system. In response to this miniaturization and growing complexity, we have focused on providing module assembly services and, in addition, our subsidiary USI Group has provided us with access to process and product technologies at the levels of module, board and system assembly and testing, which helps us to better anticipate industry trends and take advantage of potential growth opportunities. We expect to continue to combine our packaging, testing and materials technologies with the expertise of USI Group at the systems level to develop our SiP business.

 

Strategically Expand and Streamline Production Capacity

 

To capitalize on the growing demand, we intend to strategically expand our production capacity, both through internal growth and selective acquisitions and joint ventures, with a focus on providing cost competitive and innovative packaging and testing services.

 

We intend to invest in trends that are essential to the development of the industry. We plan to expand our capacity to meet demand for smaller form factors, higher performance and higher packaging density.

 

In addition, we intend to promote our copper wire solutions to our customers in addition to gold wire. Gold wire is a significant raw material for us. Gold prices, however, are subject to intense fluctuations and have in the past impacted our profitability. We believe that replacing gold wire in some of our packages with copper wire technology will not only improve our profitability but will also enable us to provide more value to our customers by providing lower cost solutions, which could enhance our competitiveness and market share. We are currently the industry leader in terms of copper wire capacity. We thus plan to capitalize on the overall industry trend of copper conversion by maintaining our leadership and focusing on integrating copper wire into a wider range of traditional leadframe-based packages and higher-end substrate-based packages.

 

We expect to focus on providing cost-competitive services through better management of capacity utilization and efficiency improvements and offer our services on a large scale with the intention of driving more integrated device manufacturer outsourcing in the long run. Before the consummation of the Share Exchange, SPIL entered into an agreement to sell 30.0% of its equity interest in SZ to Tibet Zixi Electronic Technology Co., Ltd. In 2018, we also sold 30.0% of our equity interest in ASEN to Beijing Unis Capital Management Co., Ltd. Although we repurchased equity interest from Tibet Zixi Electronic Technology Co., Ltd. and Beijing Unis Capital Management Co., Ltd., respectively, in 2019, we still believe our strategic relationships with China-based companies will enable us to expand our commercial reach in the P.R.C.’s fast-growing semiconductor market.

 

We evaluate acquisition and joint venture opportunities on the basis of access to new markets and technology, the enhancement of our production capacity, improvement of research and development capabilities, economies of scale and management resources, and closer proximity to existing and potential customers. The table below sets forth our recent major investments. 

 

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Year   Investments
2018   ·   We completed the step acquisition of SPIL to broaden semiconductor packaging and testing service.
·   We entered into an equity transfer agreement with Chung Hong Electronics (Suzhou) Co., Ltd. to acquire its 60% equity in its Polish subsidiary USIPL to set up production base and to expand our business in Europe to build a much more complete global supply system.
2019   ·   We entered into a project investment agreement with China Merchants Group of Huizhou Daya Bay Economic and Technological Development Zone of Guangdong Province to set up a subsidiary, Huanrong Electronics (Huizhou) Co., Ltd., to address the growing needs of our capacity expansion and the development of our business in South China.
·   We obtained control over Advanced Microelectronic Products Inc. to diversify our business in manufacturing of integrated circuit.  
2020   ·   We set up a Vietnam-based subsidiary, Universal Scientific Industrial Vietnam Company Limited, to fulfill international customer orders and strengthen supply chain management.
·   We acquired 100% of FAFG to further enhance our manufacturing capabilities, expand our EMS customer base and capture a wider range of opportunities throughout the product development lifecycle.

 

Continue to Leverage Our Presence in Key Centers of Semiconductor and Electronics Manufacturing

 

We intend to continue leveraging our presence in key centers of semiconductor and electronics manufacturing to further grow our business. We have significant packaging, testing and EMS operations in Taiwan, currently one of the leading centers for outsourced semiconductor and electronics manufacturing in the world. This presence enables our engineers to work closely with our customers as well as wafer foundries and other providers of complementary semiconductor and EMS early in the design process, enhances our responsiveness to the requirements of our customers and shortens production cycles. In addition, as a turnkey service provider, we are able to offer our products to our customers and complementary service providers within relatively close geographic proximity. Besides our current operations in Taiwan, we intend to expand our operations in our other subsidiaries.

 

We have primary operations in the following locations in addition to our locations in Taiwan:

 

·P.R.C. — a fast-growing market for semiconductor and electronics manufacturing in the world;

 

·Korea — an important center for the manufacturing of memory and communications devices;

 

·Malaysia and Singapore — a center for outsourced semiconductor manufacturing in Southeast Asia;

 

·Silicon Valley in California — the preeminent center for semiconductor design, with a concentration of fabless customers;

 

·Japan — an emerging market for packaging and testing outsourcing services as Japanese integrated device manufacturers increasingly outsource their semiconductor manufacturing requirements;

 

·Mexico — a development and manufacturing center for electronic products across different industries with an auxiliary service depot to provide technical services; and

 

·Europe — an original equipment manufacturing solutions for the electronics industry.

 

Strengthen and Develop Strategic Relationships with Our Customers and Providers of Complementary Semiconductor Manufacturing Services

 

We intend to strengthen existing and develop new strategic relationships with our customers and providers of other complementary semiconductor manufacturing services, such as wafer foundries, as well as equipment vendors, raw material suppliers and technology research institutes, in order to offer our customers total semiconductor manufacturing solutions covering all stages of the manufacturing of their products from design to shipment. In addition, we are working with our customers to co-develop new packaging technologies and designs.

 

Since 1997, we have maintained a strategic alliance with TSMC, which designates us as their nonexclusive preferred provider of packaging and testing services for semiconductors manufactured by TSMC. Through our strategic alliance with and close geographic proximity to TSMC, we are able to offer our customers a total semiconductor manufacturing solution that includes access to foundry services in addition to our packaging, testing and direct shipment services.

 

Principal Products and Services

 

We offer a broad range of semiconductor packaging and testing services. In addition, we have provided EMS through USI Group. Our package types generally employ either leadframes or substrates as interconnect materials. The semiconductors we package are used in a wide range of end-use applications, including communications, computing, consumer electronics, industrial, automotive and other applications. Our testing services include front-end engineering testing, which is performed during and following the initial circuit design stage of the semiconductor manufacturing process, wafer probe, final testing and other related semiconductor testing services. We focus on packaging and testing semiconductors. We offer our customers turnkey services, which consist of packaging, testing and direct shipment of semiconductors to end users designated by our customers. Our EMS are used in a wide range of end-use applications, including, but not limited to, computing and storage, peripherals, communications, industrial applications, automotive electronics, and server applications. In 2020, our revenues generated from packaging, testing and EMS accounted for 45.9%, 9.9% and 42.9% of our operating revenues, respectively.

 

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Packaging Services

 

We offer a broad range of package types to meet the requirements of our customers, including flip chip BGA, flip chip CSP, aCSP (advanced chip scale packages), quad flat packages (QFP), low profile and thin quad flat packages (LQFP/TQFP), bump chip carrier (BCC), quad flat no-lead (QFN) packages, aQFN (advanced QFN) and Plastic BGA. In addition, we provide 3D chip packages, such as aMAP POP (advanced, laser ablation type), which enable our customers to mount packages more easily, and HB PoP (High-Band package on Package) for higher performance orientation and marketing requirement. We also offer other forms of stacked die solutions in different package types, e.g., stacked die QFN, hybrid BGAs containing stacked wire bond and FC die. Meanwhile, we are developing the cost-effective solutions to 3D packages, such as 2.1D (substrate layer modification) and 2.5D (silicon interposer), to fulfill current low-cost and high-performance requirements in parallel with 3D IC with TSV (Through Silicon Via) technology. In addition, to meet current trends toward low-cost solutions, we provide copper wire bonding solutions which can be applied to traditional gold wire products. We also provide a high-volume manufacturing experience with silver wire bonding for FCCSP Hybrid packages. Furthermore, we are one of the key providers of IoT (Internet of Things), server and automotive services. We believe we are among the leaders in such packaging processes and technologies and are well positioned to lead the technology migration in the semiconductor packaging industry.

 

To address the new demands of 5G wireless technology, we survey new material and structure based on developed package structures and focus our efforts on developing more integration solutions, such as AP (Application Processor) module and RFFE (RF front end) with customized SiP services.

 

Advanced Packages. The semiconductor packaging industry has evolved to meet the requirements of high-performance electronics products. We believe that there will continue to be growing demand for packaging solutions with increased input/output density, smaller size and a better heat dissipation characteristic.

 

We have focused on developing our capabilities in certain packaging solutions, such as aCSP (wafer-level chip scale package), flip chip BGA, Heat-Spreader FCBGA, flip-chip CSP, Hybrid FCCSP (Flip Chip + W/B), Flip Chip PiP (Package in Package), Flip Chip PoP (Package on Package), aS3TM (Advanced Single Sided Substrate), HB POP (High-Bandwidth POP), Fan-Out Wafer-Level Packaging, SESUB and 2.5D. Flip-chip BGA technology replaces wire bonding with wafer bumping for interconnections within the package. Wafer bumping involves the placing of tiny solder balls, instead of wires, on top of dies for connection to substrates. As compared with more traditional packages, which allow input/output connection only on the boundaries of the dies, flip chip or wafer-level package solutions significantly enhance the input/output flow by allowing input/output connections over the entire surface of the dies.

 

Chip scale packages typically have an area no greater than 120% of the silicon die. For wafer level package, the electrical connections are plated or printed directly onto the wafer itself, resulting in a package very close to the size of the silicon die. Wafer-level packages do not include an interposer so they are unlike substrate-based packages, where the die is usually mounted on an interposer which contains electrical connections in the form of small bumps or balls.

 

aEASI (Advance Embedded Assembly Substrate Integration) is a technology which allows the embedding thin chips into substrate build-up layers. aEASI can be used in various technologies tailored to clients’ demand, such as package solution of miniaturization, and has also been proven to have better electrical/thermal performance. It also provides flexibility in design (such as for MicroSiP), and the electrical contacts to the chips are realized by laser-drilled and metallized micro-vias to replace the traditional wire bonding process. aEASI is mainly used in power management applications.

 

WL MEMs (Wafer-Level MEMs) is advanced assembly for MEMs in wafer-level type instead of current LGA or leadframe types using TSV or chip-to-wafer technology. WL MEMs are mainly used in applications such as pressure, temperature, humidity and gyroscope sensors, among others.

 

FOWLP (Fan-Out Wafer-Level Packages) provides an extended solution and package type to integrate different functional chips or packages and to have good reduction in resistance and inductance over FCCSP, better thermal performance and smaller form factors of packages. FOWLP can be applied for different stack and SiP solutions.

 

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We provide numerous technologies to meet various customer demands. The following table sets forth our principal advanced packages.

 

Package Types 

Number of Leads 

Description 

End-Use Applications 

Wafer-Level Chip Scale Package (aCSP) 6-120 A wafer-level chip scale package that can be directly attached to the circuit board. Provides shortest electrical path from the die pad to the circuit board, thereby enhancing electrical performance. Cellular phones, personal digital assistants, watches, MP3 players, digital cameras and camcorders.
Flip Chip Chip Scale Package (FC- CSP, a-fcCSP) 16-770 A lightweight package with a small, thin profile provides better protection for chips and better solder joint reliability than other comparable package types. RFICs and memory ICs such as digital cameras, DVDs, devices that utilize wireless technology, cellular phones, GPS devices and personal computer peripherals.
Flip Chip PiP (Package in Package) (FC-CSP PiP) 500-980 System-in-Package for Flip Chip + Memory known good package inside with a better electrical performance package types. Application processor for smartphone and data modem on portable devices.
Flip Chip PoP (Package on Package) (FC-CSP PoP) 500-1100 SoC (System-on-Chip) die for Assembly to Bottom package and then applied for memory package on top inside with a better electrical performance package types. High-tier application processor for smartphones and data modem on portable devices.
Flip Chip BGA/ HF FCBGA(High Performance / Heat Spreader / FCBGA) 16-2916 Using advanced interconnect technology, the flip chip BGA packages allow higher density of input/output connection over the entire surface of the dies. HF FCBGA is designed for the semiconductor high-performance requirement of high density of interconnects. High-performance networking, graphics, server and data center processor applications.
Hybrid (Flip Chip and Wire Bonding) 49-608 A package technology that stacks a die on top of a probed good die to integrate ASIC and memory (flash, SRAM and DDR) into one package and interconnects them with wire bonding and molding. This technology suffers from known good die issues (i.e., one bad die will ruin the entire module). Rework is also not an option in hybrid packages. Digital cameras, smartphones, bluetooth applications and personal digital assistants.
aS3 up to 300 Ultra-thin profile package which is an excellent on middle pin-count alternative solution; standard BT material and manufacturing equipment; and lower cost via on pad. High I/O and short wire length package solution in high-performance requirement.
Integrated Passive Device (IPD) ~ 20 IPD can provide a high-performance/high Q-factor inductor and single/double layers for lower cost and turnkey solutions and integrate passives into one IPD chip. IPD requires less involvement in the Surface Mount Technology (“SMT”) process, and is considered to be more compatible with current assembly process and suitable for all package solutions. Cellular phones, Wi-Fi module, TV and personal digital assistants.
HBPoP (High-Bandwidth Package On Package) ~ 1000 High-Bandwidth POP can provide a data rate and good signal integrity for Cellular AP, an integration solution for ASIC and memory, decoupling functions for multiple memory mount applications. Cellular phones and application processors.
FOWLP (Fan-Out Wafer-Level Package) ~ 1,500+ FOWLP provides an extended solution/package type to integrate most different functional chips or packages and to have good reduction in resistance and inductance over FCCSP, better thermal performance and smaller form factors of packages, and can be applied for different stack or SiP solutions. Cellular phones, logic devices, power management, RF, Codec, IoT, wearables and networking.

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IC Wirebonding. We provide IC wirebonding, including leadframe-based packages and substrate-based packages. Leadframe-based packages are packaged by connecting the die, using wire bonders, to the leadframe with gold wire or copper wire. As packaging technology improves, the number of leads per package increases. In addition, improvements in leadframe-based packages have reduced the footprint of the package on the circuit board and improved the electrical performance of the package. To have higher interconnected density and better electrical performance, semiconductor packages have evolved from leadframe-based packages to substrate-based packages. The key differences of these package types are the size of the package; the density of electrical connections the package can support; flexibility at lower costs; the thermal and electrical characteristics of the package; and environmentally conscious designs. Substrate-based packages generally employ the BGA design. Whereas traditional leadframe technology places the electrical connection around the perimeter of the package, the BGA package type places the electrical connection at the bottom of the package surface in the form of small bumps or balls. These small bumps or balls are typically distributed evenly across the bottom surface of the package, allowing greater distance between individual leads and higher pin-counts. Our expertise in BGA packages also includes capabilities in stacked-die BGA, which assembles multiple dies into a single package.

 

3D packaging has recently gained a lot of publicity because of the advent of TSV (Through Silicon Via) based chip stacking. Chip stacking has been implemented for many years, albeit without TSVs. Wire bond die is routinely stacked on leadframes as well as BGA substrates. A more recent implementation is the stacking of packages as package on package (PoP) and the more specialized package in package (PiP). We have advanced PoP by the invention of aMAPPoP which provides the package interconnects by exposing a molded in solder ball with a laser via. Aside from being cost effective due to block molding, this PoP also has much lower warpage, greatly improving the stacking yield.

 

The following table sets forth our principal IC wirebonding packages.

 

Package Types 

Number of Leads 

Description 

End-Use Applications 

Advanced Quad Flat No-Lead Package (aQFN) 104-276 aQFN allows for leadless, multi-row and fine-pitch leadframe packaging and is characterized by enhanced thermal and electrical performance. aQFN is a cost-effective packaging solution due to its cost-effective materials and simpler packaging process. Telecommunications products, wireless local access networks, personal digital assistants, digital cameras, low to medium lead count packaging information appliances.
Quad Flat Package (QFP)/Low profile and Thin Quad Flat Package (LQFP/TQFP) 44-256 Designed for advanced processors and controllers, application-specific integrated circuits and digital signal processors. Multimedia applications, cellular phones, personal computers, automotive and industrial products, hard disk drives, communication boards such as ethernet, integrated services digital networks and notebook computers.
Quad Flat No-Lead Package (QFN)/ Dual-Row QFN (DR-QFN)/ Microchip Carrier (MCC) 12-160 QFN/DRQFN, also known as types of MCC, uses half-encapsulation technology to expose the rear side of the die pad and the tiny fingers, which are used to connect the chip and bonding wire with printed circuit boards. Dual-Row is to increase the lead counts for product requirement. Cellular phones, wireless local access networks, personal digital assistant devices and digital cameras.
Small Outline Plastic Package (SOP)/Thin Small Outline Plastic Package (TSOP) 8-56 Designed for memory devices including static random access memory, or SRAM, dynamic random access memory, or DRAM, fast static RAM, also called FSRAM, and flash memory devices. Consumer audio/video and entertainment products, cordless telephones, pagers, fax machines, printers, copiers, personal computer peripherals, automotive parts, telecommunications products, recordable optical disks and hard disk drives.
Small Outline Plastic J-Bend Package (SOJ) 20-44 Designed for memory and low pin-count applications. DRAM memory devices, microcontrollers, digital analog conversions and audio/video applications.
Plastic Leaded Chip Carrier (PLCC) 28-84 Designed for applications that do not require low-profile packages with high density of interconnects. Personal computers, scanners, electronic games and monitors.
Plastic Dual In-line Package (PDIP) 8-64 Designed for consumer electronic products. Telephones, televisions, audio/video applications and computer peripherals.

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Package Types 

Number of Leads 

Description 

End-Use Applications 

Plastic BGA 119-1520 Designed for semiconductors which require the enhanced performance provided by plastic BGA, including personal computer chipsets, graphic controllers and microprocessors, application-specific integrated circuits, digital signal processors and memory devices. Telecommunications products, global positioning systems, notebook computers, disk drives and video cameras.
Stacked-Die BGA 120-1520 Combination of multiple dies in a single package enables package to have multiple functions within a small surface area. Telecommunications products, local area networks, graphics processor applications, digital cameras and pagers.
Package-on-Package (POP, aMAP POP) 136-904 This technology places one package on top of another to integrate different functionalities while maintaining a compact size. It offers procurement flexibility, low cost of ownership, better total system cost and faster time to market. Designers typically use the topmost package for memory applications and the bottommost package for ASICs. By using this technology, the memory known good die issue can be mitigated and the development cycle time and cost can be reduced. Cellular phones, personal digital assistants and system boards.
Land Grid Array (LGA) 10-72 Leadless package, which is essentially a BGA package without the solder balls. Based on laminate substrate, land grid array packages allow flexible routing and are capable of multichip module functions. High-frequency integrated circuits such as wireless communications products, computers servers, personal computer peripherals and MEMS sensors.

 

Heterogeneous Integration. Heterogeneous Integration refers to the integration of separately manufactured components into a higher-level assembly that, in the aggregate, provides enhanced functionality and improved operating characteristics:

 

·SiP and Modules.

 

The drive towards semiconductor miniaturization and integration is expanding the commercial potential of SiP, a package or module containing a functional electronic system or subsystem that is integrated and miniaturized through IC greater assembly technologies. With attributes that deliver higher performance, cost-effectiveness, and shorter time to market, SiP technology is enabling functionality and creating more commercial opportunities across a broader variety of electronics applications.

 

ASEH is a market leader in SiP technologies from design to assembly and high-volume manufacturing. SiP involves the integration of multiple components from IC chips and components including ASICs, Memory, Analog & mixed signals devices, passives, MEMs, sensors, antennas and other devices into one single package. SiP and Modules products are gaining significant traction within the industry, given growing demand for miniaturized electronic devices that deliver more functions and higher performance, lower power, greater speed and increased bandwidth. ASEH’s SiP portfolio includes flip chip and wirebond multichip packaging, embedding technologies such as SESUB and aEASI, and wafer-level technologies including fan-out and IPD. IPD uses a wafer-level process to integrate passive components on an individual substrate. Recent IPD innovation involves the extension of the RDL (Redistribution) process to build a high-quality factor (Q) inductor and RF circuits on top of silicon wafers. It can be used in the following three approaches to enhance product performance: several solutions to replace discrete components such as Balun and Filter, or to integrate other passive components and act as interposer, or to replace PWB and act as a substrate of the module. In addition, we leverage some of our SMT-based technologies, such as compartment shielding, double-sided module and antenna integration.

 

We also offer module assembly services, which combine one or more packaged semiconductors with other components in an integrated module to enable increased functionality for system-level assembly. End-use applications for modules include cellular phones and wireless LAN applications, Bluetooth applications, camera modules, automotive applications, toys, networking, storage and power management.

 

·Fan-Out

 

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Fan-out packaging continues to gain major prominence within the industry, based on significant technical advantages that have led to its broad commercialization. This advanced packaging platform is evolving to meet application demands for smaller form factors and improved electrical and thermal performance.

 

With the packaging done on singulated die formed into a reconstituted molded wafer or panel, fan-out packaging enables multi-die packages, through partitioning with different nodes and functionality. Fan-out can be done either chip first or chip last, with both options resulting in much higher-density interconnect and improved cost efficiency. Initially fan-out was used primarily for smaller, lower I/O count packages, until we introduced a very high-density fan-out alternative to 2.5D Interposer packages, Fan-out Chip on Substrate (FOCoS), a hybrid fan-out/FCBGA package. Today, fan-out is in high-volume applications for a wide variety of products, including PMICs, RF packages, Baseband processors and high-end networking systems. Key attributes include:

 

·Parallel Manufacturing Process in Wafer Form

 

·Smallest Package in X,Y and Z

 

·Excellent Mechanical, Electrical and Thermal Performance

 

·2.5D & 3D Packaging

 

As 5G, AI, and high-performance computing continue to make inroads into our world, we believe there is an increased demand for semiconductor devices that deliver enhanced performance, lower latency, increased bandwidth and greater power efficiency. ASEH strives to meet this demand by innovating 2.5D & 3D technologies that we believe are becoming more central within the semiconductor industry. We have established ourselves as a leader in 2.5D technology through our successful pioneering of 2.5D solutions that helped bring advanced ASIC and HBM products to the marketplace. In addition, ASEH is introducing high-density fan-out technology for multi-die solutions to achieve high bandwidth& high-performance across the market landscape, addressing demand from high density data centers to consumer and mobile space.

 

Automotive Electronics. We assemble automotive electronic products based on our leading technology, good quality systems and automation. We provide a variety of products, such as leadframe base, substrate base, Flip Chip and Wafer-Level packages. We also provide robust package solutions to customers and end-users, including most types of industrial package solutions together with tailor-made solutions to meet customers’ and end-users’ requirements on automotive specifications.

 

Having accumulated production experience in using gold wire for automotive devices over several years, we collaborate with certain customers to develop and release copper wire for advanced wafer process (65nm for QFP and 40 nm for BGA) development that will fulfill criteria in AEC-Q100 and in the early development of the 28 nm wafer process with hybrid packaging structure (FC bonding + wirebonding). In addition, we offer the FOWLP solution for radar products according to requests from some tier 1 customers.

 

Interconnect Materials. Interconnect materials connect the input/output on the semiconductor dies to the printed circuit board. Interconnect materials include substrate, which is a multilayer miniature printed circuit board, and is an important element of the electrical characteristics and overall performance of semiconductors. We produce substrates for use in our packaging operations.

 

The demand for higher-performance semiconductors in smaller packages will continue to spur the development of IC substrates that can support the advancement in circuit design and fabrication. As a result, we believe that the market for substrates will grow and the cost of substrates as a percentage of the total packaging process will increase. In the past, substrates we designed for our customers were produced by independent substrate manufacturers. Since 1997, we have been designing and producing a portion of our interconnect materials in-house. In 2020, our interconnect materials operations supplied approximately 10.1% of our consolidated substrate requirements by value.

 

The following table sets forth, for the periods indicated, the percentage of our packaging revenues accounted for by each principal type of packaging products or services.

 

   Year Ended December 31
   2018  2019  2020
          
Bumping, Flip Chip, WLP, Fan-out and SiP   36.1%   41.7%   42.3%
IC Wirebonding(1)   54.0%   48.2%   46.8%
Discrete and other   9.9%   10.1%   10.9%
Total   100.0%   100.0%   100.0%

_______________

(1)Includes leadframe-based packages such as QFP/TQFP, QFN/MCC and PLCC/PDIP and substrate-based packages, such as various BGA package types and LGA.

 

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Testing Services

 

We provide a complete range of semiconductor testing services, including front-end engineering testing, wafer probing, final testing of logic/mixed-signal/RF/(2.5D/3D) packages and SiP/MEMS/Discrete modules and other test-related services.

 

The testing of semiconductors requires technical expertise and knowledge of the specific applications and functions of the semiconductors tested as well as the testing equipment utilized. We believe that our testing services employ technology and expertise which are among the most sophisticated in the semiconductor industry. In addition to maintaining different types of testing equipment, which enables us to test a variety of semiconductor functions, we work closely with our customers to design effective testing solutions on multiple equipment platforms for particular semiconductors.

 

In recent years, complex, high-performance logic/mixed-signal/RF/(2.5D/3D) packages and SiP/MEMS modules have accounted for an increasing portion of our testing revenues.

 

Front-End Engineering Testing. We provide front-end engineering testing services, including customized software development, electrical design validation, and reliability and failure analysis.

 

·Customized Software Development. Test engineers develop customized software to test the semiconductors using our equipment. Customized software, developed on specific test platforms, is required to test the conformity of each particular semiconductor type to its unique functionality and specification.

 

·Electrical Design Validation. A prototype of the designed semiconductor is subjected to electrical tests using advanced test equipment and customized software. These tests assess the prototype semiconductor complies with a variety of different operating specifications, including functionality, frequency, voltage, current, timing and temperature range.

 

·Reliability Analysis. Reliability analysis is designed to assess the long-term reliability of the semiconductor and its suitability of use for intended applications. Reliability testing can include “burn-in” services, which electrically stress a device, usually at high temperature and voltage, for a period of time long enough to cause the failure of marginal devices.

 

·Failure Analysis. In the event that the prototype semiconductor does not function to specifications during either the electrical design validation or reliability testing processes, it is typically subjected to failure analysis to determine the cause of the failure to perform as anticipated. As part of this analysis, the prototype semiconductor may be subjected to a variety of analyses, including electron beam probing and electrical testing.

 

Wafer Probing. Wafer probing is the step immediately before the packaging of semiconductors and involves visual inspection and electrical testing of the processed wafer for defects to ensure that it meets our customers’ specifications. Wafer probing services require expertise and testing equipment similar to that used in final testing, and most of our testers can also be used for wafer probing.

 

Logic/Mixed-signal/RF/(2.5D/3D) Module and SiP/Discrete Final Testing. We conduct final tests of a wide variety of logic/mixed-signal/RF/(2.5D/3D) packages and SiP/MEMS/discrete modules, with the number of leads or bumps ranging from the single digits to over 30 thousands and operating frequencies of over 32 Gbps for digital semiconductors and mmWave for 5G semiconductors, which are at the high end of the range for the industry. The products we test include applications for wired, wireless and mobile communications, automotive, home entertainment, IoT, personal computer, artificial intelligence, and high-performance computing applications, as well as a variety of consumer and application-specific integrated circuits for various specialized applications.

 

Other Test-Related Services. We provide a broad range of additional test-related services, such as:

 

·Electric Interface Board and Mechanical Test Tool Design. Process of designing individualized testing apparatuses such as test load boards, sockets, handler change kits, and probe cards for unique semiconductor devices and packages.

 

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·Program Conversion. Process of converting a program from one-test platform to different test platforms to reduce testing costs or optimize testing capacity.

 

·Program Efficiency Improvement. Process of optimizing the program code or increasing site count of parallel tests to improve testing throughout.

 

·Burn-In Testing. Burn-in testing is the process of electrically stressing a device, usually at high temperature and voltage, for a period of time to simulate the continuous use of the device to determine whether this use would cause the failure of marginal devices.

 

·Module and SiP Testing. We provide module and SiP testing through integrated bench solution or automatic test equipment to our customers with a complete solution with respect to finger print sensor module, camera module, 3D depth sensing module, wireless connectivity devices, global positioning system devices, personal navigation devices and digital video broadcasting devices.

 

·Tape and Reel. Process which involves transferring semiconductors from a tray or tube into a tape-like carrier for shipment to customers.

 

Drop Shipment Services. We offer drop shipment services for shipment of semiconductors directly to end users designated by our customers. Drop shipment services are provided mostly in conjunction with logic/mixed-signal/RF/3D IC/discrete testing. We provide drop shipment services to a significant percentage of our testing customers. A substantial portion of our customers at each of our facilities have qualified these facilities for drop shipment services. Since drop shipment eliminates the additional step of inspection by the customer before shipment to the end user, quality of service is a key consideration. We believe that our ability to successfully execute our full range of services, including drop shipment services, is an important factor in maintaining existing customers as well as attracting new customers.

 

The following table sets forth, for the periods indicated, the percentage of our testing revenues accounted for by each type of testing service.

 

   Year Ended December 31
   2018  2019  2020
          
Front-end engineering testing   2.4%   1.8%   2.0%
Wafer probing   24.8%   26.2%   31.8%
Final testing   72.8%   72.0%   66.2%
Total   100.0%   100.0%   100.0%

 

EMS. We provide integrated solutions for EMS in relation to computing and storage, peripherals, communications, industrial, automotive and server applications through USI Group. The key products and services we offer to our customers, for instance, include:

 

·Computing: motherboards for server and desktop PC; peripheral; port replicator;

 

·Communications: Wi-Fi; SiP;

 

·Consumer products: control boards for flat panel devices; SiP;

 

·Automotive electronics: automotive EMS; car LED lighting; regulator/rectifier;

 

·Industrial products: point-of-sale systems; smart handheld devices;

 

·Storage: network attached system; network video recorder; solid state drive; and

 

·Others: field replacement unit; return material authorization.

 

Seasonality

 

See “Item 5. Operating and Financial Review and Prospects—Operating Results and Trend Information—Quarterly Operating Revenues, Gross Profit and Gross Margin.”

 

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Sales and Marketing

 

Sales and Marketing Presence

 

We maintain sales and marketing offices in Taiwan, the United States, Belgium, Singapore, the P.R.C., Korea, Malaysia, Japan and a number of other countries. We also have sales representatives operating in certain other countries in which we do not have offices. Our sales and marketing offices in Taiwan are located in Hsinchu, Taichung and Kaohsiung. We conduct marketing research through our customer service personnel and through our relationships with our customers and suppliers to keep abreast of market trends and developments. We also provide advice in the area of production process technology to our major customers planning the introduction of new products. In placing orders with us, our customers specify which of our facilities these orders will go to. Our customers conduct separate qualification and correlation processes for each of our facilities that they use. See “—Qualification and Correlation by Customers.”

 

Customers

 

Our five largest customers together accounted for approximately 46.2%, 51.1% and 54.5% of our operating revenues in 2018, 2019 and 2020, respectively. One customer accounted for more than 10.0% of our operating revenues in 2018 and 2020, and two of our customers individually accounted for more than 10.0% of our operating revenues in 2019.

 

We package and test for our customers a wide range of products with end-use applications in the communications, computing and consumer electronics/industrial/automotive sectors. The following table sets forth a breakdown of the percentage of our operating revenues generated from our packaging and testing services, for the periods indicated, by the principal end-use applications of the products that we packaged and tested.

 

   Year Ended December 31
   2018  2019  2020
          
Communications   49.9%   52.5%   53.3%
Computing   14.0%   14.6%   14.1%
Consumer electronics/industrial/automotive/other   36.1%   32.9%   32.6%
Total   100.0%   100.0%   100.0%

 

Our EMS provides a wide range of products with end-use applications. The following table sets forth a breakdown of the percentage of our operating revenues generated from our EMS for the periods indicated by the principal end-use applications.

 

   Year Ended December 31
   2018  2019  2020
          
Communications   35.7%   37.4%   42.5%
Computing and storage   14.2%   11.3%   8.0%
Consumer electronics   34.3%   34.6%   36.2%
Industrial   10.0%   11.3%   9.1%
Automotive   5.0%   4.8%   3.6%
Other   0.8%   0.6%   0.6%
Total   100.0%   100.0%   100.0%

 

We categorize our operating revenues geographically based on the country in which the customer is headquartered. The following table sets forth, for the periods indicated, the percentage breakdown by geographic regions of our operating revenues.

 

   Year Ended December 31
   2018  2019  2020
          
United States   62.2%   59.4%   62.3%
Taiwan   12.3%   12.4%   13.6%
Asia   15.1%   18.4%   15.6%
Europe   9.9%   9.4%   8.3%
Other   0.5%   0.4%   0.2%
Total   100.0%   100.0%   100.0%

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Qualification and Correlation by Customers

 

Customers generally require that our facilities undergo a stringent qualification process during which the customer evaluates our operations and production processes, including engineering, delivery control and testing capabilities. The qualification process typically takes up to several weeks, but can take longer depending on the requirements of the customer. In the case of our testing operations, after we have been qualified by a customer and before the customer delivers semiconductors to us for testing in volume, a process known as correlation is undertaken. During the correlation process, the customer provides us with sample semiconductors to be tested and either provides us with the test program or requests that we develop a conversion program. In some cases, the customer also provides us with a data log of results of any testing of the semiconductors that the customer may have conducted previously. The correlation process typically takes up to two weeks, but can take longer depending on the requirements of the customer. We believe our ability to provide turnkey services reduces the amount of time spent by our customers in the qualification and correlation process. As a result, customers utilizing our turnkey services are able to achieve shorter production cycles.

 

Pricing

 

We price our packaging services and EMS, taking into account the actual costs, with reference to prevailing market prices. We price our testing services primarily on the basis of the amount of time, measured in central processing unit seconds, taken by the automated testing equipment to execute the test programs specific to the products being tested, as well as the cost of the equipment, with reference to prevailing market prices. Prices for our packaging, testing and EMS are confirmed at the time orders are received from customers, which is typically several weeks before delivery.

 

Raw Materials and Suppliers

 

Packaging

 

The principal raw materials used in our packaging processes are interconnect materials such as leadframes and substrates, gold wire and molding compound. The silicon die, which is the functional unit of the semiconductor to be packaged, is supplied in the form of silicon wafers. Each silicon wafer contains a number of identical dies. We receive the wafers from the customers or the foundries on a consignment basis. Consequently, we generally do not incur inventory costs relating to the silicon wafers used in our packaging process.

 

We do not maintain large inventories of leadframes, substrates, gold wire or molding compound, but generally maintain sufficient stock of each principal raw material based on blanket orders and rolling forecasts of near-term requirements received from customers. In addition, several of our principal suppliers dedicate portions of their inventories as reserves to meet our production requirements. However, shortages in the supply of materials experienced by the semiconductor industry have in the past resulted in occasional price adjustments and delivery delays. For example, in the first half of 2000, the industry experienced a shortage in the supply of IC substrates used in BGA packages, which, at the time, were only available from a limited number of suppliers located primarily in Japan. In order to reduce the adverse impact caused by the price fluctuations of raw materials, we have developed substitute raw materials, such as copper wire, the cost of which is much cheaper than that of gold wire. However, we cannot guarantee that we will not experience shortages or price increase in the near future or that we will be able to obtain adequate supplies of raw materials in a timely manner and at a reasonable price or to develop any substitute raw materials. In the event of a shortage and/or price increase, we generally inform our customers and work together to accommodate changes in delivery schedules and/or the price increase of raw materials.

 

We produce substrates for use in our packaging operations. In 2020, our interconnect materials operations supplied approximately 10.1% of our consolidated substrate requirements by value. See “—Principal Products and Services—Interconnect Materials.”

 

In response to RoHS, we have adjusted our purchases of raw materials and our production processes in order to use raw materials that comply with this legislation for part of our production. This legislation restricts the use in the EU, of certain substances that the EU deems harmful to consumers, including certain grades of molding compounds, solder and other raw materials that are used in our products. Manufacturers of electrical and electronic equipment must comply with this legislation in order to sell their products in an EU member state. Any failure by us to comply with regulatory environmental standards such as RoHS and REACH may have a material adverse effect on our results of operations.

 

Testing

 

For the functional and burn-in testing of semiconductors, no other raw materials are needed. However, we often design and outsource the manufacturing of test interface products such as load boards, probe cards and burn-in boards.

 

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EMS

 

Our manufacturing processes use many raw materials in our EMS. For 2020, raw materials costs accounted for 80.3% of our operating revenues from EMS. Our principal raw materials include, among others, printed circuit boards, integrated chips, ink, semiconductor devices, computer peripherals and related accessories and electronic components. Our principal raw materials varied in the past, depending on the end-use products we provided.

 

To ensure quality, on-time delivery and pricing competitiveness, we have established both a standardized supplier assessment system and an evaluation mechanism, continued to maintain close working relationships with our suppliers and jointly created a stable and sustainable supply chain. In addition, we adjusted the procurement strategy in line with industry trends as well as the nature of raw materials, and we decentralized the sources of raw materials to lower our supply concentration risk. However, we cannot assure you that we will not experience any shortages or price increases in the near future. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our revenues and profitability may decline if we are unable to obtain adequate supplies of raw materials in a timely manner and at a reasonable price.”

 

Equipment

 

Packaging

 

The wire bonding process is important for routing signal out of die to the system for the IC wire-bonding solutions. Thus, wire bonder is the important equipment used for such process. As products become finer and finer pitch, bumping process will replace wire bonding process for the signal routing purpose. Thus, sputter and plater will be the crucial equipment for this type of process.

 

Wire bonders connect the input/output terminals on the silicon die using extremely fine gold or copper wire to leads on leadframes or substrates. Typically, a wire bonder may be used, with minor modifications, for the packaging of different products. As of January 31, 2021, we operated an aggregate of 26,555 wire bonders, of which 26,494 were fine-pitch wire bonders. As of the same date, 115 of the wire bonders operated by us were consigned by customers and 98 of the wire bonders were leased. For the packaging of certain types of substrate-based packages, die bonders are used in place of wire bonders. The number of bonders at a given facility is commonly used as a measure of the packaging capacity of the facility. In addition to bonders, we maintain a variety of other types of packaging equipment, such as wafer grind, wafer mount, wafer saw, heat sink placement, automated molding machines, laser markers, solder plate, pad printers, dejunkers, trimmers, formers, substrate saws and scanners. We purchase our packaging equipment from major international manufactures, including Teradyne, Inc., Kulicke & Soffa Pte. Ltd., DISCO Corporation, FUJI Corporation and Lam Research International Sarl.

 

Testing

 

Testing equipment is the most capital-intensive component of the testing process. We generally seek to purchase testers from different suppliers with similar functionality and acquire the ability to test a variety of different semiconductors. We purchase testers from major international manufacturers, including Teradyne, Inc., Advantest Corporation, Eagle Test Systems, Inc., Tokyo Electron Limited, and Hon Precision, Inc. Upon acquisition of new testers, we install, configure, calibrate, perform burn-in diagnostic tests on and establish parameters for the testers based on the anticipated requirements of existing and potential customers and considerations relating to market trends. As of January 31, 2021, we operated an aggregate of 5,767 testers, of which 1,990 were consigned by customers and 97 were leased. In addition to testers, we maintain a variety of other types of testing equipment, such as automated handlers and probers (special handlers for wafer probing), scanners, reformers and computer workstations for use in software development. Each tester may be attached to a handler or prober. Handlers attach to testers and transport individual packaged semiconductors to the tester interface. Probers similarly attach to the tester and align each individual die on a wafer with the interface to the tester.

 

For the majority of our testing equipment, we often base our purchases on prior discussions with our customers about their forecast requirements. The balance consists of testing equipment on consignment from customers, and which is dedicated exclusively to the testing of these customers’ specific products.

 

Test programs, which consist of the software that drives the testing of specific semiconductors, are written for a specific testing platform. We sometimes perform test program conversions that enable us to test semiconductors on multiple test platforms. This portability between testers enables us to allocate semiconductors tested across our available test capabilities and thereby improve capacity utilization rates. In cases where a customer requires the testing of a semiconductor product that is not yet fully developed, the customer may provide computer workstations to us to test specific functions. In cases where a customer has specified testing equipment that was not widely applicable to other products that we test, we have required the customer to furnish the equipment on a consignment basis.

 

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EMS

 

The SMT assembly line is the key facility of our electronic manufacturing operations, and generally includes a printer and one or two high-speed mounters and/or a multifunction mounter. The SMT assembly process primarily consists of the following three manufacturing steps: (i) solder paste stencil printing, (ii) component placement and (iii) solder reflow. High-speed SMT assembly systems offer both economic and technical advantages that may reduce both production cost and time while meeting quality requirements. Thus, SMT has become the most popular assembly method for sophisticated electronic devices. We had 210 SMT lines as of January 31, 2021.

 

Intellectual Property

 

As of January 31, 2021, we held 2,473 Taiwan patents, 1,836 U.S. patents, 1,695 P.R.C., patents, 9 Europe patents and 25 patents in other countries related to various semiconductor packaging technologies and invention, utility and design on our EMS. In addition, as of January 31, 2021, we also had a total of 1,631 pending patent applications, of which 175 in Taiwan, 572 in the United States, 852 in P.R.C., 15 patents in Europe and 17 patents in other countries. Moreover, we filed several trademarks applications in Taiwan, the United States, China and the EU. For example, “ASE,” “aCSP,” “ a-EASI,” “a-fcCSP,” “aQFN,” “a-QFN,” “a-S3, “ “a-TiV,” “aWLP,” “a-WLP,” “iSiP,” “iWLP,” “aSiM,” “SiP-id” “SPIL,” “HSiP,” “XnBay,” and “Emerald” have been registered in Taiwan.

 

We have also entered into various nonexclusive technology license agreements with other companies involved in the semiconductor manufacturing process, including Fujitsu Limited, Flip Chip International, L.L.C., Infineon Technologies AG, TDK Corporation and DECA. The technology we license from these companies includes solder bumping, redistribution, ultra CSP assembly, advanced QFN assembly, wafer-level packaging and other technologies used in the production of package types, such as BCC, flip chip BGA, film BGA, aQFN and chip embedding. Our license agreements with Flip Chip International, L.L.C. will not expire until the expiration of the patents licensed by the agreement. One of our license agreements with Infineon Technologies AG will remain in effect until expiration of the patents licensed by the agreement, and the other automatically renews each year unless the parties to the agreement agree otherwise. Our license agreement with Fujitsu Limited renews automatically each year unless the parties to the agreement agree otherwise. Our license agreement with TDK Corporation will remain in effect until expiration of the TDK’s patents licensed by the agreement. Our license agreement with DECA will expire on January 13, 2026.

 

In addition, we improve our technological platform by licensing innovative package technologies. For example, through wafer bumping and redistribution technology, we are able to form and redistribute bumps on the chip to make a silicon die by directly attaching the substrate using bumps rather than wire bonding and through wafer level CSP technology, we are able to produce a chip scale package at the stage of wafer level.

 

Our success depends in part on our ability to obtain, maintain and protect our patents, licenses and other intellectual property rights, including rights under our license agreements with third parties.

 

Quality Control

 

We believe that our process technology and reputation for high quality and reliable services have been important factors in attracting and retaining leading international semiconductor companies as customers for our services and/or products. We maintain a quality control staff at each of our facilities. Our quality control staff typically includes engineers, technicians and other employees who monitor the processes in order to ensure high quality. Our quality assurance systems impose strict process controls, statistical in-line monitors, supplier control, data review and management, quality controls and corrective action systems. Our quality control employees operate quality control stations along production lines, monitor clean room environments and follow up on quality through outgoing product inspection and interaction with customer service staff. We have established quality control systems that are designed to ensure high-quality products/service to customers, high-testing reliability and high production yields at our facilities. We also have established an environmental management system in order to ensure that we can comply with the environmental standards of our customers and the countries within which they operate. See “—Raw Materials and Suppliers—Packaging.” In addition, our facilities have been qualified by all of our major customers after satisfying stringent quality standards prescribed by these customers.

 

Our packaging and testing operations are undertaken in clean rooms where air purity, temperature and humidity are controlled. To ensure stability and integrity of our operations, we maintain clean rooms at our facilities that meet U.S. Federal Standard 209E class 1,000, 10,000 and 100,000 standards.

 

ISE Labs’ testing facilities in Fremont, California, are considered suitably equipped by the Defense Logistics Agency to perform the MIL-STD-883 tests on monolithic microcircuits in accordance with the requirements of military specification MIL-PRF-38535.

 

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We have also obtained many certifications on our packaging, testing and interconnect materials facilities. Some of these certifications are required by some semiconductor manufacturers as a threshold indicator of a company’s quality control standards or needed by many countries in connection with sales of industrial products. The table below sets forth the certifications we have for our packaging, testing and interconnect materials.

 

Location 

IATF
16949:
2016(1) 

ISO
9001(2) 

ISO
14001(3) 

ISO
17025(4) 

ISO
14064-1(5) 

ISO
14067(6) 

IECQ HSPM QC 080000(7) 

Sony
Green
Partner(8) 

OHSAS 18001/ ISO
45001(9) 

TOSHMS(10) 

ISO
50001(11) 

ISO 13485(12) 

ISO 28000(13) 

ISO 26262(14) 

ISO
15408- EAL6(15) 

TL 9000(16) 

ISO
22301(17) 

Taiwan ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü
China ü ü ü ü ü   ü ü ü   ü     ü   ü  
Korea ü ü ü   ü   ü ü ü           ü    
Japan ü ü ü   ü   ü ü                  
Malaysia ü ü ü   ü   ü ü           ü      
Singapore ü ü ü       ü   ü           ü    
U.S.   ü ü ü                          

_______________

(1)IATF 16949:2016 standards were originally created by the International Automotive Task Force in conjunction with the International Standards Organization (ISO). These standards provide for continuous improvement with an emphasis on the prevention of defects and reduction of variation and waste in the supply chain.

 

(2)ISO 9001 quality standards are related to quality management systems and designed to help organizations ensure that they meet the needs of customers and other stakeholders while meeting statutory and regulatory requirements related to the product.

 

(3)ISO 14001 sets out the criteria for an environmental management system. It can be used by any organization that wants to improve resource efficiency, reduce waste and drive down costs.

 

(4)ISO 17025 is the main ISO standard used by testing and calibration laboratories.

 

(5)ISO 14064-1 standard provides governments, businesses, regions and other organizations with a complementary set of tools for programs to quantify, monitor, report and verify greenhouse gas emissions.

 

(6)ISO 14067 is a standard for the quantification and communication of the carbon footprint of a product based on International Standards on life cycle assessment for quantification and on environmental labels and declarations for communication.

 

(7)IECQ HSPM QC080000 is a certification designed to manage, reduce and eliminate hazardous substances.

 

(8)“Sony Green Partner” indicates our compliance with the “Sony Green Package” standard requirements.

 

(9)ISO 45001, which replaces OHSAS 18001 over three years following its publication in March 2018, is a standard for an occupational health and safety management system, and gives guidance for its use, to enable organizations to provide safe and healthy workplaces by preventing work-related injury and ill health, as well as by proactively improving its occupational health and safety performance.

 

(10)TOSHMS is the Taiwan Occupational and Health Management System.

 

(11)ISO 50001 is a standard for an energy management system. It can be used by any organization that wants to reduce energy costs and use energy more efficiently.

 

(12)ISO 13485 quality management system sets forth the quality requirements for organizations that are required to consistently meet customers’ requirements and regulatory requirements in the medical devices and related services industry.

 

(13)ISO 28000 is an international standard for security management system dealing with security assurance in a supply chain.

 

(14)ISO 26262 is an international standard for functional safety of electrical and electronic systems in production automobiles.

 

(15)ISO 15408-EAL6 is a framework that outlines the criteria for globally recognized standards and security inspections for IT products. It is designed for products and applications that are targeted for high-security-intensive markets, such as the government, banking or defense sectors.

 

(16)TL 9000 quality management system sets forth the supply chain quality requirements of the global communications industry.

 

(17)ISO 22301 is a standard for requirements to plan, establish, implement, operate, monitor, review, maintain and continually improve a documented management system to protect against, reduce the likelihood of occurrence, prepare for, respond to, and recover from disruptive incidents when they arise.

 

We also have strict process controls in our EMS business. UGTW’s facilities in Nantou, Taiwan, are considered suitably equipped by the Defense Logistics Agency to perform the MIL-STD-883 tests on assemble, seal, and test hybrid microcircuits in compliance with MIL-PRF-38534 Classes H and K. USIPL is in compliance with VDA 6.3 audit, which focuses on process audit for planning and manufacturing of products and services, and VDA 6.5, which is a qualification for product audit. The table below sets forth the certifications we have obtained for our EMS facilities.

 

Location    IATF 16949  

ISO

9001

  ISO 14001  

ISO

17025

 

ISO

14064-1

  IECQ HSPM QC 080000  

IS

45001

  TOSHMS   ISO 50001   ISO 13485   ISO 26262   TL 9000   AS/EN 9100: 2016(1)   IRIS ISO/TS 22163(2)
Taiwan   ü   ü   ü       ü   ü   ü   ü   ü                    
China   ü   ü   ü   ü   ü   ü   ü       ü   ü   ü   ü        
Mexico   ü   ü   ü       ü   ü   ü           ü           ü    
Poland   ü   ü                               ü                
United Kingdom       ü   ü                                       ü    
U.S.   ü   ü   ü                           ü                
France   ü   ü   ü                           ü           ü    
Germany   ü   ü   ü                           ü               ü
Czech Republic       ü   ü                                            
Tunisia   ü   ü   ü                           ü                

_______________

(1)AS/EN 9100: 2016 quality standards are for aviation, space and defense industry in management of development, production, manufacturing, installation, construction, and maintenance as well as trade and distribution.

 

(2)IRIS ISO/TS 22163 quality standards define quality management system requirements for the rail sector that can be applied throughout the supply chain—including design and development, manufacturing, and maintenance.

 

In addition, we have received several vendor awards from our customers for the quality of our products and services.

 

Competition

 

The global market for semiconductor packaging and testing markets is highly competitive. We face competition from a number of sources and integrated device manufacturers with in-house packaging and testing capabilities and fabless semiconductor design companies with their own in-house testing capabilities. Some of these integrated device manufacturers have commenced, or may commence, in-house packaging and testing operations in Asia. Substantially all of packaging and testing companies that compete with us have established operations in Taiwan and across the region.

 

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Integrated device manufacturers that use our services continuously evaluate our performance against their own in-house packaging and testing capabilities. These integrated device manufacturers may have access to more sophisticated technologies and greater financial and other resources than we do. We believe, however, that we can offer greater efficiency at lower cost while maintaining equivalent or higher quality for several reasons. First, as we benefit from specialization and economies of scale by providing services to a large base of customers across a wide range of products, we are better able to reduce costs and shorten production cycles through high-capacity utilization and process expertise. Second, as a result of our customer base and product offerings, our equipment generally has a longer useful life. Third, as a result of the continuing reduction of investments in in-house packaging and testing capacity and technology at integrated device manufacturers, we are better positioned to meet their packaging and testing requirements on a large scale.

 

Our packaging and testing business also faces actual and potential competition from companies at other levels of the supply chain, which have the financial resources and technical capabilities to enter and compete effectively with us. For example, TSMC has launched integrated fan-out (“InFO”) technology, which put into mass production in 2016. InFO is expected to further intensify the competition in the packaging and testing industry.

 

Our EMS business faces significant competition from other EMS providers, such as Hon Hai Precision Ind. Co., Ltd., with comprehensive integration, wide geographic coverage and large production capabilities that enable them to achieve economies of scale. We believe, however, that we can still achieve satisfactory performance in the market given that we have been able to provide products with high quality and we are capable of designing new products by cooperating with our customers.

 

Environmental Matters

 

Our operations of packaging, interconnect materials and EMS generate both hazardous and non-hazardous wastes. We have installed various types of anti-pollution equipment for the treatment of liquid and gaseous chemical waste. We have adopted comprehensive anti-pollution measures for the effective management of environmental protection that we believe are consistent with international standards. In addition, we believe we are in compliance in all material respects with present environmental laws and regulations applicable to all our operations and facilities. Our estimated environmental capital expenditures for 2021 will be approximately US$20.9 million, of which 24.85% will be used in climate change adaptation.

 

In order to demonstrate our commitment to environmental protection, in December 2013, our board of directors approved contributions to environmental protection efforts in Taiwan in a total amount of not less than NT$3,000.0 million, to be made in the following 30 years. For each of the year ended December 31, 2018, 2019 and 2020, ASE has made contributions in the amount of NT$100.0 million (US$3.6 million), respectively, through ASE Cultural and Educational Foundation to fund various environmental projects. On December 10, 2020, our board of directors resolved in a resolution to establish the ASE Environmental Protection and Sustainability Foundation from its self-raised endowment of NT$15.0 million (US$0.5 million) for promotion of public interest related to environmental protection. On December 22, 2020, we have made contributions in the amount of NT$100.0 million (US$3.6 million), through the ASE Environmental Protection and Sustainability Foundation to continuously implement the activities related to environmental protection projects in 2021.

 

In 2019, we issued unsecured international corporate bonds in the aggregate amount of US$300.0 million with par value of US$1.0 million. The proceeds from this bonds offering were used to subscribe for a total of 465,360,000 new shares of ASE at NT$20 per share issued through a private placement to support ASE’s investment in green projects.

 

Our operations involving wafer-level process and requiring wastewater treatment at our Kaohsiung facility have been subject to scrutiny by the Kaohsiung City Environmental Protection Bureau as a result of alleged water pollution violations that occurred in 2013. In addition, five employees of a China subsidiary were accused by China People’s Procuratorate ( the “Procuratorate”) for committing the crime of environmental pollution that occurred in 2018. For additional details of these administrative actions and judicial proceedings related to our environment claims, see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings.”

 

Defending against any of the pending or future actions will likely be costly and time-consuming and could significantly divert our management team’s efforts and resources. Any future suspension of operations at our facilities may adversely affect our business, financial condition, results of operations and cash flows. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Any environmental claims or failure to comply with any present or future environmental regulations, as well as any fire or other industrial accident, may require us to spend additional funds and may materially and adversely affect our financial condition and results of operations.”

 

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Climate Change Management

 

To strengthen our focus on low-carbon development in response to climate change, we have established the Corporate Sustainability Committee (the “CSC”) as the highest level of management for sustainability management. The CSC is chaired by our chief executive officer and comprises of senior management executives, including five directors. The CSC is responsible for supervising corporate-wide sustainability affairs, including climate change and water-related issues, and reports directly to the board of directors.

 

We are committed to reducing the emission of greenhouse gases from our business operations. We aim to address and integrate climate change into our business strategies by (i) establishing an overall carbon management system to implement low-carbon strategies and policies in accordance with our three guiding principles of energy saving, green energy and energy storage; (ii) investing in renewable energy; (iii) innovating and promoting low-carbon products and services; (iv) identifying our vulnerabilities to climate change and developing adaptation strategies; and (v) cultivating a “green” corporate culture and becoming a leading provider of low-carbon solutions.

 

We believe that there are opportunities associated with climate change related risks and have implemented the following strategies to evaluate the risks and identify the opportunities:

 

·Management procedures. We have been using an ERM system to manage climate change-related risks. Consequently, potential risks induced by climate change are identified and assessed at a global scale. We have established monitoring and control mechanisms to reduce the adverse impacts of climate change on our business operation. The identified risks are managed by a variety of departments or risk functions across all parts of our organization.

 

·Identification processes for risks and opportunities. The identification process for risks and opportunities is carried out both at the company and asset level. Our risk management programs are regularly updated and implemented in our manufacturing sites as well as all group-level functional departments and assets. Risk identification, assessment and response are three important steps in the ERM cycle. Risks and events that might have an influence on our business objectives are identified and evaluated to decide on appropriate responses.

 

·Prioritize the risks and opportunities identified. In accordance with a matrix analysis, the priority of climate change risks and opportunities are determined by the following criteria: time frame, likelihood, control effectiveness and magnitude of impact on our sustainable operation. A comprehensive methodology is designed to evaluate the cost of implementation, effectiveness (degree to which a response will reduce impact), feasibility (difficulty) and time needed for implementation. Furthermore, at least three climate scenario models are adopted to simulate the potential impact. Each facility will set its climate change scenario analytical framework to simulate various parameter changes to assess potential areas of impact. Through implementing preventative mechanisms, early warning and an emergency response system, we believe that we will be able to effectively address climate change risks.

 

Transition to low-carbon economy

 

Our climate leadership stems from bringing low carbon solutions to the global market and, through balancing operational growth and low-carbon transformation targets that meet stakeholders’ expectations. When developing our business strategies, we strive to reflect industry leading awareness of environmental protection and low-carbon transition planning. Climate change and energy resource management present a host of challenges and opportunities, and developments in climate policy, technology, and decarbonization as well as natural disasters can drastically impact our operations.

 

We also explore potential pathways with environmental specialists to achieve carbon reduction targets and establish response systems to adapt to climate change. We are dedicated to providing high efficiency products as well as investing in the research and development of eco-friendly design. Starting from the product design stage, we actively incorporate environmentally friendly materials into production processes. We have also maintained a multi-site certification for ISO 14001 ISO 14064-1and ISO 50001, which regularly examines the effectiveness of our environment and energy management systems. In May 2020, we are committed to set a science-based target and will submit the application after the methodology development in 2021. In addition, we also continue to pay attention to the global concerns of the Net Zero Target in order to take more effective actions in the future to mitigate the impact of greenhouse gas emissions on the global economy.

 

We believe proactively engaging in supplier development is key to the sustainable development of our supply chain. We provide trainings, workshops, seminars and face-to-face consultation to reinforce our suppliers’ capabilities to address sustainability issues and enhance their awareness of best practices for sustainability. In 2015, we joined the Responsible Business Alliance (RBA, previously known as the Electronic Industry Citizens Coalition) and every year, all of our facilities complete the RBA’s Self-Assessment Questionnaire to identify the labor, environmental, and ethical risks in their respective operations. For internal management, we have adopted the guidelines set out by the United Nations Framework Convention on Climate Change and encourage all our sites to submit their own self-initiated goals that are set according to their respective operation scale and capabilities.

 

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Risk Management

 

Our board of directors established a risk management committee and approved the “Risk Management Policies and Procedures” as the ultimate guiding risks management principle. Awareness in risk management forms an integral part of our management, and risk management has been duly incorporated into our business strategies and organizational culture. We conduct risk assessments on an annual basis. For major risks, we formulate specific management plans covering goals, organizational structure and responsibilities, and risk management procedures. These plans have been developed to identify, measure, monitor and control various risk exposures effectively. We also conduct a comprehensive evaluation on the probability impacts of various risks faced during the ordinary course of business, and take appropriate measures to continuously make improvements to respond to natural disasters and other disruptive events such as cyber-attacks or epidemic outbreaks that could adversely affect the operation of our business.

 

We proactively implement risk management plans and report to the board of directors on a yearly basis. For example, we have reported the status of the prevention and control of COVID-19 of our major subsidiaries and explained the risks to the board of directors, to ensure compliance. For a discussion of these risks and other factors, see “Item 3. Key Information—Risk Factors.”

 

Insurance

 

We have insurance policies covering property damage and damage to our production facilities, buildings and machinery. In addition, we have liability insurance policies, including but not limited to general liability insurance policies, product liability insurance policies for specified clients and products and directors’ and officers’ insurance policies.

 

We are not insured against the loss of key personnel.

 

ORGANIZATIONAL STRUCTURE

 

The following chart illustrates our corporate structure, including our principal packaging and testing manufacturing subsidiaries and EMS subsidiaries as of January 31, 2021. The following chart does not include intermediate holding companies, internal trading companies as well as those companies without operations and in the process of construction.

 

 

 

 

Our Consolidated Subsidiaries

 

ASE Group

 

ASE Inc.

 

ASE Inc., which was established on March 23, 1984, is our wholly owned subsidiary. It is incorporated in Taiwan and is dedicated to providing packaging and testing services, wafer sort testing, final testing service, substrate design and manufacturing.

 

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ASE Test Taiwan

 

ASE Test Taiwan, which was acquired in 1990, is our wholly owned subsidiary. It is incorporated in Taiwan and is engaged in the testing of integrated circuits.

 

ASE Malaysia

 

ASE Malaysia, which was established in 1991, is our wholly owned subsidiary. It is incorporated in Malaysia and is engaged in the packaging and testing of integrated circuits.

 

ISE Labs

 

ISE Labs is our wholly owned subsidiary. It is a semiconductor company specializing in front-end engineering testing that is incorporated in the United States and has its principal facilities located in Fremont, California. We acquired 70.0% of the outstanding shares of ISE Labs in 1999 through ASE Test, and increased our holding to 100.0% through purchases made in 2000 and 2002.

 

ASE Singapore Pte. Ltd.

 

ASE Singapore Pte. Ltd., our wholly owned subsidiary, is incorporated in Singapore and provides packaging and testing services. We acquired ASE Singapore Pte. Ltd., which was wholly owned by ISE Labs, through our acquisition of ISE Labs in 1999. In January 2011, ASE Singapore II Pte. Ltd. (formerly, EEMS Test Singapore) merged into ASE Singapore Pte. Ltd. after we acquired ASE Singapore II Pte. Ltd. in August 2010.

 

ASE Electronics

 

ASE Material was established in 1997 as an R.O.C. company for the production of interconnect materials, such as substrates, used in the packaging of semiconductors. We initially held a majority stake in ASE Material, but acquired the remaining equity by means of a merger of ASE Material with and into us in August 2004. In August 2006, we spun off the operations originally conducted through ASE Material into our wholly owned subsidiary ASE Electronics. ASE Electronics currently supplies our packaging operations with a substantial portion of our substrate requirements. The facilities of ASE Electronics are primarily located in the Nanzih Technology Industrial Park (formerly known as Nantze Export Processing Zone) near our packaging and testing facilities in Kaohsiung, Taiwan.

 

ASE Chung Li and ASE Korea

 

In July 1999, we purchased Motorola’s Semiconductor Products Sector operations in Chung Li, Taiwan and Paju, South Korea for the packaging and testing of semiconductors, thereby forming ASE Chung Li and ASE Korea. In August 2004, we acquired the remaining outstanding shares of ASE Chung Li that we did not already own and merged ASE Chung Li into us.

 

ASE Japan

 

ASE Japan, which we acquired from NEC Electronics Corporation in May 2004, is our wholly owned subsidiary. It is incorporated in Japan and is engaged in the packaging and testing of semiconductors.

 

ASE Shanghai

 

ASE Shanghai was established in 2001 as a wholly owned subsidiary of ASE Inc. and began operations in June 2004. ASE Shanghai primarily manufactures and supplies interconnect materials for our packaging operations.

 

ASEN

 

In September 2007, we acquired 60.0% equity interest in ASEN, formerly known as NXP Semiconductors Suzhou Ltd., from NXP Semiconductors for a purchase price of US$21.6 million. In March 2018, we acquired the remaining 40.0% equity interest in ASEN for a purchase price of US$127.1 million. In August 2018, we sold 30.0% equity interest in ASEN to Beijing Unis Capital Management Co., Ltd. at US$95.3 million. In November 2019, we repurchased 30.0% equity interest from Beijing Unis Capital Management Co., Ltd. at US$97.7 million. We held 100.0% equity interest in ASEN, which is based in Suzhou, China and is engaged in semiconductor packaging and testing.

 

ASEWH

 

In May 2008, we acquired 100.0% of the shares of ASEWH from Aimhigh Global Corp. and TCC Steel. ASEWH is based in Weihai, Shandong, China and is engaged in semiconductor packaging and testing.

 

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ASEKS

 

ASEKS was set up in 2004 and began operating in 2010. ASEKS is based in Kunshan, China and is engaged in semiconductor packaging and testing.

 

Wuxi Tongzhi

 

In May 2013, we, through our subsidiary ASESH AT, acquired 100.0% of the shares of Wuxi Tongzhi from Toshiba Semiconductor (Wuxi) Co, Ltd. Wuxi Tongzhi is based in Wuxi, China and is engaged in semiconductor packaging and testing.

 

ISE Shanghai

 

ISE Shanghai was established in 2018 and began operating in 2019. ISE Shanghai is based in Shanghai, China and is engaged in semiconductor testing.

 

Advanced Shanghai

 

Advanced Shanghai, which spun off from ASESH AT, was set up in 2020. Advanced Shanghai is based in Shanghai, China and is engaged in semiconductor packaging and testing.

 

SPIL Group

 

SPIL is a provider of semiconductor packaging and testing services. SPIL offers a full range of packaging and testing solutions, including advanced packages, substrate packages and leadframe packages, as well as testing for logic and mixed signal devices. SPIL also provides turnkey services, from packaging and testing to shipment service.

 

SPIL and ASE entered into a Joint Share Exchange Agreement on June 30, 2016, pursuant to which ASE established ASEH through a statutory exchange and ASEH acquired all issued and outstanding shares of both ASE and SPIL. For details about the Joint Share Exchange Agreement, see “Item 10. Additional information—Material Contract.”

 

The Share Exchange consummated on April 30, 2018, and SPIL’s shares concurrently delisted from TWSE and NASDAQ on April 30, 2018. On April 30, 2018, ASE and SPIL became privately held wholly owned subsidiaries of ASEH. For details about the SPIL Acquisition, see “Item 4. Information on the Company— SPIL Acquisition.”

 

The board of directors of the subsidiary, SPIL (Cayman) Holding Limited, resolved in September 2020 to dispose its 100% shareholdings in Siliconware Electronics (Fujian) Co., Limited to Shenzhen Hiwin System Limited with a consideration of RMB966,000 thousand. The disposal was completed in October 2020. The principal operating subsidiaries under SPIL Group are Siliconware Precision Industries Co., Ltd., and SZ.

 

USI Group

 

USI Group engages primarily in EMS in relation to computing and storage, consumer electronics, communications, industrial and automotive, among other services and businesses.

 

As of January 31, 2021, we held 100.0% interest in USI Inc. and held 74.2% interest in USI Shanghai through our subsidiaries USI Inc. and ASE Shanghai and held 73.4% interest in Universal Scientific Industrial. In addition, as of January 31, 2021, we held 100.0% interest in FAFG through our subsidiaries USIFR and USI Shanghai. See “Item 4. Information on the Company—Information on the Company—History and Development of the Company— USI Group and USI Group Restructuring” for more information.

 

PROPERTY, PLANTS AND EQUIPMENT

 

We operate a number of packaging, testing and electronic manufacturing facilities in Asia, the United States and Europe. Our facilities provide varying types or levels of services with respect to different end-product focus, customers, technologies and geographic locations. With our diverse facilities we are able to tailor our packaging, testing and electronic manufacturing solutions closely to our customers’ needs. The following table sets forth the location, commencement of operation, primary use, approximate floor space and ownership of our principal facilities in operation as of January 31, 2021.

 

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Facility   Location   Commencement of Operation   Primary Use   Approximate Floor Space (in sq. ft.)   Owned or Leased
ASE Inc.   Kaohsiung, R.O.C.   March 1984   Our primary packaging facility, which offers complete semiconductor manufacturing solutions in conjunction with ASE Test Taiwan and foundries located in Taiwan. Focuses primarily on packaging services such as flip chip, wafer bumping and fine-pitch wire bonding.   7,551,000   Land: leased
Buildings: owned and leased
    Chung Li, R.O.C.   Acquired in July 1999   An integrated packaging and testing facility that specializes in semiconductors for communications and consumer applications.   4,223,000   Land and buildings: owned
ASE Test Taiwan   Kaohsiung, R.O.C.   Acquired in April 1990   Our primary testing facilities, which offer complete semiconductor manufacturing solutions in conjunction with ASE Inc.’s facility in Kaohsiung and foundries located in Taiwan. Focuses primarily on advanced logic/mixed-signal/RF/3D IC testing for integrated device manufacturers, fabless design companies and system companies.   1,055,000   Land: leased
Buildings: owned and leased
ASE Malaysia   Penang, Malaysia   February 1991   An integrated packaging and testing facility that focuses primarily on the requirements of integrated device manufacturers.   1,102,000   Land: leased
Buildings: owned
ASE Korea   Paju, Korea   Acquired in July 1999   An integrated packaging and testing facility that specializes in semiconductors for radio frequency, sensor and automotive applications.   1,294,000   Land and buildings: owned
ISE Labs   California, U.S.   Acquired in May 1999   Front-end engineering and final testing facilities located in Northern California in close proximity to some of the world’s largest fabless design companies.   80,000   Land and buildings: owned
ASE Singapore   Singapore   Acquired in May 1999   An integrated packaging and testing facility that specializes in semiconductors for communication, computers and consumer applications.   282,000   Land: leased
Buildings: owned and leased
ASE Shanghai   Shanghai, China   June 2004   Design and production of semiconductor packaging materials.   1,757,000   Land: leased
Buildings: owned
ASE Japan   Takahata, Japan   Acquired in May 2004   An integrated packaging and testing facility that specializes in semiconductors for cellular phone, household appliance and automotive applications.   108,000   Land and buildings: leased
ASE Electronics   Kaohsiung, R.O.C.   August 2006   Facilities for the design and production of interconnect materials such as substrates used in the packaging of semiconductors.   566,000   Land: leased
Buildings: owned
ASEN   Suzhou, China   Acquired in September 2007   An integrated packaging and testing facility that specializes in communication applications.   874,000   Land: leased
Buildings: owned
ASEWH   Shandong, China   Acquired in May 2008   An integrated packaging and testing facility that specializes in semiconductors for communications, computing and consumer applications.   828,000   Land: leased
Buildings: owned
ASEKS   Kunshan, China   July 2010   An integrated packaging and testing facility that specializes in semiconductors for communications and consumer applications.   4,465,000   Land: leased
Buildings: owned
Wuxi Tongzhi   Wuxi, China   Acquired in May 2013   An integrated packaging and testing facility that specializes in semiconductors for MP3, vehicle, household appliance and communications applications.   78,000   Land and buildings: leased
ISE Shanghai   Shanghai, China   October 2018   Testing facility for semiconductors.   4,000   Land and buildings: leased
Advanced Shanghai   Shanghai, China   November 2020   Engaged in the packaging and testing of semiconductors   1,037,000   Land and buildings: leased
Universal Scientific Industrial   Nantou, R.O.C.   Acquired in February 2010   Manufacture and marketing of electronic components, accessories and related products.   418,000   Land: owned
Buildings: owned and leased
USI Mexico   Guadalajara, Mexico   Acquired in February 2010   Manufacturing site, which offers motherboard manufacture and system assembly.   384,000   Land and buildings: owned

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Facility   Location   Commencement of Operation   Primary Use   Approximate Floor Space (in sq. ft.)   Owned or Leased
USISZ   Shenzhen, China   Acquired in February 2010   Manufacturing site for design, manufacture and marketing of motherboards, electronic components, accessories and related products in China.   683,000   Land: leased
Buildings: owned
USI Shanghai   Shanghai, China   Acquired in February 2010   Manufacturing site for design, manufacture and marketing of motherboards, electronic components, accessories and related products in China.   1,785,000   Land: leased
Buildings: owned and leased
UGKS   Kunshan, China   August 2011   Manufacturing site for design, manufacture and marketing of motherboards, electronic components, accessories and related products in China.   1,130,000   Land and buildings: leased
UGTW   Nantou, R.O.C.   February 2010   Design, manufacture and marketing of electronic components, accessories and related products, and related research and development services.   1,362,000   Land: owned
Buildings: owned and leased
UGJQ   Shanghai, China   Established in September 2013   Design, manufacture and marketing of motherboards, electronic components, accessories and related products in China.   1,052,000   Land and buildings: leased
USIPL   Wroclaw-Kobierzyce, Poland   Acquired in October 2019   Design, manufacture miniaturization, material sourcing, logistics operations, and provide after sales services of electronic devices and modules.   363,000   Land and buildings: owned
ASTEELFLASH (BEDFORD) LIMITED   Bedford, United Kingdom   Acquired in December 2020   Manufacturing site for design and manufacture of electronic components, and specializes in industrial, telecommunication, internet of things, data processing, consumer electronics and aerospace related devices.   51,000   Land and buildings: leased
ASTEELFLASH FRANCE   Soissons, Normandie, Lorraine, Duttlenheim, Langon and Grenoble, France   Acquired in December 2020   Manufacture of electronic components such as complex mechatronic subsets (analog and digital) and design of electronic boards and mechatronic subsets engineering, electronic manufacturing services, expertise in high mix and low volume products.   747,000   Land and buildings: owned and leased
ASTEELFLASH TUNISIE S.A.   La Soukra, Tunisia   Acquired in December 2020   Design and manufacture of electronic components, such as PCBA assembly, coating, varnishing and in-circuit testing capabilities.   236,000   Land and buildings: leased
ASTEELFLASH TECHNOLOGIE   Alencon, France   Acquired in December 2020   Design and manufacturing mechatronic part, specifically targeted to automotive.   173,000   Land and buildings: owned
ASTEELFLASH SUZHOU CO., LTD.   Suzhou, China   Acquired in December 2020   Manufacturing site, specialized in SMT assembly for PCBA and system assembly/box build for module/final product in different segments.   1,452,000   Land and buildings: owned
ASTEELFLASH HERSFELD GmbH   Bad Hersfeld, Germany   Acquired in December 2020   Manufacturing site for PCB assembly, mainly automotive business, mid and high volume,  products linked to high security level, box build.      742,000   Land and buildings: owned
ASTEELFLASH EBERBACH GmbH   Eberbach, Germany   Acquired in December 2020   Manufacturing site that offers high/medium mix to low/medium volume electronic manufacturing services and focuses on smart building, smart home, green technologies, industrial and medical devices and equipment.   85,000   Land and buildings: leased
ASTEELFLASH BONN GmbH   Bonn, Germany   Acquired in December 2020   Manufacturing site that offers high/medium mix to low/medium volume electronic manufacturing services. Focused on smart building, smart home, green technologies, internet of things and telecommunication devices and equipment.   91,000   Land and buildings: leased
ASTEELFLASH DESIGN SOLUTIONS HAMBOURG GmbH   Hamburg, Germany   Acquired in December 2020   Manufacture and design for low/mid volumes with mid/high complexity products for industrial, medical, railway and IoT products.   38,000   Buildings: leased
ASTEELFLASH PLZEN S.R.O.   Pilsen, Czech Republic   Acquired in December 2020   Manufacturing site that offers solder paste printers, in-line solder paste inspection, full SMT lines, in-line automated optical inspection, wave soldering, and flying probe testing.   40,000   Land and buildings: leased
ASTEELFLASH USA CORP.   California, U.S.   Acquired in December 2020   Manufacturing site that offers solder paste printers, in-line solder paste inspection, full SMT lines, in-line automated optical inspection, wave soldering, flying probe testing, X-Ray capabilities and potting.   130,000   Land and buildings: leased
ASTEELFLASH MEXICO S.A. de C.V.   Tijuana, Mexico   Acquired in December 2020   Manufacturing site which specialized in automotive, medical, aerospace and commercial customers.   133,000   Land and buildings: leased
Siliconware Precision Industries Co., Ltd.   Taichung, Changhua and Hsinchu, R.O.C.   Acquired in April 2018   Packaging and Testing facility, which offers semiconductor packaging and testing turnkey services.   8,535,000  

Land: owned and leased

Buildings: owned

SZ   Suzhou, China   Acquired in April 2018   An integrated packaging and testing facility. This facility focuses primarily on packaging services, such as flip chip, wafer bumping and wire bonding.   1,447,000   Land: leased
Buildings: owned

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We have leased land in the Kaohsiung Nanzih Technology Industrial Park (formerly known as Nantze Export Processing Zone) from the Export Processing Zone Administration (the “EPZA”) with different lease terms for several years that will expire in September 2039. We have leased land from the Central Taiwan Science Park Administration in Taichung with 20-year terms that will expire in December 2038. We have leased land from Hsinchu Science Park Administrations in Hsinchu with 14-year to 40-year terms that will expire in December 2034. No sublease or lending of the land is allowed. The EPZA, the Central Taiwan Science Park Administration and the Hsinchu Science Park Administrations have the right to adjust the rental price in the event the government revalues the land. The leases are typically renewable with one-month to three-month notice prior to the termination date.

 

Kaohsiung facility is our operation headquarters and houses our industry-leading R&D center, which is dedicated to providing world-class assembly, wafer bumping and test services and also offers full turnkey services, including substrate design and manufacturing capabilities. In a world first, our 5G smart factory, which is collaboration among us, Chunghwa Telecom and Qualcomm Technologies, Inc., has commenced operation at Kaohsiung facility since December 2020. The smart factory features the extensive scope and sophistication of 5G technology application that accelerates the transformation of smart manufacturing and automation.

 

For administrative actions and judicial proceedings related to Kaohsiung Facility, see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings.”

 

We currently do not have plans for significant expansion, but will reevaluate our need for future expansion based on market condition and future demand requirements to meet our expected future growth. For information on the aggregate capacity of our facilities we operate, see “—Business Overview—Equipment.”

 

Item 4A. Unresolved Staff Comments

 

None.

 

Item 5. Operating and Financial Review and Prospects

 

OPERATING RESULTS AND TREND INFORMATION

 

The following discussion of our business, financial condition and results of operations should be read in conjunction with our consolidated financial statements, which are included elsewhere in this annual report. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of any number of factors, such as those set forth under “Item 3. Key Information—Risk Factors” and elsewhere in this annual report. See “Special Note Regarding Forward-Looking Statements.” Please refer to our Form 20-F dated March 31, 2020 (File No. 001-16125), as amended, for our discussion of financial information and operating results for 2019.

 

Overview

 

We offer a broad range of semiconductor packaging and testing services and we also offer EMS through USI Group. In addition to offering each service separately, we also offer turnkey services, which include integrated packaging, testing and direct shipment of semiconductors to end users designated by our customers and solution-based proactive original design manufacturing, for our customers. In addition, we have been generating revenues from our real estate business and from the manufacturing of integrated circuits since 2019. Our operating revenues increased from NT$413,182.2 million in 2019 to NT$476,978.7 million (US$16,986.4 million) in 2020.

 

Discussed below are several factors that have had a significant influence on our financial results in recent years.

 

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Recent Development

 

The U.S. Bureau of Industry and Security (“US BIS”) added Huawei and its affiliates to the entity list under the Export Administration Regulation (the “EAR”), published on August 20, 2020. As of September 15, 2020, we were no longer allowed to do business directly or indirectly with Huawei and its affiliates. HiSilicon, a Huawei affiliate, was one of our top customers during 2019 and the first half of 2020; and, as a result, this US BIS action adversely affected our results. Further, because of the EAR, we had unusable raw materials and reduced loading on our capitalized equipment which resulted in an inventory write-off and an impairment loss to other operating expense during the third quarter of 2020.

 

Pricing and Revenue Mix

 

We price our services taking into account the actual costs involved in providing these services, with reference to prevailing market prices. The majority of our prices and revenues is denominated in U.S. dollars. Any significant fluctuation in exchange rates, especially between NT dollars and U.S. dollars, will affect our costs and, in turn, our revenues.

 

In the case of semiconductor packaging, the cost of the silicon die, typically the most costly component of the packaged semiconductor, is usually not reflected in our costs (or revenues) since it is generally supplied by our customers on a consignment basis.

 

The semiconductor industry is characterized by a general trend toward declining prices for products and services of a given technology over time. In addition, during periods of intense competition and adverse conditions in the semiconductor industry, the pace of this decline may be more rapid than in other years. The average selling prices of our packaging and testing services have experienced sharp declines during such periods as a result of intense price competition from other market participants that attempt to maintain high-capacity utilization levels in the face of reduced demand.

 

Declines in average selling prices have been partially offset historically by changes in our revenue mix, and typically the selling price is largely dependable on the complexity of the services. In particular, revenues derived from more advanced package types, such as flip chip BGA, higher-density packages with finer lead-to-lead spacing, or pitch, and testing of more complex, high-performance semiconductors have increased as a percentage of total revenues. We intend to continue to focus on package types such as bumping, flip chip BGA and SiP, developing and offering new technologies in packaging and testing services and expanding our capacity to achieve economies of scale, as well as improving production efficiencies for older technologies, in order to mitigate the effects of declining average selling prices on our profitability.

 

Our profitability for a specific package type does not depend linearly on its average selling price. Some of our more traditional package types, which typically have low average selling prices, may well command steadier and sometimes higher margins than more advanced package types with higher average selling prices.

 

High Fixed Costs

 

Our operations, in particular our testing operations, are characterized by relatively high fixed costs. We expect to continue to incur substantial depreciation and other expenses especially from our acquisitions of packaging and testing equipment and facilities. Our profitability depends in part not only on absolute pricing levels for our products/services, but also on utilization rates on equipment, commonly referred to as “capacity utilization rates.” In particular, increases or decreases in our capacity utilization rates could have a significant effect on gross margins since the unit cost of our products and/or services generally decreases as fixed costs are allocated over a larger number of units. The capacity utilization rates of the machinery and equipment installed at our production facilities typically depend on factors such as the volume and variety of products, the efficiency of our operations in terms of the loading and adjustment of machinery and equipment for different products, the complexity of the different products to be packaged or tested, the amount of time set aside for the maintenance and repair of the machinery and equipment, and the experience and schedule of work shifts of operators.

 

In 2019 and 2020, our depreciation, amortization and rental expenses included in operating costs as a percentage of operating revenues was 11.2% and 9.8%, respectively. The decrease in depreciation, amortization and rental expenses as a percentage of operating revenues in 2020 compared to 2019 was primarily a result of an increase in our operating revenues. We begin depreciating our equipment when the machinery is placed into service. There may sometimes be a time lag between when our equipment is available for use and when it achieves high levels of utilization. In periods of depressed industry conditions, such as the fourth quarter of 2008, we experienced lower than expected demand from customers, resulting in an increase in depreciation relative to operating revenues. In particular, the capacity utilization rates for our testing equipment are more severely affected during an industry downturn as a result of a decrease in outsourcing demand from integrated device manufacturers, which typically maintain larger in-house testing capacity than in-house packaging capacity.

 

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In addition to purchasing testers, we also lease a portion of our testers, which we believe allows us to better manage our capacity utilization rates and cash flow. Since leased testers can be replaced with more advanced testers upon the expiration of the lease, we believe that these leases have enabled us to improve our capacity utilization rates by allowing us to better align our capacity with changes in equipment technology and the needs of our customers. For more information about our testers, including the number of testers under lease, see “Item 4. Information on the Company—Business Overview—Equipment—Testing.”

 

Raw Material Costs

 

Substantially all of our raw material costs are accounted for by packaging, the production of interconnect materials and EMS. In particular, our EMS requires more significant quantities of raw materials than our packaging and production of interconnect materials. In 2020, raw material costs accounted for 80.3% of our operating revenues from EMS, and our revenues generated from EMS contributed to 42.9% of our operating revenues. In 2019 and 2020, raw material cost as a percentage of our operating revenues was 49.3% and 50.4%, respectively.

 

We have developed copper wire to gradually replace gold wire in the packaging processes in order to benefit from the lower material cost of copper. However, gold wire is still and will continue to be one of the principal raw materials for us in our packaging processes. It may be difficult for us to adjust our average selling prices to account for fluctuations in the price of gold. Thus we expect our raw material costs to continue to be affected by fluctuations in the price of gold.

 

Recent Accounting Pronouncements

 

Adopted Standards for Current Period

 

In the current year, we have applied the following new, revised or amended standards and interpretations that have been issued and effective: Amendments to IFRS 3 “Definition of a Business,” Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark Reform,” Amendments to IAS 1 and IAS 8 “Definition of Material,” Amendments to References to the Conceptual Framework in IFRS Standards and Amendment to IFRS 16 “COVID-19-Related Rent Concessions.” Except for the following, the initial application of the aforementioned new, revised or amended standards and interpretations did not have effect on our accounting policies. Please refer to note 3 to our consolidated financial statements included in this annual report for more information.

 

Amendments to IFRS 3 “Definition of a Business”

 

We apply the amendments to IFRS 3 to transactions that occur on or after January 1, 2020. The amendments clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. To determine whether an acquired process is substantive, different criteria apply, depending on whether there are outputs at the acquisition date. In addition, the amendments introduce an optional concentration test that permits a simplified assessment of whether or not an acquired set of activities and assets is a business.

 

Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark Reform”

 

Upon retrospective application of the amendments, we complied with the hedge accounting requirements under the assumption that the interest rate benchmark (such as the London Interbank Offered Rate or LIBOR) on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate benchmark reform.

 

Amendments to IAS 1 and IAS 8 “Definition of Material”

 

We adopted the amendments starting from January 1, 2020. The threshold of materiality that could influence users has been changed to “could reasonably be expected to influence”. Accordingly, disclosures in the consolidated financial statements do not include immaterial information that may obscure material information.

 

Amendment to IFRS 16 “COVID-19-Related Rent Concessions”

 

We elected to apply the practical expedient provided in the amendment to IFRS 16 with respect to rent concessions negotiated with the lessor as a direct consequence of the COVID-19. Please refer to note 4 to our consolidated financial statements included in this annual report for more information. Prior to the application of the amendment, we shall determine whether or not the abovementioned rent concessions need to be accounted for as lease modifications.

 

We applied the amendment from January 1, 2020. Because the abovementioned rent concessions affected only in 2020, retrospective application of the amendment had no impact on the retained earnings as of January 1, 2020.

 

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Standards Not Yet Adopted

 

Among the new, revised or amended standards and interpretations that have been issued but are not yet effective, except for the Amendments to IAS 1 “Classification of Liabilities as Current or Non-current,” Amendments to IAS 16 “Property, Plant and Equipment: Proceeds before Intended Use,” Amendments to IAS 37 “Onerous Contracts - Cost of Fulfilling a Contract, ” Amendments to IAS 1 “Disclosure of Accounting Policies, ” and Amendments to IAS 8 “Definition of Accounting Estimates,” we continue in evaluating the impact on our financial position and financial performance as a result of the initial application of the new, revised or amended standards and interpretations: “Annual Improvements to IFRS Standards 2018–2020,” Amendments to IFRS 3 “Reference to the Conceptual Framework, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 “Interest Rate Benchmark Reform - Phase 2,” and Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture.” The related impact will be disclosed when we complete the evaluation.

 

Amendments to IAS 1 “Classification of Liabilities as Current or Non-current”

 

The amendments clarify that for a liability to be classified as non-current, we shall assess whether it has the right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. If such rights are in existence at the end of the reporting period, the liability is classified as non-current regardless of whether we will exercise that right. The amendments also clarify that, if the right to defer settlement is subject to compliance with specified conditions, we must comply with those conditions at the end of the reporting period even if the lender does not test compliance until a later date.

 

The amendments stipulate that, for the purpose of liability classification, the aforementioned settlement refers to a transfer of cash, other economic resources or our own equity instruments to the counterparty that results in the extinguishment of the liability. However, if the terms of a liability that could, at the option of the counterparty, result in its settlement by a transfer of our own equity instruments, and if such option is recognized separately as equity in accordance with IAS 32 “Financial Instruments: Presentation”, the aforementioned terms would not affect the classification of the liability.

 

Amendments to IAS 16 “Property, Plant and Equipment: Proceeds before Intended Use”

 

The amendments prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The cost of those items is measured in accordance with IAS 2 “Inventories”. Any proceeds from selling those items and the cost of those items are recognized in profit or loss in accordance with applicable standards.

 

The amendments are applicable only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after January 1, 2021.

 

Amendments to IAS 37 “Onerous Contracts - Cost of Fulfilling a Contract”

 

The amendments specify that when assessing whether a contract is onerous, the “cost of fulfilling a contract” includes both the incremental costs of fulfilling that contract (for example, direct labor and materials) and an allocation of other costs that relate directly to fulfilling contracts (for example, an allocation of depreciation for an item of property, plant and equipment used in fulfilling the contract).

 

We will recognize the cumulative effect of the initial application of the amendments in the retained earnings at the date of the initial application.

 

Amendments to IAS 1 “Disclosure of Accounting Policies”

 

The amendments specify that we should refer to the definition of material to determine its material accounting policy information to be disclosed. Accounting policy information is material if it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments also clarify that:

 

·accounting policy information that relates to immaterial transactions, other events or conditions is immaterial and need not be disclosed;

 

·we may consider the accounting policy information as material because of the nature of the related transactions, other events or conditions, even if the amounts are immaterial; and

 

·not all accounting policy information relating to material transactions, other events or conditions is itself material.

 

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The amendments also illustrate that accounting policy information is likely to be considered as material to the financial statements if that information relates to material transactions, other events or conditions and:

 

(1)we changed its accounting policy during the reporting period and this change resulted in a material change to the information in the financial statements;

 

(2)we chose the accounting policy from options permitted by the standards;

 

(3)the accounting policy was developed in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” in the absence of an IFRS that specifically applies;

 

(4)the accounting policy relates to an area for which we are required to make significant judgments or assumptions in applying an accounting policy, and we disclose those judgments or assumptions; or

 

(5)the accounting is complex and users of the financial statements would otherwise not understand those material transactions, other events or conditions.

 

Amendments to IAS 8 “Definition of Accounting Estimates”

 

The amendments define that accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty. In applying accounting policies, we may be required to measure items at monetary amounts that cannot be observed directly and must instead be estimated. In such a case, we use measurement techniques and inputs to develop accounting estimates to achieve the objective. The effects on an accounting estimate of a change in a measurement technique or a change in an input are changes in accounting estimates unless they result from the correction of prior period errors.

 

Critical Accounting Policies and Estimates

 

Preparation of our consolidated financial statements requires us to make estimates and judgments in applying our critical accounting policies that have a significant impact on the results we report in our consolidated financial statements. Our principal accounting policies and critical accounting judgments and key sources of estimation uncertainty are set forth in detail in note 4 and note 5, respectively, to our consolidated financial statements included in this annual report. We continually evaluate these estimates and assumptions. Actual results may differ from these estimates under different assumptions and conditions. Significant accounting policies are summarized as follows.

 

Revenue Recognition

 

We identify contracts with customers, allocate transaction prices to performance obligations, and when performance obligations are satisfied, recognize revenues at fixed amounts as agreed in the contracts with taking estimated volume discounts into consideration.

 

For contracts where the period between the date on which we transfer a promised good or service to a customer and the date on which the customer pays for that good or service is one year or less, we do not adjust the promised amount of consideration for the effects of a significant financing component. Our duration of contracts with customers is expected to be one year or less, and the consideration from contracts with customers is included in transaction price and, therefore, can apply the practical expedient not to disclose the performance obligations, including (i) the aggregate amount of the transaction price allocated to the performance obligations that are not fully satisfied or have partially completed at the end of the reporting period, and (ii) the expected timing for recognition of revenue. Our operating revenues include revenues from sale of goods and services as well as sale and leasing of real estate properties. When customers control goods while they are manufactured in progress, we measure the progress on the basis of costs incurred relative to the total expected costs as there is a direct relationship between the costs incurred and the progress of satisfying the performance obligations. Revenue and contract assets are recognized during manufacture and contract assets are reclassified to trade receivables when the manufacture is completed or when the goods are shipped upon customer’s request.

 

For the revenues from EMS and sale of substrates, we recognize revenues and trade receivables when the goods are shipped or the goods are delivered to the customers’ specific locations because it is the time when customers have full discretion over the manner of distribution and price to sell the goods, have the primary responsibility for sales to future customers, and bear the risks of obsolescence.

 

The revenues from sale of real estate properties are recognized when customers purchase real estate properties and complete the transfer procedures. The revenues from leasing real estate properties are recognized during leasing periods on a straight-line basis.

 

Impairment of Tangible and Intangible Assets Other Than Goodwill. At each balance sheet date or whenever an impairment indicator is identified, we review the carrying amounts of the tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Recoverable amount is the higher of fair value less cost of disposal and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. The process of evaluating the potential impairment of tangible and intangible assets other than goodwill requires significant judgment. We are required to make challenging, subjective, or complex judgments in determining the independent cash flows, useful lives, expected future revenue and expenses related to a specific asset group, taking its usage patterns and the nature of the semiconductor industry into consideration. Any changes in our estimates caused by changing economic conditions or business strategies could result in significant impairment charges in future periods.

 

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In 2018, 2019 and 2020, we recognized impairment losses of NT$133.1 million, NT$201.0 million and NT$992.3 million (US$35.3 million), respectively, on property, plant and equipment. See note 15 to our consolidated financial statements included in this annual report.

 

Business Combinations and Acquisition of Associate. When we acquire businesses, goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the fair value of the identifiable assets and liabilities at the acquisition date. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets and liabilities at the acquisition date, especially with respect to intangible assets. These estimates are based on historical experience, information obtained from the management of the acquired companies and independent external service providers’ reports. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the synergistic benefits expected to be derived from the acquired business. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur, which may affect the accuracy or validity of such estimates.

 

For the associate accounted for using the equity method, goodwill is included within the carrying amount of the investment as the excess of cost of investments over the fair value share acquired at the respective investment dates. It involves critical accounting judgment and estimates when determining aforementioned fair values. We have engaged an independent external appraiser to assist us in identifying and evaluating the associate’s identifiable tangible assets, intangible assets and liabilities. The scope of such evaluation includes assumptions as current replacement cost of tangible assets, the categories of intangible assets and their expected economic benefits, growth rates for operating revenue and discount rates used in cash flow analysis. The amounts of differences between fair value of identified tangible and intangible assets and the carrying amount at each respective investment dates are depreciated or amortized over their remaining useful lives or expected future economic benefit lives and recognized immediately in profit or loss.

 

For the acquisition of a subsidiary, we identify the difference between investment cost and our share of net fair value of the subsidiary’s identifiable assets and liabilities after the acquisition of a subsidiary. It involves critical judgments and estimations when determining aforementioned net fair values. The management engaged independent external appraisers to assist them in identifying and evaluating the subsidiary’s identifiable tangible assets, intangible assets and liabilities. The scope of such evaluation includes the type of intangible assets that may be identified and the related estimated cash flow or relief cost expenses. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted retrospectively during the measurement period, or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.

 

As of December 31, 2020, we have not completed the identification of the difference between the cost of the investment and our share of the net fair value of FAFG’s identifiable assets and liabilities and, as a result, the difference was recognized as goodwill provisionally. We continuously review the abovementioned items during the measuring period. If there is any new information obtained within one year from the acquisition date about the facts and circumstances the existed as of the acquisition date, for which the abovementioned provisional amounts recognized at the acquisition date should be adjusted or additional provision should be recognized, the accounting for the business combination will be modified.

 

The excess of the fair value over the carrying amount of identified tangible assets and intangible assets on the acquisition date will be depreciated or amortized over their remaining useful lives or expected future economic benefit lives. The management believes the related estimation and assumption appropriately reflect the net fair value of identifiable assets acquired and liabilities assumed. The total PPA effect, however, may still fluctuate due to shifts in general economic conditions of the semiconductor manufacturing industry.

 

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As a result of the SPIL Acquisition, we identified the difference between investment cost and our share of net fair value of SPIL’s identifiable assets and liabilities, or PPA effects, which caused the increase in the total of NT$4,370.5 million, NT$5,918.2 million and NT$4,820.7 million (US$171.7 million), of which an increase of NT$3,212.7 million, NT$4,797.3 million and NT$3,708.0 million (US$132.1 million) to depreciation and amortization in operating costs NT$675.2 million, NT$1,012.7 million and NT$1,012.7 million (US$36.1 million) to amortization in operating expenses and NT$482.6 million, NT$108.2 million and NT$100.0 million (US$3.5 million) to other operating income and expenses, net in 2018, 2019 and 2020, respectively.

 

Goodwill. We did not monitor goodwill for internal management purpose but for financial reporting purpose only. Therefore, goodwill is allocated to the following cash-generating units for evaluation of impairment: packaging segment, testing segment, EMS segment and other segment. We perform evaluation of goodwill for impairment annually, or whenever there is an event that occurs or circumstances change that would indicated that the segment may be impaired. Determining whether goodwill is impaired requires an estimation of the recoverable amounts of the cash-generating units to which goodwill has been allocated. Recoverable amounts are assessed by value in use, which requires management to estimate the future cash flows expected to arise from cash-generating units and suitable discount rates in order to calculate its present value. When the actual future cash flows are less than expected, a material impairment loss may arise. In conducting the future cash flow valuation, we make assumptions about future operating cash flows, the discount rate used to determine present value of future cash flows, and capital expenditures. Future operating cash flows assumptions include sales growth assumptions, which are based on our historical trends and industry trends, and gross margin and operating expenses growth assumptions, which are based on the historical relationship of those measures compared to sales and certain cost-cutting initiatives. An impairment charge is incurred to the extent the carrying amount exceeds the recoverable amount. As of December 31, 2019 and 2020, we had goodwill of NT$50,198.4 million and NT$54,777.4 million (US$1,950.8 million), respectively. For the years ended December 31, 2018, 2019 and 2020, no impairment loss was recognized. Our conclusion could, however, change in the future if actual results differ from our estimates and judgments are made under different assumptions and conditions. See note 18 to our consolidated financial statements included in this annual report.

 

Valuation of Investments. We hold investments in the shareholdings of public and nonpublic entities. We evaluate these investments periodically for impairment based on market prices, if available, the financial condition of the investees and economic conditions in the industry and estimate of future cash inflows from disposal (net of transaction cost). These assessments usually require a significant amount of judgment, as a significant decline in the market price may be a short-term drop and may not be the best indicator of impairment. Whenever triggering events or changes in circumstances indicate that an investment may be impaired and a carrying amount may not be recoverable, we measure the impairment based on the market prices, if available, or using a market approach based on the financial result of the investments and estimate of future cash inflows from disposal (net of transaction cost). Several of the investments held by us are recognized as equity method investments or financial assets. Any significant decline in the estimated future cash flows of the investments or financial assets could affect the value of the investment and indicate that an impairment charge may occur. In 2018, 2019 and 2020, we recognized impairment losses of NT$521.0 million, NT$400.2 million and nil, respectively, on our investments. See note 25 to our consolidated financial statements included in this annual report.

 

Results of Operations

 

The following table sets forth, for the periods indicated, financial data from our consolidated statements of comprehensive income, expressed as a percentage of operating revenues.

 

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   Year Ended December 31
   2018  2019  2020
Operating revenues   100.0%   100.0%   100.0%
Packaging   48.1%   48.2%   45.9%
Testing   9.7%   10.3%   9.9%
EMS   40.9%   40.1%   42.9%
Others   1.3%   1.4%   1.3%
Operating costs   (83.5)%   (84.4)%   (83.7)%
Gross profit   16.5%   15.6%   16.3%
Operating expenses   (9.3)%   (9.9)%   (9.0)%
Other operating income and expenses, net   0.1%   (0.1)%   0.1%
Profit from operations   7.3%   5.6%   7.4%
Non-operating expense, net   1.3%   0.0%   0.1%
Profit before income tax   8.6%   5.6%   7.5%
Income tax expense   (1.2)%   (1.2)%   (1.5)%
Profit for the year   7.4%   4.4%   6.0%
Attributable to               
Owners of the Company   7.1%   4.1%   5.7%
Non-controlling interests   0.3%   0.3%   0.3%
    7.4%   4.4%   6.0%
Other comprehensive income, net of income tax   (0.2)%   (1.0)%   1.0%
Total comprehensive income for the year   7.2%   3.4%   6.1%
Attributable to               
Owners of the Company   6.9%   3.2%   5.7%
Non-controlling interests   0.3%   0.2%   0.4%
    7.2%   3.4%   6.1%

 

The following table sets forth, for the periods indicated, the gross margins for our packaging, testing services and EMS and our total gross margin. Gross margin is calculated by dividing gross profits by operating revenues.

 

   Year Ended December 31
   2018  2019  2020
   (Percentage of operating revenues)
Packaging   18.9%   17.4%   19.8%
Testing   34.2%   34.1%   32.3%
EMS   9.4%   8.7%   9.2%
Overall   16.5%   15.6%   16.3%

 

The following table sets forth, for the periods indicated, a breakdown of our total operating costs and operating expenses, expressed as a percentage of operating revenues.

 

   Year Ended December 31
   2018  2019  2020
Operating costs         
Raw materials   49.1%   49.3%   50.4%
Labor   12.6%   12.4%   11.6%
Depreciation, amortization and rental expense   10.9%   11.2%   9.8%
Others   10.9%   11.5%   11.9%
Total operating costs   83.5%   84.4%   83.7%
Operating expenses               
Selling   1.4%   1.4%   1.2%
General and administrative   3.9%   4.0%   3.8%
Research and development   4.0%   4.5%   4.0%
Total operating expenses   9.3%   9.9%   9.0%

 

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

 

Operating Revenues. Operating revenues increased 15.4% to NT$476,978.7 million (US$16,986.4 million) in 2020 from NT$413,182.2 million in 2019, primarily due to an increase in revenue from our EMS business. Packaging revenues increased 9.9% to NT$218,666.1 million (US$7,787.3 million) in 2020 from NT$198,916.9 million in 2019, primarily due to an increase in demand of Bumping, Flip Chip, WLP, Fan-out and SiP products. Testing revenues increased 10.8% to NT$47,271.1 million (US$1,683.4 million) in 2020 from NT$42,658.7 million in 2019, primarily due to an increase in providing testing services for wafer probe. Revenues from our EMS business increased 23.5% to NT$204,690.7 million (US$7,289.6 million) in 2020 from NT$165,789.5 million in 2019, primarily due to an increase in orders for SiP communications and consumer electronics products.

 

Gross Profit. Gross profit increased by 21.3% to NT$77,984.3 million (US$2,777.2 million) in 2020 from NT$64,310.8 million in 2019. Our gross profit as a percentage of operating revenues, or gross margin, was 16.3% in 2020 compared to 15.6% in 2019, which was primarily driven by stronger loading. Raw material costs in 2020 were NT$240,568.3 million (US$8,567.3 million) compared to NT$203,504.7 million in 2019. As a percentage of operating revenues, raw material costs increased to 50.4% in 2020 from 49.3% in 2019. Labor costs in 2020 were NT$55,226.4 million (US$1,966.8 million) compared to NT$51,179.0 million in 2019. As a percentage of operating revenues, labor cost decreased to 11.6% in 2020 from 12.4% in 2019. Depreciation, amortization and rental expenses in 2020 were NT$46,860.6 million (US$1,668.8 million) compared to NT$46,218.0 million in 2019, primarily related to the investment in our capacity. As a percentage of operating revenues, depreciation, amortization and rental expenses decreased to 9.8% in 2020 from 11.2% in 2019. Our gross margin for packaging business increased to 19.8% in 2020 from 17.4% in 2019, primarily the result of higher loading levels which are partially offset by negative impact from the strong NT dollar, whereas our gross margin for testing business decreased to 32.3% in 2020 from 34.1% in 2019, primarily due to the negative impact from the strong NT dollar and impact of the EAR. Our gross margin for EMS business increased to 9.2% in 2020 from 8.7% in 2019, primarily due to a decrease in the sale of products with lower gross margins.

 

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Profit from Operations. Profit from operations increased 52.1% to NT$35,378.6 million (US$1,259.9 million) in 2020 compared to NT$23,257.8 million in 2019. Our profit from operations as a percentage of operating revenues increased to 7.4% in 2020 from 5.6% in 2019, primarily due to an increase in gross profit. General and administrative expenses increased 9.4% to NT$18,200.3 million (US$648.2 million) in 2020 from NT$16,637.9 million in 2019. General and administrative expenses as a percentage of our operating revenues was 3.8% in 2020 compared to 4.0% in 2019. Research and development expenses increased 4.9% to NT$19,302.4 million (US$687.4 million) in 2020 compared to NT$18,395.3 million in 2019, accounting for 4.0% and 4.5% of operating revenues in 2020 and 2019, respectively. The increase in the general and administrative expenses and research and development expense was primarily due to an increase in employee bonus in relation to business performance and an increase in the average number of employees. Selling expenses decreased 2.5% to NT$5,605.5 million (US$199.6 million) in 2020 from NT$5,751.2 million in 2019, primarily due to the suspension of non-critical overseas business travel due to COVID-19 impacts. Selling expenses as percentages of operating revenues were 1.2% and 1.4%, respectively, in 2020 and 2019. We had a net other operating income of NT$502.5 million (US$17.9 million) in 2020 compared to net other operating expense of NT$268.6 million in 2019. The increase in net other operating income and expenses was primarily due to a decrease in loss on damages and claims and an increase in gain on disposal of property, plant and equipment and other assets as well as an increase in others that include gain on disposal of right-of-use assets and miscellaneous income, but was partially offset by increase in impairment losses on property, plant and equipment.

 

Non-Operating Income and Expenses. We had a net non-operating income of NT$390.2 million (US$13.9 million) in 2020 compared to a net non-operating income of NT$22.0 million in 2019. This increase of NT$368.2 (US$13.1 million) was primarily due to (i) an increase in the income earned from equity method investments by NT$365.3 million (US$13.0 million); (ii) a gain of NT$894.1 million (US$31.8 million) from the disposal of subsidiaries and the investments accounted for using the equity method; (iii) a decrease in financial cost by NT$743.9 million (US$26.5 million) and (iv) a decrease in impairment losses on financial assets by NT$400.2 million (US$14.3 million) but partially offset by a decrease in remeasurement gain on investments by NT$319.7 million (US$11.4 million) and a decrease in other gains and losses due to the valuation of financial instruments by NT$1,718.7 million (US$61.2 million).

 

Net Profit. Net profit, excluding non-controlling interests, increased by 58.1% to NT$26,970.6 million (US$960.5 million) in 2020 compared to NT$17,060.6 million in 2019. Our diluted earnings per ADS increased to NT$12.33 (US$0.44) in 2020 compared to diluted earnings per ADS of NT$7.82 in 2019. Our income tax expenses increased by 42.0% to NT$7,116.9 million (US$253.5 million) in 2020 compared to NT$5,011.2 million in 2019. This increase is primarily due to an increase in profit before income tax and an increase in income tax on unappropriated earnings, partially offset by the remeasurement of deferred income tax assets.

 

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

 

For a detailed description of the comparison of our operating results for the year ended December 31, 2019 to the year ended December 31, 2018, please refer to “Item 5. Operating and Financial Review and Prospects— Operating Results and Trend Information—Results of Operations—Year Ended December 31, 2019 Compared to Year Ended December 31, 2018” of our annual report on Form 20-F filed with the Securities and Exchange Commission on March 31, 2020, as amended.

 

Quarterly Operating Revenues, Gross Profit and Gross Margin

 

The following table sets forth our unaudited consolidated operating revenues, gross profit and gross margin for the quarterly periods indicated. The unaudited quarterly results reflect all adjustments, consisting of normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the amounts, on a basis consistent with the audited consolidated financial statements included elsewhere in this annual report. You should read the following table in conjunction with the audited consolidated financial statements and related notes included elsewhere in this annual report.

 

Our operating revenues, gross profit and gross margin for any quarter are not necessarily indicative of the results for any future period. Our quarterly operating revenues, gross profit and gross margin may fluctuate significantly.

 

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Quarter Ended 

  

Mar. 31,
2019 

 

Jun. 30,
2019 

 

Sep. 30,
2019 

 

Dec. 31,
2019 

 

Mar. 31,
2020 

 

Jun. 30,
2020 

 

Sep. 30,
2020 

 

Dec. 31,
2020 

   NT$  NT$  NT$  NT$  NT$  NT$  NT$  NT$
               (in millions)         
Consolidated Operating Revenues                                        
Packaging   43,857.3    47,602.2    53,804.5    53,652.8    51,612.9    53,621.6    56,171.9    57,259.7 
Testing   8,950.8    10,285.0    11,493.2    11,929.7    11,562.9    12,690.4    12,351.1    10,666.7 
EMS   34,947.0    31,524.1    50,584.0    48,734.4    32,721.3    39,702.7    53,125.7    79,141.0 
Others   1,106.4    1,329.6    1,675.6    1,705.6    1,460.0    1,534.1    1,546.7    1,810.0 
Total   88,861.5    90,740.9    117,557.3    116,022.5    97,357.1    107,548.8    123,195.4    148,877.4 
Consolidated Gross Profit                                        
Packaging   5,801.6    7,491.3    10,181.5    11,064.6    9,297.3    10,581.3    10,469.1    12,903.9 
Testing   2,485.2    3,449.3    4,287.2    4,315.2    3,730.3    4,329.1    3,984.2    3,213.7 
EMS   2,904.8    2,850.2    4,462.4    4,274.0    3,024.4    3,709.6    5,119.1    6,972.8 
Others   193.4    178.2    177.2    194.7    103.6    189.4    147.4    209.1 
Total   11,385.0    13,969.0    19,108.3    19,848.5    16,155.6    18,809.4    19,719.8    23,299.5 
Consolidated Gross Profit (%)                                        
Packaging   13.2%    15.7%    18.9%    20.6%    18.0%    19.7%    18.6%    22.5% 
Testing   27.8%    33.5%    37.3%    36.2%    32.3%    34.1%    32.3%    30.1% 
EMS   8.3%    9.0%    8.8%    8.8%    9.2%    9.3%    9.6%    8.8% 
Overall   12.8%    15.4%    16.3%    17.1%    16.6%    17.5%    16.0%    15.7% 

 

Our results of operations are affected by seasonality. In general, our first quarter operating revenues have historically decreased over the preceding fourth quarter, primarily due to the combined effects of holidays in the United States, Taiwan and elsewhere in Asia. Moreover, the increase or decrease in operating revenues of a particular quarter as compared with the immediately preceding quarter varies significantly. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our operating results are subject to significant fluctuations, which could adversely affect the market value of your investment.”

 

Exchange Rate Fluctuations

 

For quantitative and qualitative disclosure of our exposure to foreign currency exchange rate risk, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Market Risk—Foreign Currency Exchange Rate Risk.”

 

Taxation

 

The corporate income tax rate in the R.O.C. decreased from 25% to 17%, effective since January 1, 2010. The R.O.C. Statute for Upgrading Industries, which provided various tax incentives, including investment tax credits, tax exemptions and tax holidays for companies, expired on December 31, 2009. Under this statute, we had been granted tax holidays covering the portion of our income attributable to eligible machinery and equipment that were procured with cash infusions from our shareholders or after the capitalization of retained earnings through the issuance of stock dividends, and tax credits of 7% for the purchase of qualifying manufacturing equipment. We can continue to enjoy the tax holidays that have been granted to us by the R.O.C. tax authority. On April 16, 2010, the Legislative Yuan of R.O.C. passed the Industrial Innovation Act. Under the prevailing Industrial Innovation Act, effective from January 1, 2010 to December 31, 2029, a profit-seeking enterprise may deduct up to (i) 15% of its research and development expenditures from its income tax payable for the fiscal year in which these expenditures are incurred; or (ii) 10% of its research and development expenditures from its income tax payable for the fiscal year in which these expenditures are incurred or the following two years. However, the deduction may not exceed 30% of the income tax payable for that fiscal year. Under the Alternative Minimum Tax Act (the “AMT Act”) which took effect in January 2006 and was amended in August 2012, May 2017 and January 2021, when the amount of the regular income tax calculated pursuant to the Income Tax Law of the R.O.C. (the “Income Tax Law”) is below the amount of the alternative minimum tax, or the AMT, a taxpayer is required to pay the difference between the AMT and the said regular income tax, which becomes the AMT payable. Taxable income for calculating the AMT includes most sources of income that are exempted from income tax under various legislations such as tax holidays. However, there are grandfathered treatments for the tax holidays approved by the tax authority before the AMT Act took effect. Under the amended AMT Act, the standard deduction for taxable income that applies to business entities decreased from NT$2.0 million to NT$0.5 million and the tax rate that applies to business entities increased from 10% to 12%. The amendment to the AMT Act became effective on January 1, 2013. Under the amendment to the Income Tax Law, which became effective on January 1, 2018, the corporate income tax rate increased from 17% to 20%.

 

As of December 31, 2020, ASE Test Taiwan had five-year tax holidays on income derived from a portion of their respective operations, which will expire in 2022. The aggregate tax benefits of such exemptions for the years ended December 31, 2019 and 2020 were NT$495.9 million and NT$387.2 million (US$108.7 million), respectively. The effect of such tax exemption on basic earnings per share for the year ended December 31, 2019 and 2020 were NT$0.12 and NT$0.09 (US$0.003), respectively.

 

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Since we have facilities located in special export zones such as the Nanzih Technology Industrial Park (formerly known as Nantze Export Processing Zone) and Hsinchu Science Park in Taiwan, we enjoy exemptions from various import duties, commodity taxes and business taxes on imported machinery, equipment, raw materials and components which are directly used for manufacturing finished goods. We also enjoy exemptions from commodity and business taxes on finished goods exported or sold to others within the zones.

 

In addition, we filed a consolidated corporate income tax return starting from 2019 and a consolidated undistributed earnings tax starting from 2018 for all qualified domestic subsidiary companies with the tax authority in accordance with Article 45 of the R.O.C. Business Mergers and Acquisitions Act.

 

Before December 31, 2018, when we declare a dividend out of those undistributed earnings on which the 10% undistributed earnings tax had been paid, up to 50% of such undistributed earnings tax may be credited against the withholding tax imposed on the dividends paid to foreign shareholders. Under the amended Income Tax Law, which became effective on January 1, 2018, the tax rate on unappropriated earnings is reduced from 10% to 5%. In addition, to encourage profit-seeking enterprises to use their earnings to make substantial investment or upgrade production technology or the quality of products or services, a company uses a certain amount of its undistributed earnings to construct or purchase buildings, software or hardware equipment, or technology for use in production or operation as needed for operation of its business or ancillary business within three years from the year after such earnings are derived, such investment amounts may be deducted from the undistributed earnings in calculation of the current year’s undistributed earnings for assessment of additional profit-seeking enterprise income tax leviable on undistributed earnings from the year 2018 under Article 66-9 of the Income Tax Act. We have deducted the amount of capital expenditure from the unappropriated earnings in 2018 that was reinvested when calculating the tax on unappropriated earnings based on this new amendment. However, we did not deduct such investment amounts from the undistributed earnings in calculation of income tax on unappropriated earnings in 2019 and 2020.

 

In 2020, our effective income tax rate decreased to 20% from 22% in 2019 primarily because we remeasured deferred income tax asset and confirmed the deductibility of certain holding company level expenses for tax purposes. We believe that our future estimated taxable income will be sufficient to utilize our deferred tax assets recorded as of December 31, 2020.

 

Our non-R.O.C. subsidiaries are subject to taxation in their respective jurisdiction.

 

LIQUIDITY AND CAPITAL RESOURCES

 

We have historically been able to satisfy our working capital needs from our cash flow from operations. We have historically funded our capacity expansion from internally generated cash and, to the extent necessary, the issuance of equity securities and borrowings. If adequate funds are not available on satisfactory terms, we may be forced to curtail our expansion plans. Moreover, our ability to meet our working capital needs from cash flow from operations will be affected by the demand for our packaging services, testing services and EMS, which in turn may be affected by several factors. Many of these factors are outside of our control, such as economic downturns and declines in the prices of our services or products caused by a downturn in the industry. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our operating results are subject to significant fluctuations, which could adversely affect the market value of your investment.” To the extent we do not generate sufficient cash flow from our operations to meet our cash requirements, we will have to rely on external financing.

 

Net cash provided by operating activities amounted to NT$75,060.6 million (US$2,673.1 million) in 2020, primarily as a result of (i) our operation performance with profit before income tax of NT$35,768.8 million (US$1,273.8 million) and (ii) our non-cash depreciation and amortization in the amount of NT$51,259.1 million (US$1,825.5 million). Net cash provided by operating activities amounted to NT$72,303.3 million in 2019, primarily as a result of (i) our operation performance with profit before income tax of NT$23,279.8 million and (ii) our non-cash depreciation and amortization in the amount of NT$50,466.8 million. The increase in net cash provided by operating activities in 2020 compared to 2019 was primarily due to an increase in non-cash items such as, an increase in loss on remeasurement of financial instruments and an increase in impairment loss recognized on non-financial assets, partially offset by an increase in net gain on foreign currency exchange, and cash inflows from an decrease in contract assets and financial instruments as well as cash inflows from an increase in trade payables, partially offset by cash outflows from an increase in trade receivables and inventories.

 

 Net cash used in investing activities amounted to NT$60,946.3 million (US$2,170.5 million) in 2020, primarily due to our acquisition of subsidiaries of NT$8,745.6 million (US$311.5 million) and our net payment for property, plant and equipment of NT$57,628.3 million (US$2,052.3 million) partially offset by proceeds from disposal of subsidiaries and our investments accounted for using the equity method of NT$5,988.7 million (US$213.3 million). Net cash used in investing activities amounted to NT$54,579.1 million in 2019, primarily due to our acquisition of associates and joint ventures of NT$2,107.8 million and our payment for property, plant and equipment of NT$56,810.2 million.

 

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Net cash used in financing activities amounted to NT$21,995.3 million (US$783.3 million) in 2020. This amount comprises net proceeds from short-term and long-term bank loans, bills payable and bonds payable in the amount of NT$8,285.3 million (US$295.1 million), decrease in non-controlling interests in the amount of NT$6,291.1 million (US$224.0 million) primarily due to the financial cost from the USI Enterprise Limited and USI Shanghai repurchase of their respective outstanding shares, as well as the distribution of cash dividends in the amount of NT$8,521.0 million (US$303.5 million). Net cash used in financing activities amounted to NT$6,498.8 million in 2019. This amount comprises of net proceeds from short-term and long-term bank loans and bills payable in the amount of NT$15,740.6 million. Net cash inflow was partially offset by a decrease in non-controlling interests in the amount of NT$12,117.3 million primarily due to financing cost from our repurchase of non-controlling interests of ASEN and SZ and the cost from the USI Enterprise Limited repurchase of its outstanding shares, as well as the distribution of cash dividends in the amount of NT$10,623.0 million.

 

As of December 31, 2020, our primary source of liquidity was NT$51,538.1 million (US$1,835.4 million) of cash and cash equivalents and NT$4,342.6 million (US$154.7 million) of financial assets – current. Our financial assets – current primarily consisted of quoted ordinary shares, open-end mutual funds and forward exchange contracts. As of December 31, 2020, we had total unused credit lines of NT$275,180.7 million (US$9,799.9 million). As of December 31, 2020, we had working capital of NT$49,420.5 million (US$1,760.0 million).

 

As of December 31, 2020, we had total debts of NT$209,118.0 million (US$7,447.3 million), of which NT$ 34,597.9 million (US$1,232.1 million) were short-term debts, NT$11,994.8 million (US$427.2 million) were current portion of long-term debts and NT$162,525.3 million (US$5,788.0 million) were long-term debts. In 2020, the maximum amount of our current portion of debts was NT$107,152.2 million (US$3,816.0 million) and the average amount of our current portion of debts was NT$70,018.6 million (US$2,493.5 million). The fluctuation was primarily because our working capital balance fluctuated during 2020 from time to time. The annual interest rate for borrowings under our short-term borrowings ranged from 0.58% to 3.83% as of December 31, 2020. Our short-term bank loans are primarily revolving facilities with a term of one year, each of which may be extended on an annual basis with lender consent. Our long-term debts consist of bonds payable, long-term debts (including bank borrowings and bills payable), financial liabilities for hedging – non-current and lease liabilities – non-current. As of December 31, 2020, we had outstanding long-term debts, less current portion, of NT$162,525.3 million (US$5,788.0 million). As of December 31, 2020, the current portion of our long-term debts was NT$11,994.8 million (US$427.2 million). Our long-term borrowings (including bank loans, bills payable and bonds payable) typically carried variable annual interest rates which ranged from 0.56% to 4.90% as of December 31, 2020. For the maturity information and interest rates by currencies, see “Item 11—Quantitative and Qualitative Disclosures about Market Risk—Market Risk—Interest Rate Risk.”

 

We have pledged a portion of our assets, with a carrying value of NT$22,997.0 million (US$819.0 million) as of December 31, 2020, to secure our obligations under our bank borrowings and tariff guarantees of imported raw materials or collateral.

 

Convertible Bonds

 

In October 2014, SPIL offered the fourth unsecured convertible overseas bonds in US$400,000,000. The bonds are zero coupon bonds with a maturity of five years. From May 1, 2018 to June 30, 2018, all outstanding bonds of US$148,000,000 were converted into SPIL ordinary shares. We repurchased these ordinary shares for a consideration of NT$5,217.0 million (NT$51.2 per ordinary share, with undeducted 0.3% securities transaction tax) pursuant to the supplemental indenture.

 

In July 2015, ASE issued US$200 million aggregate principal amount of NTD-linked zero coupon convertible bonds due 2018. The 2018 NTD-linked Convertible Bonds were offered to persons outside of the United States in compliance with Regulation S under the Securities Act. The initial conversion price was NT$54.5465 per common share, subject to certain adjustments, determined on the basis of a fixed exchange rate of NT$30.928 = US$1.00 (which represents an approximately 27.0% conversion premium over the closing trading price of our common shares on June 25, 2015 of NT$42.95 per common share). ASE used the net proceeds to fund procurement of equipment. The bonds expired in March 2018 and no conversion right was exercised. ASE redeemed the 2018 NTD-linked Convertible Bonds in cash. The redemption sum was arrived through converting the par value into New Taiwan dollar amount using a fixed exchange rate of US$1 to NT$30.928 and then back to U.S. dollar amount using the applicable prevailing rate at the time of redemption in March 2018.

 

In December 2017, AMPI issued its fifth secured domestic convertible bonds in NT$250.0 million with a nil coupon rate and a maturity of 3 years. The net proceeds from the bonds were used to repay the previous debts. AMPI already redeemed these bonds in December 2020.

 

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On March 1, 2021, USI Shanghai issued unsecured convertible bonds in RMB3,450.0 million with annual interest rates of 0.1%, 0.2%, 0.6%, 1.3%, 1.8% and 2.0% for the respective year and a maturity of 6 years. The net proceeds from the bonds were used to meet operation and development demand.

 

Unsecured Domestic Bonds

 

In January 2016, ASE issued NT$7,000.0 million 1.30% unsecured corporate bonds with a five-year term and NT$2,000.0 million 1.50% unsecured corporate bonds with a seven-year term. The bonds bear an annual simple interest and payment by coupon rate from the issue date. The net proceeds from the bonds were used to repay the previous debts. ASE redeemed such bond in January 2021.

 

In January 2017, ASE issued NT$3,700.0 million 1.25% unsecured corporate bonds with a five-year term and NT$4,300.0 million 1.45% unsecured corporate bonds with a seven-year term. The bonds bear an annual simple interest and payment by coupon rate from the issue date. The net proceeds from the bonds were used to repay the previous debts.

 

In April 2019, we conducted a bonds offering and issued a NT$6,500.0 million 0.9% unsecured domestic bond with a five-year term and a NT$3,500.0 million 1.03% unsecured domestic bond with a seven-year term. Both bonds bear an annual simple interest and payment by coupon rate from the issue date. The net proceeds from the bonds were used to repay our bank borrowings.In April 2020, we conducted a bonds offering and issued a NT$10,000.0 million (US$356.1 million) 0.9% unsecured corporate bond with a five-year term. The bond bears an annual simple interest and payment by coupon rate from the issue date. The net proceeds from the bonds were used to repay our bank borrowings.

 

In August 2020, we conducted a bonds offering and issued a NT$3,000.0 million (US$106.8 million) 0.72% unsecured corporate bond with a three-year term, a NT$5,000.0 million (US$178.1 million) 0.85% unsecured domestic bond with a five-year term and a NT$2,000.0 million (US$71.2 million) 0.95% unsecured domestic bond with a seven-year term. All bonds bear an annual simple interest and payment by coupon rate from the issue date. The net proceeds from the bonds were used to repay our bank borrowings.

 

Unsecured International Bonds

 

In October 2019, we conducted a second bonds offering and issued unsecured international corporate bonds in the aggregate amount of US$300.0 million with par value of US$1.0 million. The US$300.0 million unsecured international corporate bonds were bifurcated into two tranches, the first tranche was US$200.0 million at a coupon rate of 2.15% per annum with a term of three-year maturity, and the second tranche was US$100.0 million at a coupon rate of 2.50% per annum with a term of five-year maturity. The proceeds from this bonds offering were used to subscribe for a total of 465,360,000 new shares at NT$20 per share issued through a private placement to support ASE’s investment in green projects.

 

Syndicated Bank Loans

 

In July 2013, ASE entered into a US$400.0 million five-year syndicated credit facility, for which the Bank of Taiwan acted as the agent bank, for the purpose of funding the purchase of machinery and equipment at our facility and funding general operations. This syndicated loan agreement contains undertakings and restrictive covenants relating to the maintenance of certain financial ratios including: (i) current ratio (current assets to current liabilities) of not less than 100.0%; (ii) leverage ratio (total liabilities to tangible net worth) of not higher than 160.0%; (iii) interest coverage ratio (EBITDA to interest expense) of not less than 280.0%; and (iv) tangible net worth not less than NT$75,000.0 million. This syndicated loan was fully repaid in June 2018.

 

In April 2018, we entered into a NT$90,000.0 million five-year syndicated credit facility, for which the Bank of Taiwan and Mega International Commercial Bank acted as the agent banks, for the purpose of financing our funding needs for the SPIL Acquisition. This syndicated loan agreement contains undertakings and restrictive covenants relating to the maintenance of certain financial ratios including: (i) current ratio (current assets to current liabilities) of not less than 100.0%; (ii) debt ratio (total liabilities to tangible net worth) of not higher than 180.0% in 2018 and 2019, and not higher than 160.0% after 2020; (iii) interest coverage ratio (EBITDA to interest expense) of not less than 280.0%; and (iv) net worth not less than NT$90,000.0 million. This syndicated loan was fully repaid in May 2020.

 

In October 2019, Universal Global Technology Co., Limited entered into US$420.0 million two-year syndicated credit facility, for which the Standard Chartered Bank (Hong Kong) Limited and Mizuho Bank, Ltd. Offshore Banking Unit Taiwan acted as the agent banks, for the purpose of financing the funding needs. This syndicated loan agreement contains undertakings and restrictive covenants relating to the maintenance of certain financial ratios including: (i) the ratio of total current assets to total current liabilities shall at any time be at least 100.0%; (ii) the ratio of consolidated net debt to consolidated tangible net worth shall not at any time exceed than 75.0%; and (iii) the ratio of EBITDA to Net Interest Expense in respect of any relevant period shall be at least 5.0, unless the net interest expense is less than zero. As of December 31, 2020, NT$12,536.4 million (US$446.5 million) was drawdown and outstanding under this credit facility.

 

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We have in the past failed to comply with certain financial covenants in some of our loan agreements. Such noncompliance may also have, through broadly worded cross-default provisions, resulted in default under some of the agreements governing our other existing debt. As of December 31, 2020, we were not in breach of any of the financial covenants under our existing loan agreements. If we are unable to timely remedy any of our noncompliance under such loan agreements or obtain applicable waivers or amendments, we would breach our financial covenants and our financial condition would be adversely affected. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Restrictive covenants and broad default provisions in our existing debt agreements may materially restrict our operations as well as adversely affect our liquidity, financial condition and results of operations.”

 

As of December 31, 2020, we have no contingent obligations, which normally consist of guarantees provided by us to our subsidiaries.

 

We have made, and expect to continue to make, substantial capital expenditures in connection with the expansion of our production capacity. The table below sets forth our principal capital expenditures incurred for the periods indicated.

 

   Year Ended December 31
   2018  2019  2020
   NT$  NT$  NT$  US$
   (in millions)
Machinery and equipment   32,575.3    14,365.1    8,787.1    312.9 
Building and improvements   6,516.9    48,708.8    50,237.1    1,789.1 
Total   39,092.2    63,073.9    59,024.2    2,102.0 

 

We had commitments for capital expenditures of approximately NT$32,627.4 million (US$1,161.9 million), of which NT$1,968.8 million (US$70.1 million) had been prepaid as of December 31, 2020, primarily in connection with the expansion of our packaging and testing services operations. We estimate that our environmental capital expenditures for 2021 will be approximately US$20.9 million, of which 24.85% will be used in climate change adaptation. We may adjust our capital expenditures based on market conditions, the progress of our expansion plans and cash flow from operations. In addition, due to the rapid changes in technology in the semiconductor industry, we frequently need to invest in new machinery and equipment, which may require us to raise additional capital. We cannot assure you that we will be able to raise additional capital should it become necessary on terms acceptable to us or at all. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—The packaging and testing businesses are capital intensive. If we cannot obtain additional capital when we need it, our growth prospects and future profitability may be adversely affected.”

 

We believe that our existing cash, marketable securities, expected cash flow from operations and existing credit lines under our loan facilities will be sufficient to meet our capital expenditures, working capital, cash obligations under our existing debt and lease arrangements, and other requirements for at least the next 12 months. We currently hold cash primarily in U.S. dollars, RMB, New Taiwan dollars, Korean Won, Japanese yen and EUR. As of December 31, 2020, we had contractual obligations of NT$147,552.4 million (US$5,254.7 million) due in the next three years. We currently expect to meet our payment obligations through the expected cash flow from operations, long-term borrowings and the issuance of additional equity. We will continue to evaluate our capital structure and may decide from time to time to increase or decrease our financial leverage through equity offerings or borrowings. The issuance of additional equity securities may result in additional dilution to our shareholders.

 

From time to time, we evaluate possible investments, acquisitions or divestments and may, if a suitable opportunity arises, make an investment, acquisition or divestment.

 

Our exposure to financial market risks relates primarily to changes in interest rates and foreign currency exchange rates that arising from ordinary business operations. To mitigate these risks, we utilize derivative instruments. All derivative transactions entered into by us were designated as either hedging or trading. We have, from time to time, entered into interest rate swap transactions to hedge our interest rate exposure. In addition, we have, from time to time, entered into forward exchange contracts, swap contracts, cross-currency swap contracts and foreign currency options contracts to hedge our existing assets and liabilities denominated in foreign currencies. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk” and notes 7, 8 and 34 to our consolidated financial statements included in this annual report.

 

RESEARCH AND DEVELOPMENT

 

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For 2019 and 2020, our research and development expenditures totaled approximately NT$18,395.3 million and NT$19,302.4 million (US$687.4 million), respectively. These expenditures represented approximately 4.5% and 4.0 % of operating revenues in 2019 and 2020, respectively. As of December 31, 2020, we had a research and development team of 10,890 employees. We cultivate and maintain a research and development engineering team that continuously surveys and adapts to the latest trends in technology. Our research and development activities are primarily directed toward optimizing relevant technologies in key components, manufacturing processes and product development. Our research and development objective is to enhance the performance of our products and drive greater business growth. To incentivize innovation and encourage our employees to engage in research and development, we offer cash rewards to employees that contribute significantly to our research efforts.

 

Packaging

 

We centralize our research and development efforts in packaging technology in our Kaohsiung and Taichung facilities in Taiwan. After initial phases of development, we conduct pilot runs in one of our facilities before new technologies or processes are implemented commercially at other sites. Facilities with special product expertise, such as ASE Korea, also conduct research and development of these specialized products and technologies at their sites. One of the areas of emphasis for our research and development efforts is improving the efficiency and technology of our packaging processes and these efforts are expected to continue. We are also investing significant research and development efforts into the development and adoption of innovative technology. We work closely with manufacturers of our packaging equipment and materials in designing and developing the equipment and materials used in our production process. We also collaborate with our significant customers to jointly develop new product and process technologies.

 

In addition to investing in the development of more advanced packaging technology and improving production efficiency, a significant portion of our research and development efforts is focused on the development of IC substrate production technology for BGA packaging. Substrate is the principal raw material for BGA packages. Development and production of IC substrates involve complex technology. We are currently working closely with certain first-tier substrate suppliers in Asia, primarily including those located in Japan, Taiwan and Korea. We believe that our successful cooperation with substrate suppliers to enhance the overall substrate production capability and to meet future package requirements has enabled us to capture an increasingly important value-added component of the packaging process, helped ensure a stable and cost-effective supply of substrates for our BGA packaging operations and shortened time to market.

 

Testing

 

Our research and development efforts in testing have focused primarily on developing advanced testing solutions for mmWave, SiP, silicon photonics and optical sensor modules; characterization of semiconductors, layout design and electrical simulation for high-frequency test board and developing software of parametric test data analysis. Besides working closely with our customers on the leading-edge test technologies, our research and development operations also include an equipment development group, which currently designs testing hardware and software for specific semiconductors to offer our customers cost-effective test solutions.

 

EMS

 

To further enhance the quality of our services and products, we focus on developing diversified and innovative products to improve our competitiveness. By leveraging our proprietary research and development expertise, we are able to optimize our product design, engineering and manufacturing capabilities to provide our customers with high-performance and cost-effective products and services. During the process of designing, as well as developing the technology for, our software and hardware, our research and development team also dedicates itself to discovering new know-how, and then applying such know-how to create new, advanced and improved products, processes, methodology and services. We are currently investing in the development of products used in EMS in relation to computing and peripherals, communications, consumer products, automotive, industrial, storage and server applications.

 

TREND INFORMATION

 

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2020 to December 31, 2020 that are reasonably likely to have a material effect on our operating revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

 

The following table sets forth the maturity of our contractual obligations as of December 31, 2020.

 

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      Payments Due by Period
   Total  Under
1 Year
  1 to 3 Years  3 to 5 Years  After
5 Years
   (in millions)
Contractual Obligations:               
Long-term debt(1)   174,002.0    7,385.8    116,684.4    36,301.2    13,630.7 
Lease liabilities(2)   6,742.9    875.6    1,010.9    768.1    4,088.3 
Purchase obligations(3)   21,595.7    21,595.7    -    -    - 
Total(4)(5)(6)   202,340.6    29,857.1    117,695.3    37,069.3    17,719.0 

_______________

(1)Includes long-term borrowings, bills payable and bonds payable (before the deduction of unamortized arrangement fees, unamortized issuance cost and discounts on bonds payable) and interest payments.

 

(2)Represents our commitments under leases liabilities and imputed interest which are mainly from land and buildings and improvements. See note 16 to our consolidated financial statements included in this annual report.

 

(3)Represents material commitments to purchase machinery and equipment of approximately NT$22,225.9 million (US$791.5 million), of which NT$630.2 million (US$22.4 million) had been paid as of December 31, 2020.

 

(4)Excludes material commitments for construction of approximately NT$10,401.5 million (US$370.4 million), of which NT$1,338.6 million (US$47.7 million) had been paid as of December 31, 2020 and the unpaid amounts that we were contracted for the construction related to our real estate business of approximately NT$602.5 million (US$21.5 million) as of December 31, 2020, since the schedule of payments is difficult to determine.

 

(5)Excludes our unfunded defined benefit obligation since the schedule of payments is difficult to determine. Under defined benefit pension plans, we made pension contributions of approximately NT$620.4 million (US$22.1 million) in 2020, and we estimate that we will contribute approximately NT$513.8 million (US$18.3 million) in 2021. See note 23 to our consolidated financial statements included in this annual report.

 

(6)Excludes uncertain tax liabilities. We recognized additional taxes payable of NT$88.6 million (US$3.2 million) and accrued interest and penalties of NT$17.0 million (US$0.6 million) related to uncertain tax positions as of or for the year ended December 31, 2020. Because we were unable to make a reasonable estimate of the timing of the tax audits, such balances were not included in the table.

 

SAFE HARBOR

 

Please see the section entitled “Special Note Regarding Forward-Looking Statements.”

 

Item 6. Directors, Senior Management and Employees

 

DIRECTORS AND SENIOR MANAGEMENT

 

Directors

 

Our board of directors is elected by our shareholders in a shareholders’ meeting at which a quorum, consisting of a majority of all issued and outstanding common shares, not including treasury stocks and common shares held by our subsidiaries, is present. The chairman is elected by the board from among the directors. Our 13-member board of directors, including three independent directors, is responsible for the management of our business.

 

We currently have 13 directors, serving a three-year term. The current board of directors was elected in an extraordinary general shareholders’ meeting on June 21, 2018 and began serving on June 22, 2018. Directors may serve any number of consecutive terms and may be removed from office at any time by a resolution adopted at a meeting of shareholders. Normally, all board members are elected at the same meeting of shareholders, except where the posts of one-third or more of the directors are vacant, at which time an extraordinary general shareholders’ meeting shall be convened to elect directors to fill the vacancies. We and our subsidiaries do not have service contracts with our directors that provide for benefits upon termination of employment.

 

Audit Committee

 

Pursuant to the Article 14-4 of the R.O.C. Securities and Exchange Act, our audit committee was established on June 22, 2018 in lieu of supervisors to exercise the powers and duties of supervisors stipulated in the R.O.C. Company Law and other applicable laws and regulations. Our audit committee meets at least once every quarter but may meet at any time deemed necessary. Our board of directors has adopted an audit committee charter for audit committee. Our audit committee’s responsibilities and powers include, but are not limited to, assistance with the board of directors in fulfilling its quality and integrity in supervising the implementation of relevant accounting, internal auditing, financial reporting procedures, and financial controls. In addition, in order to enhance corporate governance, the audit committee also takes responsibility for overseeing the policy and procedures for complaints and concerns regarding accounting, internal accounting controls, auditing matters, violations of Code of Business Conduct and Ethics or unethical conduct. Our audit committee currently consists of our independent directors, Shen-Fu Yu, Ta-Lin Hsu and Mei-Yueh Ho, who are independent under Rule 10A-3 and the R.O.C. Securities and Exchange Act and are financially literate with accounting or related financial management expertise and our audit committee is entrusted with the same duties and responsibilities as set out in Rule 10A-3(b) under the Exchange Act.

 

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Compensation Committee

 

Our compensation committee currently consists of Shen-Fu Yu and Ta-Lin Hsu, our independent directors, and Hsiao-Ying Ku. Our board of directors established a compensation committee to satisfy the requirements under the R.O.C. Securities and Exchange Act. According to the Taiwan Stock Exchange Corporation Operation Directions for Compliance with the Establishment of Board of Directors by TWSE Listed Companies and the Board’s Exercise of Powers, a majority of compensation committee’s members shall be independent directors. In addition, according to the R.O.C Securities and Exchange Act and the Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock Is Listed on the TWSE or the Taipei Exchange, compensation committee members shall have at least one independent director. We do not assess the independence of our compensation committee member(s) under the independence requirements of the NYSE listing standards but adopt the independence standard as promulgated under the R.O.C. Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock Is Listed on the TWSE or the Taipei Exchange. See “Item 16G. Corporate Governance” for more information. Our compensation committee meets at least twice a year. Our board of directors has adopted a compensation committee charter for our compensation committee. The compensation committee has responsibility for, among other things, setting forth and reviewing policies, systems, standards and structures regarding performance evaluation and compensation of the directors, managerial personnel, and evaluating compensation of the directors and managerial personnel.

 

Risk Management Committee

 

Our risk management committee currently consists of Shen-Fu Yu, our independent director and the chair of our audit committee and compensation committee, Mei-Yueh Ho, our independent director and member of our audit committee, and Du-Tsuen Uang, our chief administration officer and chief corporate governance officer. In December 2019, our board of directors established a risk management committee and approved its charter to enable us to discover and preempt internal and external operational risks. The risk management committee is responsible for overseeing overall risk management, implementing the decisions of the board of directors in connection to risk management, coordinating and promoting interdepartmental risk management plans, supervising and managing overall risk control and remedial mechanisms, and auditing and integrating each risk control report. The risk management committee files an annual report to our board of directors to inform the board about the status of risk management implementation and share insights for optimization.

 

The following table sets forth information regarding all of our directors as of January 31, 2021. In accordance with R.O.C. law, each of our directors is elected either in his or her capacity as an individual or as an individual representative of a corporation or government. Persons designated to represent corporate or government shareholders as directors are nominated by such shareholders at the shareholders’ meeting and may be replaced as representatives by such shareholders at will. Of the current directors, nine represent ASE Enterprises Limited. The remaining directors serve in their capacity as individuals.

 

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Name 

Position 

Director
Since 

Age 

Other Significant Positions Held Outside of ASEH 

Jason C.S. Chang(1)(2) Director, Chairman and Chief Executive Officer 2018 76 None
Richard H.P. Chang(1)(2) Director, Vice Chairman and President 2018 74 Chairman, Sino Horizon Holdings Ltd.
Bough Lin(2) Director, SPIL 2018 69 None
Chi-Wen Tsai(2) Director; Chairman and President, SPIL 2018 73 None
Tien Wu(2) Director and Chief Operating Officer 2018 63 None
Joseph Tung(2) Director and Chief Financial Officer 2018 62 None
Raymond Lo(2) Director; General Manager, Kaohsiung packaging facility 2018 66 None
Tien-Szu Chen(2) Director; General Manager, ASE Inc. Chung-Li branch 2018 59 None
Jeffrey Chen(2) Director; Chairman, Universal Scientific Industrial (Shanghai) Co., Ltd. 2018 56 Independent Director and a member of the compensation committee, Mercuries & Associates Holding Ltd.
Rutherford Chang(3) Director; General Manager, China Region of ASE Inc. 2018 41 None
Shen-Fu Yu Independent Director and Member, Audit Committee, Compensation Committee and Risk Management Committee 2018 76 Independent Director, TaiGen Biopharmaceuticals Holdings Ltd.; supervisor, San Fu Chemical Co., Ltd.
Ta-Lin Hsu Independent Director and Member, Audit Committee and Compensation Committee 2018 77 Chairman and founder, H&Q Asia Pacific; Chairman, H&Q Taiwan Co. Ltd.
Mei-Yueh Ho Independent Director and Member, Audit Committee and Risk Management Committee 2018 70 Independent Director, KINPO Electronics Inc., AU Optronics Corp., Center Laboratories, Inc. and Onward Therapeutics SA

_______________

(1)Jason C.S. Chang and Richard H.P. Chang are brothers.

 

(2)Representative of ASE Enterprises Limited, a company organized under the laws of Hong Kong, which held 15.66% of our total outstanding shares as of January 31, 2021. All of the outstanding shares of ASE Enterprises Limited are held through intermediary holding companies and under a revocable trust established under the laws of the Bailiwick of Guernsey for the benefit of our Chairman and chief executive officer, Jason C.S. Chang, and his family.

 

(3)Rutherford Chang is the son of Jason C.S. Chang.

 

Audit Committee

 

For a discussion of our audit committee, see “—Directors and Senior Management—Directors.”

 

Executive Officers

 

The following table sets forth information regarding all of our executive officers as of January 31, 2021.

 

Name 

Position 

Years with the Company 

Age 

Jason C.S. Chang Chairman and Chief Executive Officer 36 76
Richard H.P. Chang Vice Chairman and President 36 74
Chi-Wen Tsai Chairman and President, SPIL 2 73
Tien Wu Chief Operating Officer 20 63
Joseph Tung Chief Financial Officer 26 62
Raymond Lo General Manager, ASE Test Taiwan and Kaohsiung packaging facility 34 66
Tien-Szu Chen General Manager, ASE Inc. Chung-Li branch 32 59
Rutherford Chang General Manager, China Region of ASE Inc. 15 41
Du-Tsuen Uang Chief Administration Officer 18 61
Chun-Che Lee General Manager, ASE Electronics 36 61
Chung Lin General Manager, ASE Shanghai 16 57
Gichol Lee General Manager, ASE Korea 23 58
Chih-Hsiao Chung General Manager, ASE Japan and Wuxi Tongzhi 21 56
Chiu-Ming Cheng General Manager, ASESH AT 30 60
Yen-Chieh Tsao General Manager, ASEWH 9 63
Shih-Kang Hsu General Manager, ASE China assembly & test operations 20 55
Kwai Mun Lee President, ASE South-East Asia operations 22 58
Yean Peng Chen General Manager, ASE Singapore Pte. Ltd. 22 49
Heng Ee Ooi General Manager, ASE Malaysia 26 52
Kenneth Hsiang Chief Executive Officer, ISE Labs and ISE Shanghai 21 50
Randy Hsiao-Yu Lo General Manager, Siliconware USA, Inc. 2 64
M.S. Chang General Manager, SZ 2 60
Jeffrey Chen Chairman, Universal Scientific Industrial (Shanghai) Co., Ltd. 26 56
Chen-Yen Wei Chairman, Universal Scientific Industrial Co., Ltd. and President, Universal Scientific Industrial (Shanghai) Co., Ltd. 41 66
Jing Cao General Manager, UGJQ 5 61
Jack Hou General Manager, UGTW 26 64
Ta-I Lin General Manager, UGKS 33 57
Yueh-Ming Lin General Manager, USISZ 25 55
Bernardo Santos Balderrama General Manager, USI Mexico 1 52
Gilles Benhamou Chief Executive Officer, ASTEELFLASH TECHNOLOGIE and Chairman, ASTEELFLASH SUZHOU CO., LTD. 21 67
Ying Pin Wu General Manager, ASTEELFLASH SUZHOU CO., LTD. 12 54

 

Biographies of Directors and Executive Officers

 

Jason C.S. Chang has served as chairman and chief executive officer of ASEH since its founding in April 2018. He is also chairman of ASE Inc. Mr. Chang holds a bachelor’s degree in Electrical Engineering from National Taiwan University in Taiwan and a master’s degree from Illinois Institute of Technology. He is the brother of Richard H.P. Chang, our vice chairman and president.

 

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Richard H.P. Chang has served as vice chairman and president of ASEH since its founding in April 2018. Mr. Chang holds a bachelor’s degree in Industrial Engineering from Chung Yuan Christian University in Taiwan. He is the brother of Jason C.S. Chang, our chairman and chief executive officer.

 

Bough Lin has served as a director of ASEH since its founding in April 2018. Mr. Lin has been SPIL’s director since August 1984. Mr. Lin was chairman and executive vice president of SPIL from December 2000 and resigned in November and December 2020, respectively. Mr. Lin holds a bachelor’s degree in Electronic Physics from National Chiao Tung University in Taiwan and was awarded an honorary Ph.D. from National Chiao Tung University in 2014.

 

Chi-Wen Tsai has served as a director of ASEH since its founding in April 2018. Mr. Tsai has been SPIL’s director since August 1984. Mr. Tsai is currently chairman and president of SPIL. Mr. Tsai holds a bachelor’s degree in Electrical Engineering from National Taipei Institute of Technology in Taiwan.

 

Tien Wu has served as a director and chief operating officer of ASEH since its founding in April 2018. Mr. Wu is currently the chief executive officer of ASE Inc. Prior to joining ASE Inc. in March 2000, Mr. Wu had worked at IBM. Mr. Wu holds a bachelor’s degree in Civil Engineering from National Taiwan University in Taiwan, and a master’s and a doctorate degree in Mechanical Engineering and Applied Mechanics from the University of Pennsylvania.

 

Joseph Tung has served as a director and chief financial officer of ASEH since its founding in April 2018. He was a director of ASE Inc. from April 1997to December 2020 and chief financial officer of ASE Inc. from December 1994 to July 2020. He was an independent director of Ta Chong Bank Ltd. from October 2007 to December 2017. Before joining ASE Inc., Mr. Tung was a vice president at Citibank, N.A. Mr. Tung holds a bachelor’s degree in Economics from National Chengchi University in Taiwan and a master’s degree in Business Administration from the University of Southern California.

 

Raymond Lo has served as a director of ASEH since its founding in April 2018 and general manager of our packaging facility in Kaohsiung, Taiwan since April 2006. Mr. Lo also served as a supervisor of ASE Inc. between July 2000 and May 2006 and director of ASE Inc. since May 2006. Before joining ASE Inc., Mr. Lo was a director of quality assurance at Zeny Electronics Co. Mr. Lo holds a bachelor’s degree in Electronic Physics from National Chiao Tung University in Taiwan.

 

Tien-Szu Chen has served as a director of ASEH since its founding in April 2018. Mr. Chen has served as a director of ASE Inc. since June 2015 and general manager of ASE Inc. Chung-Li branch since August 2015. He has also served as a supervisor of ASE Inc. from June 2006 to June 2015 and president of PowerASE Technology Inc. from June 2006 to May 2012. Prior to joining ASE Inc. in June 1988, Mr. Chen worked at TSMC and Philips Semiconductor Kaohsiung. Mr. Chen holds a bachelor’s degree in Industrial Engineering from Chung Yuan Christian University in Taiwan.

 

Jeffrey Chen has served as a director of ASEH since its founding in April 2018 and he has also served as a director of ASE Inc. since June 2003. Mr. Chen has served as chairman of Universal Scientific Industrial (Shanghai) Co., Ltd. since June 2018. Prior to joining ASE Inc., he worked in the corporate banking department of Citibank, N.A. in Taipei and as a vice president of corporate finance at Bankers Trust in Taipei. Mr. Chen holds a bachelor’s degree in Finance and Economics from Simon Fraser University in Vancouver Canada and a master’s degree in Business Administration from the University of British Columbia in Canada.

 

Rutherford Chang has served as a director of ASEH since its founding in April 2018. He has also served as a director of ASE Inc. since June 2009 and general manager of China Region of ASE Inc. since June 2010. Mr. Chang holds a bachelor’s degree in Psychology from Wesleyan University in Connecticut. He is the son of Jason C.S. Chang, our chairman and chief executive officer.

 

Shen-Fu Yu has served as an independent director of ASEH since June 2018. Mr. Yu is also a member of the audit committee, compensation committee and risk management committee of ASEH. He is an independent director of TaiGen Biopharmaceuticals Holdings Ltd. and a supervisor of San Fu Chemical Co., Ltd. He worked at the Deloitte & Touche accounting firm as a consultant from June 2003 to November 2006. Mr. Yu holds a bachelor’s degree in Accounting from National Taiwan University in Taiwan and a master’s degree in Accounting from National Chengchi University in Taiwan.

 

Ta-Lin Hsu has served as an independent director of ASEH since June 2018. He is also a member of the audit committee and compensation committee of ASEH. He is currently the chairman and founder of H&Q Asia Pacific and chairman of H&Q Taiwan Co. Ltd. Mr. Hsu holds a bachelor’s degree in Physics from National Taiwan University, a master’s degree in Electrophysics from Polytechnic Institute of Brooklyn and a doctorate degree in Electrical Engineering from the University of California, Berkeley.

 

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Mei-Yueh Ho has served as an independent director of ASEH since June 2018. She is also a member of the audit committee and risk management committee of ASEH. Ms. Ho is an independent director and a member of the audit committee of Center Laboratories, Inc., Onward Therapeutics SA, KINPO Electronics Inc. and AU Optronics Corp. She is also a member of the compensation committee of Center Laboratories, Inc. and KINPO Electronics Inc. Ms. Ho served as Minister of Ministry of Economic Affairs, R.O.C. from May 2004 to January 2006. She was also Chairperson of the Council for Economic Planning and Development, R.O.C. from May 2007 to May 2008. Ms. Ho holds a bachelor’s degree in Agricultural Chemistry from National Taiwan University in Taiwan.

 

Du-Tsuen Uang has served as chief administration officer and chief corporate governance officer of ASEH since its founding in April 2018 and March 2019, respectively. Mr. Uang is also chief administration officer of ASE Inc. since August 2017, and director of ASE Cultural& Educational Foundation, ASE Inc., USI Shanghai, Hung Ching and Sino Horizon Holdings Ltd., as well as a Honorary Professor at Ming Chuan University in the law department. Mr. Uang was a senior chief secretary of the Taiwan Ministry of Economic Affairs Central Bureau of Standards, commissioner of Taiwan FTC, independent director of First commercial Bank, and legal counsel at Hung Ching. Mr. Uang received a Ph.D. in Law from National Cheng-Chi University in Taiwan.

 

Chun-Che Lee has served as general manager of ASE Electronics since August 2011, prior to which he was vice president, director and manager of research and development of ASE Inc. since 1984. Mr. Lee holds a bachelor’s degree in Aeronautics from Tamkung University in Taiwan.

 

Chung Lin has served as general manager of ASE Shanghai since May 2018 and vice president of ASESH AT since May 2012, after serving as vice president of ASEWH since 2010 and ASE Shanghai since May 2005. Mr. Lin holds a master’s degree in Computer Science from Columbia University.

 

Gichol Lee has served as general manager of ASE Korea since November 2019. Mr. Lee was previously the VP of Business Systems with Motorola and then ASE Korea. Prior to his current position, he has held various managerial positions with DuPont and Unilever. He holds a master’s degree from Columbia University.

 

Chih-Hsiao Chung has served as general manager of ASE Japan since March 2011 and general manager of Wuxi Tongzhi since June 2013. Mr. Chung has also managed the sales and marketing of the ASE Japan region since April 2007. Before joining ASE Inc., Mr. Chung was a senior manager of sales and marketing at Kimberly Clark Co., Taiwan. He holds a master’s degree in Business Administration from the University of Wisconsin-Madison.

 

Chiu-Ming Cheng has served as general manager of ASESH AT since September 2012, after serving as vice president of ASE’s Kaohsiung packaging facility since October 2004. He joined ASE Inc. in April 1990. Mr. Cheng holds a master’s degree in Public Policy from National Sun Yat-Sen University in Taiwan.

 

Yen-Chieh Tsao has served as general manager of ASEWH since October 2013 after serving as vice president of ASE Inc. Chung-Li branch since October 2011. Prior to joining ASE Inc., Mr. Tsao was a vice president of Motorola Electronics Taiwan Ltd. He holds a bachelor’s degree in Physics from Chinese Culture University in Taiwan.

 

Shih-Kang Hsu has served as general manager of ASE China assembly & test operations since January 2021, chief executive officer of ASEN since August 2010 and general manager of ASEKS since October 2018, after serving as senior vice president of ASE (U.S.) Inc. since June 2006. He joined ASE Inc. in June 2000. Mr. Hsu holds a master’s degree in Mechanical Engineering from Case Western Reserve University.

 

Kwai Mun Lee has served as president of our Southeast Asia operations, with responsibility for the operations of our Penang, Malaysia and Singapore manufacturing facilities, since March 2006. Before joining ASE Inc., Mr. Lee held senior management positions at Chartered Semiconductor and STATS ChipPAC. He started his career as an engineer at Intel. He holds a degree in Engineering from Swinburne Institute of Technology in Australia.

 

Yean Peng Chen has served as general manager of ASE Singapore Pte. Ltd. since January 2019. He has also worked in ISE Labs before being appointed as vice president of operations in ASE Singapore in July 2015. He started his career as an equipment engineer at STATS ChipPAC Ltd. Mr. Chen holds a diploma in Electronic and Computer Engineering from Ngee Ann Polytechnic in Singapore.

 

Heng Ee Ooi has served as general manager of ASE Malaysia since July 2016 after serving as vice president of operations since July 2015. He joined ASE Inc. in July 1994. Before joining ASE Inc., he worked as a process engineer at AMD, Penang. Mr. Ooi holds a bachelor’s degree in Chemical Engineering from Universiti Teknologi Malaysia.

 

Kenneth Hsiang has served as chief executive officer of ISE Labs and ISE Shanghai since 2019 and served as general manager of ISE Labs from June 2004 to 2019. Prior to joining ASE Inc. in November 1999, Mr. Hsiang worked in various management positions within finance and strategic analysis in the healthcare and biotech industries in the San Francisco Bay area in California. He also worked for Price Waterhouse LLP as a certified public accountant. Mr. Hsiang received a bachelor’s degree in Economics and Rhetoric from the University of California, Berkeley.

 

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Randy Hsiao-Yu Lo has served as general manager of Siliconware U.S.A., Inc. since January 2001. He has served as SPIL’s director since June 2011. He previously served as vice president of SPIL’s Advanced Package R&D division. He received a Ph.D. in Chemical Engineering from Purdue University.

 

M.S. Chang has served as general manager of Siliconware Technology (Suzhou) Limited since October 2015. He holds a master’s degree in Industrial Engineering and Systems Management from Feng Chia University in Taiwan.

 

Chen-Yen Wei has served as chairman of Universal Scientific Industrial Co., Ltd. since July 2014 and president of Universal Scientific Industrial (Shanghai) Co., Ltd. since April 2008. He joined Universal Scientific Industrial as an engineer in August 1979. He holds a bachelor’s degree in Communication Engineering from National Chiao Tung University in Taiwan.

 

Jing Cao has served as senior vice president of Operations and Smart Manufacturing of Universal Scientific Industrial (Shanghai) Co., Ltd. since April 2015, general manager of Zhangjiang facility of Universal Scientific Industrial (Shanghai) Co., Ltd. since April 2015, and senior vice president of SiM BU and general manager of USIJQ since March 2020. Prior to joining USI, he worked as senior vice president of Operations of UTAC Group and executive positions at other public semiconductor companies in the United States. He holds a master’s degree in Mechanical Engineering and a master’s degree in Industrial Engineering from Arizona State University in the United States.

 

Jack Hou has served as general manager of UGTW since January 2010 and senior vice president of the Automotive Electronics BU and Module Turnkey Management of USI since January 2019. He joined USI as a section manager in February 1994. He holds a master’s degree in Biomedical Engineering from Ohio State University and a master’s degree in Computer Science from the University of Dayton in Ohio.

 

Ta-I Lin has served as general manager of UGKS since August 2011. He joined USI as an engineer in August 1987. He holds a bachelor’s degree in Electrical Engineering from National Cheng Kung University in Taiwan and an executive master’s degree in Business Administration from Peking University in China.

 

Yueh-Ming Lin has served as general manager of USISZ since January 2015 and vice president of the Global Operation Management (Shenzhen) Division of USISZ since February 2017. He joined USI as a section manager in October 1995. He holds a bachelor’s degree in Electrical Engineering from Feng Chia University in Taiwan.

 

Bernardo Santos Balderrama started serving as USI Mexico assistant vice president since September 2019 and general manager since May 2020. He worked in various OEM companies including Visteon Electronics in Chihuahua Chih. Mexico, Delphi Mechatronics Systems in Matamoros, Tamaulipas Mexico, and he became the operations director of Jabil Guadalajara which is Jabil´s largest site in the Americas where he stayed until he joined USI Mexico. He holds a bachelor’s degree in Mechanical Design Engineering, a second Degree in Electronics Engineering and, a master´s degree in Business Administration from Universidad Autónoma de Nuevo León. He is also certified as a Six Sigma Black Belt by the ASQ.

 

Gilles Benhamou has served as chief executive officer of ASTEELFLASH TECHNOLOGIE since July 2005 and Chairman of ASTEELFLASH SUZHOU CO., LTD. since April 2008. He founded ASTEEL in 1999 which was the predecessor of ASTEELFLASH. He has been responsible for sales, marketing, and procurement for FAFG Group. He holds a master’s degree in Engineering from Ecole Polytechnique in France.

 

Ying Pin Wu has served as general manager of ASTEELFLASH SUZHOU CO., LTD. since January 2009. He joined ASTEELFLASH Group in 2008 via the Flash Electronics, Inc. acquisition by ASTEEL. He previously served in a variety of finance positions within Flash Electronics, Inc. and now is responsible for sales, marketing, and procurement in FAFG APAC region. He holds a master’s degree in Business Administration from California State University.

 

The business address of our directors and executive officers is our registered office.

 

COMPENSATION

 

In 2020, we recorded expenses of approximately NT$1,420.8 million (US$50.6 million) as remuneration to our directors and executive officers. In 2020, we accrued pension costs of NT$11.2 million (US$0.4 million) for retirement benefits for our management. According to our Articles of Incorporation, the remuneration of our independent directors is set at NT$3.0 million (US$0.1 million) per person per year. We set aside 0.01% to 1.00% of net profit before income tax, employees’ compensation and remuneration to the directors as employees’ compensation and no more than 0.75% as remuneration to the directors. The difference between the actual amount of remuneration to directors paid and the amount recognized in the consolidated financial statements for the year ended December 31, 2020 was not material. We have not provided any loans to, or guarantees for, the benefit of any of our directors or executive officers. For information regarding our pension and other retirement plans and those of our subsidiaries, see note 23 to our consolidated financial statements included in this annual report.

 

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ASEH Employee Compensation and Stock Option Plans

 

We award bonuses to employees of ASEH and its subsidiaries who are located in Taiwan based on overall income and individual performance targets. Employees are eligible to receive bonuses in the form of our common shares valued at the closing price (after adjustment with consideration of the effects on the share price, if any, brought by cash and stock dividends resolved at shareholders’ meetings) of our common shares on the day prior to our meeting of the board of directors. Actual amounts of compensation to individual employees are determined based upon the employee meeting specified individual performance objectives. We granted aggregate values of NT$34.4 million and NT$54.9 million (US$2.0 million) as cash bonus to our employees for the years ended December 31, 2019 and 2020, respectively. On March 26, 2021, our board of directors approved the employees’ compensation in the amount of NT$54.9 million (US$2.0 million) in cash. The difference between the actual amount of employees’ compensation and the amount recognized in the consolidated financial statements for the year ended December 31, 2020 was not material.

 

ASE maintained 2010 and 2015 employee stock option plans before the SPIL Acquisition. ASEH assumed ASE’s obligations of share options, which were granted before entering into and executing the Joint Share Exchange Agreement on April 30, 2018. In August 2018, our board of directors and FSC both approved the first ASEH employee share option plan, under which 131,863 thousand options were granted in November 2018. The total number of options registered under this option plan is 150,000 thousand options. As a result, ASEH currently maintains three employee stock option plans, adopted in 2010, 2015 and 2018. Pursuant to these plans, our full-time employees, including domestic and foreign subsidiaries, are eligible to receive stock option grants. Each option entitles the holder to purchase one ASEH common share at a price not less than the closing market price on the date of the option issuance, such exercise price being subject to retroactive adjustment in the event of certain capital transactions in subsequent periods. Each option is valid for 10 years from the date of the grant. Forty percent of the options originally granted vest upon the second anniversary of the grant date, and an additional 10.0% of the options originally granted vest every six months thereafter. Each option expires at the end of the 10th year following its grant date. The options are generally not transferable. As of December 31, 2020, a total of 1,093 thousand options were outstanding under the 2010 plan with an exercise price of NT$45.2 per share. As of December 31, 2020, a total of 29,235 thousand options were outstanding with an exercise price of NT$73.0 per share under the 2015 plan. As of December 31, 2020, a total of 114,439 thousand options were outstanding with an exercise price of NT$52.9 per share under the 2018 plan.

 

USI Enterprise Limited Share Option Plans

 

USI Enterprise Limited maintained three option plans adopted in 2007, 2010 and 2011, under which certain employees of Universal Scientific Industrial and our employees were granted options to purchase common shares of USI Enterprise Limited. Each option under these three plans is valid for 10 to 13 years from the date of the grant. All options granted under this plan have been forfeited or exercised during 2020.

 

USI Shanghai Option Plans and Restricted Share Plans

 

As of December 31, 2020, USI Shanghai maintained five option plans: three share option plans in 2015, 2019 and 2020 as well as two restricted share plans in 2019 and 2020.

 

Under the share option plan in 2015, certain employees of USI Shanghai are granted options to purchase ordinary shares of USI Shanghai at an exercise price of RMB15.5 per share. Each option is valid for 10 years from the date of the grant.

 

In November 2019, USI Shanghai adopted the first share option plan and granted 17,167 thousand share options to its employees. Each unit represents the right to purchase one ordinary share of USI Shanghai when exercised. The options are valid for 3.0 years, 4.0 years and 5.0 years, respectively, and are exercisable at certain percentages within 12 months subsequent to the second, the third and the fourth anniversary of the grant date under the satisfaction of certain performance conditions within each respective vesting period.

 

In November 2019, USI Shanghai adopted the first restricted share plan and granted 6,156 thousand ordinary shares to its directors (excluding independent directors), supervisors and employees. In April 2020, the board of directors further resolved to grant 6,403 thousand ordinary shares instead, while other terms remain constant. The plan was of 3 phases starting from 2019 and each phase lasts for 1 year with a valid period of 4.5 years, 3.5 years and 2.5 years, respectively. Upon satisfaction of certain performance conditions in each phase, participants are entitled to subscribe a certain percentage of the total USI Shanghai’s ordinary shares issued under the plan with a lock-up period of 1 year. The valid

 

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period may be early terminated or extended prior to one month of the expiration date depending on the conditions of ordinary shares granted. In the event that USI Shanghai increases share capital by capital surplus or by cash, or distributes share dividends or cash dividends, the exercise price is accordingly adjusted.

 

In September 2020, USI Shanghai adopted the second share option plan and granted 1,140 thousand share options to its employees. The conditions of these issued share options are the same as share options plan that issued in 2019, except that the options are valid for 2.2 years, 3.2 years and 4.2 years, respectively and with each respective vesting period of 1.2 years, 2.2 years and 3.2 years.

 

In September 2020, USI Shanghai adopted the second restricted share plan and granted 425 thousand ordinary shares to its employees. The conditions of these issued restricted shares are the same as the restricted shares plan that issued in 2019, except that the restricted shares are valid for 2 years and the ordinary shares that USI Shanghai would issue to participants are with a lock-up period of 1.3 year.

 

As of December 31, 2020, USI Shanghai had 36,813 thousand options outstanding which consists of (i) 31,266 thousand options were outstanding under share option plan, 13,416 thousand options of which had an exercise price of RMB15.5 per share under the share option plan in 2015, 16,710 thousand options of which has an exercise price of RMB13.3 per share under the share option plan in 2019 and 1,140 thousand options of which has an exercise price of RMB21.7 per share under the share option plan in 2020 and (ii) 5,547 thousand options were outstanding under restricted share plan, 5,122 thousand options of which has an exercise price of RMB13.2 per share under the share option plan in 2019 and 425 thousand options of which has an exercise price of nil per share under the restricted share plan in 2020.

 

BOARD PRACTICES

 

General

 

For a discussion of the term of office of the board of directors, see “—Directors and Senior Management.” No benefits are payable to members of the board or the executive officers upon termination of their relationship with us.

 

Compensation Committee

 

For a discussion of our compensation committee, see “—Directors and Senior Management—Directors.”

 

EMPLOYEES

 

The following table sets forth certain information concerning our employees as of the dates indicated.

 

   As of December 31
   2018  2019  2020
Total   93,891    96,528    101,981 
Function               
Direct labor   50,877    51,389    55,878 
Indirect labor (manufacturing)   25,002    26,335    26,673 
Indirect labor (administration)   7,729    8,036    8,540 
Research and development   10,283    10,768    10,890 
Location               
Taiwan   55,679    57,543    58,421 
P.R.C.   28,123    28,920    30,025 
Korea   2,429    2,472    2,765 
Malaysia   3,867    3,493    3,403 
Mexico   2,140    2,419    2,716 
Singapore   887    781    795 
Japan   340    362    410 
United States   426    426    594 
Poland   -    112    141 
Tunisia   -    -    1,051 
Germany   -    -    575 
France   -    -